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A Costly Cost Cutting Measure

Written on June 8, 2009 by George Krueger & Mary-Lynn Foster in Money

Bigg Success is life on your own terms. Today, we’ll focus on one of the five elements of bigg success – money.

We’re all looking for more ways to save money. That’s understandable. However, we need to think about not just survival, but “surthrival.”

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Many business owners and managers, small and large, are cutting back on their advertising. This cost-cutting practice can be very costly in the long run.

Could not advertising cost you $1.5 million?

A McGraw-Hill study, about the recession in the early 1980s, found that companies that maintained or increased their advertising had sales 256% higher three years after the recession ended.

Think about that … two companies, each with a million dollars in sales go into a recession. The company that holds tight on its advertising, or perhaps even increases it, will do over $2.5 million within a few years after the recession ends if the second company, the one that cut its advertising, treads water.

Signaling the end of your business

A recent study by Ad-ology found that 56% of the people surveyed thought that retail stores that cut back on advertising must be struggling.

In other words, your advertising sends a “signal” to both your existing and potential customers. Just like a company cutting back on its dividend, you’re telling the public you don’t expect your future to be bright when you cut back on advertising.

The signal is so strong that 15% of the people surveyed thought it meant that the firm who cut back on its advertising wouldn’t be in business much longer.

The time – money trade-off

One of the other elements of bigg success is time. If you’re a regular here you’ve heard it before, but it bears repeating:

If you don’t have money, you have to spend time. It’s part of the price of bigg success.

So if you really feel the need to cut back on how much money you spend on advertising, it will pay to spend more time promoting your business.

That means networking

Depending on your business, you may primarily build relationships offline or online. However, you will probably be well-served to do both. Integration is one of the keys to success in business today.

If you have employees with down time, make good use of it. Tell them that you want to keep spreading the word so you all surthrive.

What you ask them to do will also depend upon your business. You may have them put out door knob hangers or give away free samples of your product. Perhaps they can make some phone calls or send e-mails to your list of customers.

Where to place your focus

We stated it subtly in that last sentence. We should emphasize it – focus on your existing customers to get the best return on your investment (of money and time).

Research has shown that it costs between five to eight times as much to get a new customer as it takes to keep an existing one. So, at the very least, make sure you’re communicating with your existing customers at least four to six 6 times a year.

Find out what their problems are. Find a solution – even if you can’t solve it directly, help them find the answer to build your relationship.

The most cost-effective way to grow your business

Building relationships with your best customers is the most cost-effective way to grow your business. When you can “wow” your customers, they will …

buy more

buy more often

tell others

Segment & tailor

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marylynn While we’re talking about your existing customers, can you segment them into smaller groups so you can tailor your communications more precisely?

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george I used to own a heating and cooling service company. We got our technicians to note the age of the furnace or air conditioner when they were in our customer’s home or business. Then we wrote a letter specifically to this group. We generated over $300 of sales for every letter we mailed!

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This highlights another point we alluded to earlier – get your staff involved. Help them understand how it not only makes their jobs more secure, it also means you continue to grow as a company so there will be more opportunities for everybody. That’s bigg success!

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Thanks so much for reading our post today. Please join us next time when we discuss what the underlying meaning of “I don’t have enough time.” Until then, here’s to your bigg success!

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Increase Your Sales by Knowing the Answer to this Question

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How Long Do You Have To Work to Pay for What You Buy?

Written on December 1, 2008 by George Krueger & Mary-Lynn Foster in Money

leftovers In physics class, we learned about the law of inertia – an object in motion stays in motion. So it is with our money. We start spending and we keep spending!

Now we’re trying to slow down our spending and find ways to save money. Today, we want to discuss a new way to think about your purchasing decisions.

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Getting to the numbers

The Bureau of Labor Statistics (BLS) tracks many things, including consumer finances. From their most recent study, we calculated how much the average wage earner makes a year.

We then did some more research to determine how much vacation we take and how many hours a week we work, on average. From all this data, we determined that the average earner made $19.38 per hour before taxes.

Next we looked at spending by category, according to the BLS study. We divided that amount by the $19.38 an hour to determine how long we have to work to pay for what we buy.

The numbers

The average American wage earner works for almost a month to pay for entertainment and dining out.

We work about a week and two days to pay for our vacation. Think about that – we spend more time working for our vacations then we spend on them!

And since we’re nearing that time of year where we’re all feeling extra generous, we also found that we spend a full week working to pay for Christmas presents.

There’s power in this tool for you

It may be useful to think about past spending decisions, but the power of this tool comes in helping you make decisions now.

For example, say you’re the average wage earner thinking about purchasing a LCD HDTV. It would cost you around $600. You would have to work two-and-a-half days to pay for that TV.

Is it worth it to you?

A bigger house

We recently saw that the median price for a house is $200,500. You would have to work two months and a week every year to make your mortgage payment on that house.

You may not be thinking about a bigger house now. But let’s say the day comes when you decide you’d like to stretch a little. The median priced house was requiring 19% of your income; you think you could handle 25%. Now you’ll have to work three months out of every year to pay the mortgage on this bigger house.

Is it worth it to you to work three extra weeks every year just to pay your mortgage? Is there anything else you would rather buy with your hard work?

The formula

So far we’ve talked about averages, but they don’t really matter. What matters is how much you make per hour. Here’s how to calculate it:

Amount earned per week ÷ Hours worked per week = Hourly earnings

Your pay cycle may not be a week, but you can adjust accordingly. The BLS statistics look at before-tax income. Ideally, you’ll look at disposable income – after all taxes have been paid – since that’s the only money you have available to spend.

As salaried employees, we often don’t fully track how much time we work. You may have to track it for a week or two. If you really want the full picture, include your commuting time and any other job-related time.

Invisible expenses

Don’t just think about your major purchases. Consider your invisible expenses – those frequent small purchases that can really add up over the course of the year.

For example, say you spend $5 every day on lunch. Over the course of the year, that would add to $1,275 (assuming one week’s vacation). The average earner would have to work 66 hours to pay for this.

Is it worth it?

You might look at that and decide that it’s not. You start packing a lunch which only costs you $1. Now you would only have to work thirteen hours a year to pay for your lunches.

That’s 53 hours of work that could be spent on something else!

How about a nicer vacation, starting that emergency fund, or paying off the debt that’s keeping you up at night?

So frame your expenditures by the number of hours you have to work to pay for them. Then ask yourself if it’s worth it. It’s a great way to prioritize your spending.

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Thanks for visiting us today. Come back next time when we discuss why you can’t have it all, but you can have all you really want. Until then, here’s to your bigg success!

Subscribe to The Bigg Success Show in iTunes.

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Direct link to The Bigg Success Show audio file:
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