I had a client ask this week
How do I reduce my promotion costs?
I can understand the question. It is important to stay within your resources. I can see where it comes from. In traditional accounting principles everything has a budget line and the plan is to stay within the lines.
This is a limiting concept and it creates average companies that bring in average profits.
This tight budget approach is based on borrowed money and moving into quick profit, it comes from the money lending mentality of the last century. Banks like to see budget lines in a project that lead to the repayment of the loan.
Thankfully this thinking has changed, and many well-funded corporate projects have what they call a burn rate.
The burn rate offers a more flexible approach. The technique frees you from the tyranny of the question because to build a business the question needs to be reversed.
The question is not:
“How do reduce my promotion costs?”
How much money do I need to spend to get a customer and move into profit?
If you knew that spending £1.00 would return £5.00
would that be a good investment.
When the numbers look like this it is not about saving money but spending more. Getting to this point is dependent on many factors. Know your numbers, like the transaction size and frequency and lifetime value of a customer. Primarily it is a technique that requires you to track and work with information that allows you to determine its value.
Looking at an example …. lets
– place an advert in a magazine, cost £300.
– The result is 5 telephone calls and 2 orders the total value of sales was £300.00
– if we’re buying those phone calls they cost £60 each and it was £150 for each customer.
– We lost money on the cost of the goods,
– broke even on the cash spent
– gained the contact details for 3 prospects and 2 customers.
That was looking at the immediate result. From that perspective, we can see that the sales did not cover the costs. However, you have the contact details and continue to market to these 5 connections over the next year. With the result of 2 new orders and one repeat order. Total new sales are £450 plus the £300 from the first sales.
That £300 has now generated £750 of sales in just over 12 months
Another year on with more marketing, there are 2 more repeat sales and another new sale, that is another £450
This brings our total income from the £300 to £1500. Wow that took 2 years but look at that a 5 to 1 return.
This is simplistic the numbers are fake. In reality the returns are more like 1:1.5 and dependent on many factors, there are lots of variables to get this working. Yet returns like the above example are possible.
Also, magazine advertising would be expensive, and the responses are variable and difficult to track. However online tracking is much easier with Google or Facebook advertising and email marketing.
What I am talking about here is the development of a process called a sales funnel, when you know a customer will spend £1000 with you over 5 years and more over ten years it is just a matter of deciding,
- How many of those customers do you need to build a thriving business.
- How much can you afford to pay to buy one customer
The point is prospects come in at the top but they leave through the side of the funnel if what you are offering is not relevant to them. You have the opportunity to offer something else and divert them to another funnel. The ones that arrive at the bottom are customers. This is a powerful process and lets you decide how your business grows.
Building a sales funnel is a process and will take an investment of time, it is quicker and costs less using online tools. Once created it will put your business in the fast lane, where you are looking to spend more on promotion. You choose how many customers you need and how big your business gets.
If you have a successful business you already have a funnel and may not be aware of it. If you want to improve your processes, start testing. If you want support with that complete the 20 minute free review form, I will get back to you and we will see what is possible.
To your success