June 18, 2012

Dreaming Big? Then Spend Bigger

Filed under: Growing Your Business — Tags: , , , — Meredith @ 8:45 am

When I hear a business owner say “but it’s toooo expensive!” what I really hear is “I don’t really want to be in business.” Being in business requires spending, and growing a substantial business is going to require substantial spending. I’m not suggesting reckless or ill-thought-out spending. I’m talking about the kind of spending that takes you from small timer to next level. Here are two important ways spending small hurts you in the long run:

1. Nickel and Diming
Which appeals to you more: 50 poly-mailers for $10 or 1,000 poly-mailers for $100? If you said 50 for $10 you’re nickel and diming and it’s hurting your bottom line. While it’s more tempting to lay out less money up front, you’re paying double the cost to do this. Apply this same philosophy to other business expenses like supplies, manufacturing, etc. and you end up with less profit and poor margins.

When I have to spend money on my business my primary concern is what’s going to cost me less in the long run per piece. If I am sure I will use all of whatever I’m about to buy and then some, I’ll always opt to buy in bulk and get a lower cost per unit. These choices of course have to be made with some common sense, you might not want to buy a million poly-mailers and have all of your budget tied up in one thing that will take you years to use, but it’s important to take a close look at what your business buys. What could you spend more on up front that will drastically reduce cost?

2. Missing Opportunities
Have you ever said no to doing something you felt would grow your business simply because of the price tag? Maybe it was a trade show that was going to cost $3,000 for a booth. Maybe it was a pop up event that was going to cost $1,000.00. Saying no to things that can deliver a boost to your business is a surefire way to hamper your growth.

When you consider a business opportunity it’s important to calculate the projected return on investment, not just concern yourself with the initial outlay of cash. If you did the pop up event could you sell over $2,000.00 worth of product? If you did the trade show could you generate over $3,000 in wholesale business? When you see opportunities like this always think about how much money you can make from them after expenses, rather than just considering the initial expense.

Are there ways spending bigger could help you save money and grow your business? What’s holding you back?

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May 25, 2012

Link Love: The Most Valuable Small Biz Articles Posted This Week

Filed under: Link Love — Tags: , , , , — Meredith @ 7:53 am

Happy Friday! Settle in for a long holiday weekend with these small biz and marketing reads from around the web:

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April 28, 2011

Under-charging: 15 Expenses That Should Affect Your Pricing

Filed under: Growing Your Business — Tags: , — Meredith @ 8:29 am

What’s your model for pricing your products? Are you just charging for materials with a little left over for profit? Even if you’re considering the expense of materials and labor to produce the finished goods, are you considering all the other costs involved with making your business run? Your pricing has to cover the product itself, plus operational expenses, plus leave you with some profit.

Here are some of the expenses you should consider when you set your pricing:

1. Manufacturing materials (include the raw materials and any costs associated with them including sourcing, shipping, vendor management, etc.)

2. Labor to make the finished product

3. Packaging the goods (don’t forget expenses like mailers and other shipping supplies, hang tags, time to actually pack goods before they leave your headquarters)

4. Product Development (consider the time and expense involved in product design, prototyping, samples, market research)

5.  Web hosting and domain

6.  Internet service, phone and fax service

7. Advertising and marketing

8. Sales (Will you be doing your own sales, if so you need to pay for your labor. If you are hiring a rep, you need to pay commission plus other expenses.)

9. Customer service (How many hours in the week will be spent answering customer email and calls, processing returns, etc? The bigger your business gets the more time this will take. That labor must be paid for.)

10. Administration (How many hours in a given week will be spent on record keeping, vendor relations, invoicing, talking to your lawyer because a crazy person is suing you for having a blue logo and they own the color blue?)

11. Taxes

12. Staff (this should include employee wages and benefits, unemployment tax, retainers for contractors, paying your accountant and bookkeeper, paying your PR firm, etc.)

13. Rent (as you get bigger, your business will probably need a space to call its own)

14. Events (think retail events, trade shows, etc. You have to pay booth fees plus all those travel expenses like hotel, airfare, gas, rental car, meals, etc.)

15. Transaction fees (this includes what you’re paying for handling credit cards, accepting Paypal, etc.)

If those expenses make your head spin, they should. My online shop spent over $50,000 last year, true story! We’re still a super-small business. We’ll be spending considerably more this year. If your plan is to truly grow your business into a profitable enterprise, you have to set a pricing model that will allow for that to happen. Don’t be afraid to raise your prices. If you’ve got a product people love, they will pay a little more for it.  Be judicious with your business spending, but also realize that expenses with running a business are unavoidable and necessary for growth.

