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A Costly Cost Cutting Measure

cutting_costs.jpgBigg 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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marylynnWhile 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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georgeI 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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How Long Do You Have To Work to Pay for What You Buy?

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:
http://media.libsyn.com/media/biggsuccess/00276-120108.mp3

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The Less Money You Have the Better!

penny We were talking with one of our banker friends recently about start-ups. He said that people often look for money when they should ask if there’s a better way to run their business. Money isn’t always the best solution.

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In fact, sometimes not having a lot of money to get started is a good thing because it forces you to be innovative and look for ways to save money. Obviously, it is possible to have too little money. Most of us have probably experienced that a time or two.

The baker

He told us about a person who wanted to start a bakery. She thought she needed a storefront. Our banker friend asked her who her customers would be. She said it would be friends and family at first. Then she expected word-of-mouth to take it from there. So he suggested that she just use her own kitchen or find a way to use a commercial kitchen part-time, instead of spending money on rent, utilities and all the other costs of maintaining a store. She didn’t need much money if she used this operating strategy.

An internet business

A friend of ours is putting together a really cool web site. They want to have an active community. They were going to pay a developer quite a bit of money to put together the forum area. We talked him into using open-source software and having it custom designed after his community starts building. He cuts his start-up costs drastically!

A chiropractor

Our banker friend knew a chiropractor who thought he needed to rent office space so he had a place for his patients. Instead, he found a fellow chiropractor who had extra space. He rented from this chiropractor for five years. Then he secured his own location – one he knew he could afford based on the income stream he had established.

He reduced his risk and conserved money by finding a better solution to get started. Because if you build it, they may not come. Test it out first!

The average entrepreneur starts his or her business with around $25,000. Sometimes the less money you have the better, because it forces you to think creatively and spend every penny wisely. Here are two entrepreneurs who did just that …

Bear Naked

Kelly Flatley is the co-owner of the all-natural snack food business, Bear Naked.
When her business was young, she didn’t go out and rent a large space to manufacture her product. No, she negotiated to use the commercial kitchen at a local market after they closed. She manufactured at night and made deliveries to her retail customers during the day. 

Sure, she worked some crazy hours. Don’t most entrepreneurs? That’s a concession for not having money. If you’re undercapitalized, you may have to get creative and make it up with “sweat equity”.

Newman’s Own

Years ago, we heard the story of how one of our favorites, Paul Newman, started Newman’s Own – his food products company that has donated millions to charity. The details here probably aren’t fully correct, but that’s not as important as understanding what he did.

He invested a small amount of money to start his business. He contracted with one company to manufacture the product. Another company sold it to grocery stores. He outsourced almost everything. His business was bringing in millions a year in sales, yet it only had one or two employees!

He did all this with very little money, but a whole lot of creativity! You can do it too!

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Get the tips and tools you need to be a BIGG success!
Subscribe to the Bigg Success Weekly – it’s FREE!

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Next time, we’ll discuss how something as simple as the font you choose can get people to do what you 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:
http://media.libsyn.com/media/biggsuccess/00256-110308.mp3

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(Image by sufinawaz)

Is the Cheapest Place for Gas Costing You Money?

empty We’ve been talking about ways to save money. Today we want to look at something that is top of mind for many of us – how to save money on gas.

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Follow the price of oil like a speculator

Oil prices go up and down. If you knew the price of oil went up, you might want to hurry to fill up. If you knew it went down, maybe it would pay to wait a day or two. Now you can track the price of oil at Oil-Price.net. Large companies do it; why shouldn’t we?

Time your purchase

While we haven’t seen any research that proves this theory, it seems that gas prices often go up right before the weekend, especially long weekends. So test for yourself and, if you agree, try to buy your gas by the middle of the week.

Serial rewards

Some credit cards offer extra rebates (e.g. 5% instead of a normal 1% to 2%) on fuel purchases during an introductory period (e.g. six months). Consider this – if you have good credit, employ a strategy where you get a new card and use it through the ramped up reward period. Then move on to another one.

Loyalty programs

Our grocery store chain has opened convenience stores next to their main stores. To drive (pun intended) business to these new stores, they’re offering an incentive to their grocery store customers.

For every $25 you spend on groceries, you get a 5 cent per gallon discount on gas at their convenience store. We saved 60 cents a gallon on a recent purchase.

Shop before you shop

Sites like Gas Buddy, Gas Price Watch, and Fuel Me Up help you find the gas stations with the cheapest fuel in your area. Gas Buddy seems best for our area; check them all out to see which is best for you.

But before you do …

Is it worth the drive to save money on gas?

We know people who drive out of their way to go to the gas station with the cheapest fuel. It seems almost oxymoronic, doesn’t it? And aren’t you glad we got the “oxy” in there?

