Spend More to Make More
April 14th, 2013 // 7:15 pm @ Million Dollar Methods
In the first issue of these Profit Reports, in regards to the methods of increasing profit, I briefly mentioned the concept of increasing marketing effectiveness. This is in direct opposition to the idea of decreasing the amount spent on marketing – as you would with operating expenses. In today’s issue, I want to expand on this notion of treating marketing differently than an expense.
It’s all too common for business owners to review the monthly credit card statements with a focus on the right column – the dollar amount. As it should be, money spent on acquiring leads and customers is often one of the larger numbers in the column. Thus, it attracts the slashing pen on an indiscriminate entrepreneur.
I know we all are guilty of thoughts like “Those newsletters cost too much,” “That postcard mailing was the most I spent all month.” It’s tempting to cut these high priced outlays of cash; and simple logic says ‘cut the biggest expense to save the most money.’ But that’s applying simple logic – we need business logic.
You can’t treat every expense the same. If it’s tied marketing, it must be treated to an ROI analysis, and not compared to other expenses; because it truly is an investment.
Let’s take a look an example:
During peak season, a public golf course suffers from a series of rainy weekends and sees the number of rounds played slightly reduced. The owner wants to cut expenses to align with the lower revenue. He can skip this month’s newsletter with coupons ($2,500), cancel the cable TV in the bar ($100 per month), buy cheaper score cards (save $200). Which ‘expense’ should cut?
The $2,500 looks expensive compared to a couple hundred dollars. This is the issue with comparing an expense with an investment. If he doesn’t do the newsletter, 25 fewer golfers come in to play. A full priced round costs $50, but the coupon discounts it by $10. And golfers typically don’t play alone – most do foursomes and some do triples or doubles. That’s 25 golfers X 3 players on avg X $40 each = $3,000.
The newsletter MADE $500; this doesn’t even count the money players spend on lunch, beer, golf balls, and range passes; plus the course would miss the chance at bounce-back offers to get them to play again, the additional golfers added to the mailing list, and selling annual memberships now and in the future.
Just like the golf course, you too have to spend more to make more. As long as the golf course is making money from the campaign, they should keep mailing. Such as adding a follow-up postcard offering free lessons just to bring people to the course.
The amazing thing about being ABLE and WILLING to spend more than your competition, is that when the rain falls on your business, you are the only one able to survive. Once it dries up and the rainbows appear, you’ll be sitting in a pot of gold.
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