costs. Opportunity costs are the costs of not doing something. If you make that spur of the moment purchase on Facebook advertising, what’s that causing you to forgo?
Impulse purchases. We’ve all heard the old axiom, “It takes money to make money,” but this old saying often leads young entrepreneurs to gross overspending. When you make impulse purchases, go back and recalculate your budget to see the impact.
Indirect costs. Indirect costs are those times when you say, “Yep, I should’ve thought about that.” They are less noticeable and seem to come out of nowhere. Think through every step of a campaign and try to predict as many costs as possible.
The time. “Time is money.” Most business owners don’t know how much time marketing takes. It could be as much as 50 percent of your time in the early stages of a company. There is a time cost to any initiative, including those things like blogs, social media, and publicity. Make sure your time is well-spent.
How to Be More Accurate
Here are six ways to become more accurate in your forecasting:
Always overestimate marketing costs. If you’re like most entrepreneurs, you’re going to be overspending. Make sure to prepare for the worst and plan for your marketing costs to be higher than anticipated. Don’t assume that all campaigns will be successful; you will have some losses.
Track everything. Keep track of campaign costs, vendor prices, costs of software, time spent, and anything else you can think of to assist in your analysis. Tracking results are one of the fundamental principles of my Lean Marketing program.
Use 3-point estimating. Three points are used in estimating: optimistic (O), pessimistic (P), and most likely (M). If you’d like one number, try the following weighting: (O + 4M +P /6).
Stash away cash. Any business should have two or three months of money reserved for emergencies. I recommend you do the same thing for marketing. When you have campaigns that are producing better than expected, take some of the additional funds and put them in a separate account for marketing. Trust me, you’ll need it.
The real problem with underestimating costs and overestimating results is part of being an entrepreneur. We are relentlessly optimistic; otherwise, we wouldn’t have started our companies in the first place. However, make sure your enthusiasm doesn’t compromise your objectivity in managing your marketing spend.
Mistake #26
Treating Marketing As An Expense
An expense is something you shell out money for; so is an investment. The difference is that an investment delivers value in the future. Which one is more appropriate for marketing?
Many business owners treat marketing as an expense, and that’s a mistake. Scrutinize marketing expenses while also looking at marketing’s impact on your bottom line.
My advice is that you should always have an unlimited budget for marketing that works. There can only be one of two reasons why you wouldn’t do this. First, you’ve wasted marketing dollars on tactics that do not affect sales. Or, second, marketing feels like gambling, because you don’t measure results and have no idea if it’s working.
When Times Get Tough
It’s when times get tough that entrepreneurs feel the urge to pull back on marketing. It’s the wrong thing to do. Marketing is what you need to turn things around and drive new growth. During the Great Depression, companies like Kellogg’s beat out their rivals by stepping up their marketing.
During downturns, you should zig when others zag.
Today’s Marketing is Investment-Based
In today’s economic climate, investors are thrilled if they get a 20 percent return on investment. When you’re making money, it’s not an expense; rather, it’s an investment. Let me give you a few reasons why today this is the case:
Return on investment (ROI) is why you invest. This simple metric is used to evaluate the efficiency of an investment. Marketing ROI works for most expenditures except when the results aren’t immediately tangible (e.g., consumer awareness and brand perception). You may need to have other measures for intangible marketing efforts.
Strike a balance between tangible and intangible marketing. I always lean to more tangible results because they’re measurable. However, don’t omit less quantifiable forms of marketing altogether; Balance the profits you’re producing from your more tangible campaigns.
Experiment often. As mentioned frequently in this book, rapid experimentation is one of the founding principles of “Lean.” It’s much easier to make any investment when you’re confident what the results will be.
Fill one cup. Do your best to own one platform, medium, channel, etc. When you get confident in your success in one, then you can expand to the second.
Marketing is an investment in your strategy and vision for your company. Think of it as your gym membership when you’re investing in your health. Or, your retirement account when you’re investing for your future. Marketing is an investment in the future of your company.
Mistake #27
Not Diversifying
When money is coming in, and things are going well, it’s easy to become complacent. You’re reluctant to try new things. In most cases, these good times don’t last, and your left scrambling to find new revenue streams.
In the book Diversification Reconsidered by Peter Frumkin and Elizabeth K. Keating, the authors say, “By establishing and maintaining multiple streams of funding…organizations can avoid excessive dependence on any single revenue source, stabilize their financial positions, and thereby reduce the risk of financial crises.” In short, the only way to safeguard against a financial crisis is by generating new sales.
Product life cycles and more demanding customers require small business owners to change very quickly. You can minimize the disruption to your business by diversifying your clients, products, channels of distribution, and geography.
Types of Diversification
There are four ways you can diversify your small business:
1 Client diversification. It’s not unusual for a small business to have 50 percent or more of its revenue with one client. Take it from me, anything can happen, and your mega-client can disappear at a moment’s notice.
2 Product diversification. Diversify by adding a new product or service that appeals to your existing customers. Or you can jump into a new market segment with an entirely new offering.
3 Channel diversification. Not varying your marketing channels and campaigns can be as harmful as not doing enough marketing. I recommend that you focus on two to three channels until you have those mastered.
4 Geographic diversification. If you’re a local business, you can diversify by opening a second location. However, if you’re exclusively online, you can expand by opening a physical location.
Strategies for Diversification
On several occasions, I had potential suitors looking to buy a couple of my businesses. Client concentration was at the top of
