Launch Expenses
How do we go to Market
The surest way to start a service business requires you to have loyal customers in hand when you start. It happens all the time – a trusted employee quits his job, hangs his shingle, and brings the customers he serviced with him. Although the maneuver seems like a slam dunk, our new business owner needs to make a profit off his new customers; and he might find the services he provided at his former boss’s expense just a little hard to swallow.
In the last video we looked at a successful new business launch without customers attached. The product had a 40% gross adjusted profit within its pro forma. That is plenty of margin, so how do we promote the product. At this stage pursuing the right marketing technique and its relative cost can dictate success or failure.
Our marketing game plan turns on what we are selling. Product needs a market; service needs a customer. In both cases your priority is to choose a form of marketing you can continue to afford. Marketing works when the technique is applied repetitively. If all you can afford is business cards – get them printed and knock on doors. Don’t buy an ad and wait for the phone to ring.
Pay attention to the last two sentences. When you start a business your marketing efforts are designed to overcome inertia – specifically the inertia of life without the existence of your new business. You are putting a new critical mass in motion. Think about it – your business is a critical mass – not unlike your girl friend’s couch. You can’t just give it a shove – you need to move it with purpose and a sense of direction. In the same way, you need to be deliberate with your marketing process. This analogy is leading to a conclusion – let’s say you are starting out with limited funds (doesn’t everyone?).
Those funds must satisfy your shortfall until you break even.
You have two marketing proposals. The first one should work and if so, will get you to break even with money left over – best of all it is being handled by your marketing professional and you can just concentrate on the orders. The second approach is not flashy and will require your involvement as a salesman. You may need to go to some meetings and make cold calls.
This really is not a hard choice – what’s hard however is making yourself commit daily to the 2nd process.
Here’s the good thing – as process #2 starts to create earnings, you will have the funds to market your business via approach #1. Additionally, as you take the lead marketing you will see how your business is perceived, you will learn to defend it, and you will know what changes are needed to make it better. Additionally, when you hire that outside marketer – you will know how your product should be presented.
I chose the subject of marketing in this video for a reason. Marketing is a required G&A expense that you dictate. The budget you set for marketing has a direct effect on burn rate and judicious burn rate management can be the key to a successful launch. Let me give you a simple example.
Our last company was making $40 per unit and growing the business by a sales increase of 10 units per month. The G&A budget was $4,000 which included an aggressive $800 marketing budget. If marketing could be trimmed to $650, and you could find $100 elsewhere, what would happen? Breakeven occurs in the 9th month and the company turns a profit in two years.
I’m not trying to pick on marketing; but I am highlighting this fact – you G&A budget is comprised of costs dictated to you by others and costs that you dictate. Pay close attention to the costs you control – they will have a huge effect on your profitability.
Watch the corresponding video for this blog post today on YouTube!