How much money does your company spend in the pursuit of making money? It might sound like a silly, circular question, but it gets to the heart of an important issue for any small business. You have to spend money to make money, yes, but spend too much and you erase your profit margins. And what’s the easiest way to spend more than you earn? By not tracking what you spend.
Too many small businesses I’ve consulted for didn’t understand how much it cost them to make a sale. They would look at their sales numbers and then at their profit margins and misunderstand the relationship. Many thought the solution was to cut staffing. If they weren’t making a profit on strong sales, the reasoning went, they must be spending too much on payroll. It is, after all, the largest line-item on the budget.
It took plenty of forecasting and modeling to convince these executives that reducing staff would only slow the company’s development. Their real issue was with the amount of money they spent to make each sale. Every company spends money acquiring new business, but too many companies don’t keep that number under control. Here are some suggestions I always dole out when dealing with a company that needs to reduce the amount of money it spends to make a sale.
Focus on inbound marketing
Call it inbound marketing, call it content marketing. Both buzz terms represent an age-old form of advertising. Most importantly for small businesses, it’s advertising that scales. Create a single persuasive or informative piece of content, and you can distribute it infinitely — at little additional cost. That describes the power of inbound marketing in a nutshell.
Content or inbound marketing can come in two forms:
# 1. Persuasive copy
If you’ve ever landed on a page full of text extolling the virtues of a particular product or service, you’ve experienced persuasive copy. It is often longform in nature, and incorporates elements such as testimonials and case studies. The entire idea is to persuade a prospect to buy a product. Strong persuasive copy can deliver sales for years and years.
# 2. Informational content
While persuasive copy can be effective, it can’t be a company’s only content. No one wants to be bombarded with sales material. Businesses can balance this persuasive copy with informative content. That is, people looking for information about a certain product or category of products can find this informational content and answer all of their questions.
In the past, direct mail copywriters were paid a bounty for their work — if it sold products. Copywriters who delivered results got paid premium rates, because not everyone could write that well. While the internet hosts reams and reams of writing, most of it is poor. Yet various information products have convinced people that they, themselves, can create compelling content. It’s simply not true.
If you want to use persuasive or informational content to help market your products and services, hiring a professional is of the utmost importance. It might seem anathema to this article, laying out money for professional service. But a professional can create one instance of great content that lasts years and years. That’s far more cost efficient than constantly creating content with subpar writers.
Balance your outbound strategy
Of course, once you create content you need people to read it. The most effective way to drive traffic to your website is through search engine marketing. Why is search marketing more effective than ads placed on blogs and other publications? Because search implies intent.
If you advertise on even the most popular blog, you are essentially a sideshow. People go there for the content, not for your ad. But when people search, they are looking for something specifically. Through proper analysis and research you can determine what people want to find when they enter particular search queries. Find a prospect who demonstrates intent, and you’ve found a prospect who is closer to buying than someone perusing the pages of The New York Times.
There are two main types of search marketing:
Search engine optimisation has developed a negative connotation lately, but it is still a highly effective form of marketing. In essence,
In terms of what works best for an
# 2. PPC
Pay Per Click essentially allows businesses to buy search traffic. For highly commercial search terms — that is, search terms that suggest the searcher is preparing to buy something — Google places advertisements on top of the organic results. Companies bid on these slots, offering to pay Google X dollars for each click they receive. That means PPC does require extensive research, since companies don’t want to waste their money on clicks that don’t convert into sales. Yet because of the commercial nature of the searches that produce PPC ads, the conversion rate is higher than almost any other form of advertising.
When you create persuasive copy, a PPC ad can be a great way to feed traffic to it. Again, with these searches people are signaling intent to buy. Put them in front of persuasive copy, and they might just click on your Buy Now button.
Check transaction costs
Inbound and outbound marketing represent costs of acquiring customers. Yet those are indirect acquisition costs. That is, you spend that money knowing that many of the people you reach won’t convert. Once prospects do convert into customers, there is another acquisition cost to consider. And in my experience, too few businesses pay this enough attention.
When you make a sale, you do not reap the full transaction amount
Nearly every form of online payment requires the merchant to pay a portion of the sale to the payment processor. Even if you created your own processing system — an expensive endeavor for sure, and one that small businesses simply cannot afford — you still owe a cut of each sale to the credit card company. The overall point is that there is an opportunity to directly reduce the cost of each transaction.
Different merchant services
Different processors offer different levels of service — and different fee schedules. Merchant services from a company like Intuit provides you with multiple ways to accept payment, as well as offering you a means of keeping track of everything (QuickBooks). That might appeal to some small businesses that don’t already have those systems in place. At the same time, their fee schedule might not work for certain businesses. They charge 29 cents flat per transaction, plus a percentage of each sale, plus a monthly fee. That can add up to different amounts for different businesses.
Analyse your sales
The trick is to run careful analysis of your company’s sales — not only where you currently stand, but where you’d like to be in one, three, and five years. Figure out the average amount of each sale, and then determine the variance (i.e., how many people buy significantly more than average and how many significantly less). then run your numbers through the fee schedules for various payment processors. You’ll be able to find the best deal for your business that way.
When I consult with small businesses about reducing costs, many of them have it fixed in their heads to cut payroll. That’s the largest line-item on the budget so it seems like the most effective way to cut costs. Yet it’s the people who help make the sales. The people write the copy that helps sell, and the people create opportunities through
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