For the last couple of days I’ve talked about how expensive it is to start and run a real business. Imagine I’m in year one of my business. I could have spent $700 on having a website, $300 on registering my LLC, $1,000 on software, $2,000 on various services and goods for my office (phone number, business cards, internet service, laptop, printer), $10,000 on advertising, $10,000 on SEO, $12,000 on a PR firm, $1,500 on accounting and bookkeeping services, $10,000 on supplies and manufacturing, $10,000 on trade shows. Let’s imagine I designed and programmed my own website, saving myself thousands there. I’ve now spent over $57,000 in my first year in business. These are all fairly modest numbers for business, too. A larger business will spend hundreds of thousands on the same things, maybe even millions.
Now on the flip side, my business has the proper tools to sell a lot of product. If my PR firm is any good, I probably racked up some serious press hits that brought me online sales and maybe helped me score a lot of new wholesale accounts at the trade shows I invested in. (Having a fat book of press clippings is a useful selling point when you try to convince stores to carry your line.) If my SEO company did their job properly, my site is now ranking well for the most important keywords in my industry, and I’m getting online sales every day from search engines. If I picked the right ads then my brand is probably well known at this point with my target market. I have people who come directly to my site to shop because they’ve heard of my brand. I’ve probably amassed thousands if not tens or hundreds of thousands of followers on social networks and on my mailing list. My huge cash investments have probably paid huge dividends in terms of results, and now I’m running a full-fledged business that can support me, my family and maybe even allow me to hire a staff member or two.
if these numbers seem daunting, but you’re still serious about running a profitable business, it’s time to do some planning and prioritizing. Maybe you don’t need trade shows, PR firms and SEO pros in year one, but even knocking some of those expenses out still leaves you with costs upwards of $20,000.00 for running your business in one year. Plus, you’ll probably want to invest in more expensive services sooner or later. Here’s how you can focus on planning for and prioritizing this kind of spending:
Find out what you need most
Some needs are going to be more urgent than others. If your website looks like crap, you need a professional web designer above all things. There’s no point in investing in anything else until you do that. So make that priority number one. If you’re in an industry like fashion, and who wears your products is a number one driving force in creating demand for your products, maybe you need PR more than you need SEO. Think about what is going to deliver you the most bang for your buck and plan to spend on those things first.
Save money where you can
Having a lot of big expenses doesn’t mean spending wildly. You want to do your homework and comparison shop before you spend. If you’re hiring an agency, verify their track record and get references. Have an honest discussion with them about what they can realistically do for you. Educate yourself about the nature of the work they’ll be doing so you can get an idea if they’re going to do a good job.
You should comparision shop by price, but the cheapest isn’t always the least expensive. (For example, Bob’s Basement Web Hosting might only cost $1/month but if your site goes down all the time you’re going to lose a lot of your online sales. Sometimes it’s worth it to pay a little more to get better service.)
Also investigate opportunities to get group discounts. I Shop Indie is a perfect example of the power of buying as a collective, but there are plenty of other ways to save money by spending as part of a group. For example, your university alumni program may have a group health insurance plan you can buy into. Certain credit cards, like American Express, have secured discounted rates on things like travel for their card holders. You may even be able to get companies like SEO firms or PR firms to give you a price break based on referrals.
DIY When it Makes Sense
You probably are going to have to outsource some things, but it doesn’t mean you have to oursource ALL things. If there’s an area of your business you know you can do on your own like PR or finding wholesale customers, by all means go for it. It may end up costing less and you may do a better job. It’s just important to be realistic about where your talents lie.
It’s also important to think about how much your time costs. If your time is worth $50/hour, maybe you do want to hire an assistant for $10 an hour to answer customer emails so you can focus on other tasks. On the other hand, if you excel at grasping technical concepts and your SEO firm costs $200/hour, maybe you’re better off learning to do your own SEO rather than paying a firm.
Make a Plan and Make Projections
One of the most important parts of growing a profitable business is having a business plan. In your business plan outline all of the goods and services you believe your company will need in order to grow. Then attach the estimated revenue you expect each one to deliver. Try to think about long term results. Some marketing expenses show dividends over time, so it’s important to include that in your projections.
Some expense and ROI calculations can also be more straightforward. For example, if you know your website has a conversion rate of 1% and you currently get 200 site visitors per day. You’re only averaging 2 orders/day, not great. You might want your business plan to include spending $2,000/month on Adwords with a CPC of 20 cents. Now you can expect over 300 additional visitors to your site each day and an additional 3 sales from that activity each day. If your average net revenue per order is $50.00, this $2,000 monthly spend would net you an additional $3,000/month in revenue.
In case you want to see the math, it goes like this:
$2000 on adwords at .20 cents per click yields 10,000 visitors.
If 1% convert with an average net revenue of $50.00, that yields 100 conversions or $5,000 in revenue.
You subtract your Adwords spending ($2,000/month) and you get a net revenue of $3,000.
You’ll need to get comfortable with this type of math in order to do your business plan and projections on expenditures and revenue. Keeping a calculator handy makes it go pretty quickly though.
If you’re starting to come around on the idea of properly funding your business after this week’s posts, but don’t know how you’ll come up with the cash, stop by tomorrow. I’ll be talking about how to get capital to fund a business.