It struck us as an interesting question to prove out – is it worth burning fuel to save money on fuel?

gas-buddy_small

Here’s our calculation …

(click the image to enlarge)

We found the prices for our area gas stations at Gas Buddy, as shown in the picture above. Using MapQuest, we determined that it would be a 3-mile round-trip from the Bigg Studio to the closest gas station, which charged $3.85 per gallon. This was the second highest priced gas in our area on that day. That figures!

It’s an 8-mile round trip to the station with the cheapest gas – $3.66 gallon. Using our handy calculator (okay, we were able to calculate this in our head), we saw that we could save 19 cents per gallon by making the drive. That seems pretty significant.

But here’s the rub … our car only has a 17.4 gallon gas tank. So if our tank was bone dry when we arrived at the gas station (a feat we probably come close to more often than we would like to think), the most we could save is $3.31.

Suddenly it wasn’t as interesting for us. We often work from our house so we don’t really drive that much. But we have friends who drive a lot for work; they fill up their car as often as three times a week, so that would add up to over $500 for the year. Alright, it’s worth continuing.

In order to get the cheapest fuel, we would have to drive 5 more miles. How much does that cost? The best source we could think of for that is the Internal Revenue Service. They allow a deduction of 50.5 cents for every mile driven for business. Since we figured the IRS wasn’t in the business of being generous with deductions, we figured if anything this might be a little on the low side.

So we multiplied the 5 miles by the 50.5 cent cost per mile. It would cost us $2.53 to drive to the station to get the cheapest gas, where we would save $3.31 if our tank was completely empty.

The most we could save by driving was 78 cents per fill-up.

Even for our friends who fill up three times a week, this only translates into about $120 per year. It hardly seems worth it when you consider …

We’ve assumed that our time isn’t worth anything. Because it’s going to take more time to drive out of our way for the cheaper gas.

(Side note: Unless our tank was less than ¼ full, it would actually cost us money to get the cheaper fuel.)

So here’s what we concluded:

Driving to find the cheapest gas doesn’t really work for us. It might work for you, especially if you have a bigger gas tank. You can use the process we’ve mapped out to run your own numbers. But don’t forget to place some value on your time!

However, in general, it’s probably a waste of time and money to drive out of your way for gas, unless you can …

Combine that trip with other deals

It just so happens that the gas station with the cheapest price in our area is in a retail zone. It may be the same for you. So if that area offers the best deals on the staples you need, and you combine that with coupons like the woman who feeds her family of five for as little as $10 a week, and fill up with the cheapest gas in your area while you’re there, paid for by your ramped up rewards credit card that you’ll pay off every month, now you have something going for you!

Here’s one more thought on buying fuel. It’s a very simple one, but we recently got burned by NOT doing this. What does that say about us?

Pay attention

We pulled off the highway not long ago to fuel up. We turned right as we exited the off-ramp and turned right into the first gas station just off the highway. As we were filling up, we noticed the sign that showed the prices of gas.

Then we noticed the sign at the gas station across the road. We could have bought gas for 20 cents a gallon less … had we just made a left turn! 

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It’s Hard to Beat this Place for Cheap Entertainment

libraryShhhh! You have to read this quietly. We’re at the library!

We’ve been thinking about fun, yet inexpensive, things to do. So today we took a little … make that bigg … trip to our local library.

We’re in Champaign-Urbana, Illinois. Champaign’s brand new library is a state-of-the art facility. As we walked in the door, the first thing we noticed, that is different from the libraries of yore, is there’s a coffee shop! Remember the old “No food or beverages” signs. Not in this library! One thing that’s still the same – it’s a cool place to stay cool on a hot summer’s day. But don’t look for the card catalog! You won’t find one … everything’s on computer now. They also have flat screen TVs, Wi-Fi, and other modern technology.

What  did we check out?

While we were there, we checked out a few things – two audio books … Brian Tracy’s Goals and The Long Tail by Chris Anderson with Wired magazine … and Janet Switzer’s book Instant Income.

The price? FREE. It’s paid for by our property taxes.

They have tons of DVDs for FREE. Even the ones that are rentals are only $1 for a week. Right now, with so many of us looking for ways to save money, the library is a great place to go for cheap entertainment!

We’ve decided that we’re going to make it our “office away from the office”! It’s a great place to go for a change of scenery!

Don't do this!

We also found some real characters at the library. By observing them, we compiled a list of six things you should NOT do at the library:

#6 – While pointing to a very simple word like “the”, ask the person next to you if he or she can pronounce it for you.

#5 – Put down your book, then lean over and start reading the book of the person sitting next to you. When he or she looks at you, quickly pick up your book and act like you're reading it.

#4 – Read your book upside down.

#3 – Flip the page loudly every two seconds or so.

#2 – Announce the page number loudly each time you turn a page.

And the #1 thing you should not do at the library …

Break the silence with the noise from a bodily function … you know the one. Then say, "Wow! That was a good one!"

(Image by Dan O'Brien)