Lastly, keep in mind the wholesale aspect of your business. If you plan to sell your products to stores, you need to give them a 50% discount, plus leave some margin for profit.

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October 7, 2010

Funds Week: Planning and Priorizing Your Spending

Filed under: Growing Your Business — Tags: , , , , — Meredith @ 5:55 am

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.

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October 6, 2010

Funds Week: Services You’ll Need to Run Your Business

Filed under: Growing Your Business — Tags: , , — Meredith @ 5:25 am

Yesterday we talked about professionals you may need to hire to grow your business, and what to expect in terms of cost. Today is about understanding the costs tied to various services small businesses consume.

  • Your Website:
    You’ll need web hosting, on the low end it can be maybe $5.00/month but there’s more to having a website than getting a host. You’ll need a domain name ($1.00/month), a payment gateway and merchant account if you want to accept credit cards (expect this to cost at least $50.00/month, not including transaction fees which can be up to 3%). You’ll also need an SSL certificate, there goes another $1/month. So just having an ecommerce website can end up costing around $60.00/month
  • Incorporation Fees:
    If you want to be insulated from some legal woes and file your taxes as a business (and believe me, you want that, it gets you many more deductions), you’ll need to pay incorporation fees. These are usually a few hundred dollars per year. Cost varies by state.
  • Software & Online Services:
    There’s a nearly unending list of software programs and online services you may want to use to grow your business, but here are just a few:
  • DIY Product Photo Re-Touching – Photoshop $700.00
    DIY PR Must-Have- Edcals $500-$1,500/year
    DIY Digital Marketing Tool – Spyfu $70/month
    Computer Backup Service – Carbonite $55/year
    DIY Bookkeeping Tool -Quickbooks $230.00/year

  • Print, Financial and Communication Services:
    Business Banking: $5-$15/month
    Mailing List Provider: $10/month and up
    800 Number: $20/month
    Fax Service: $3.50-$15/month
    PO Box: $10/month
    Internet service: $30-$60/month

    Business Cards/Brochures and other printed materials: varies but can cost hundreds to thousands depending on how many printed items you need and what type.

  • Advertising:
    You get what you pay for when it comes to ads. You can keep your expenses low with a low-budget Google Adwords campaign or a banner on a blog with light traffic. While these ads might cost under $100/month, you won’t be rolling in the traffic. If you want your brand name known widely, you’re going to have to spend, and that may mean ponying up several thousand dollars each month for ad space.

While, I haven’t delved into some other costs associated with running a business in the last 2 days, there are more to consider. Trade shows can cost thousands. (and that doesn’t even include travel expenses). Supplies like paper, computers, printers, digital cameras, signs, etc. can also add up.  Your business plan has to account for all of these various expenses and how they’ll be paid for.

Stay tuned for tomorrow’s post, which talks about prioritizing these expenses and planning for return on your investment.

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October 5, 2010

Funds Week: Hiring Professionals To Grow Your Business

Earlier this year I talked a little about getting what you pay for when it comes to hiring a professional. For most small businesses, it’s going to be nearly impossible to grow without contracting some professionals at some point. Below is a sampling of some of the kinds of professionals you may need to grow your business and how much they cost. You may be able to do some of these tasks on your own, but it’s unlikely that you can do ALL of them on your own. Even if you had the skills, and most people do not have all of these skills, you probably do not have enough hours in the day to keep on top of all of it.

  • Digital Marketing:
    SEO, SEM, PPC, keyword research, page rank, black hat, site maps, phrase matching, broad matching, negative keywords… do you know what all those things are? If not, you can either invest the hundreds of hours you’ll need to learn it all, or you can hire a pro. The latter will cost an hourly rate of about $100-$200. If you go with a retainer, expect to pay upwards of $5,000.00 a month! If you go the DIY route prepare to get hands on and technical and prepare to sink a huge amount of time into this endeavour. Larger companies in your niche may have hired a consultant or a full time staff person just to manage their digital marketing efforts.
  • Public Relations:
    Do you know how to build a media list? Do know know how to network with reporters? Do you have contacts at media outlets? Do you know how to write a pitch? Like digital marketing, this is all stuff you could learn, but if you go that route, be prepared to invest some serious time. Time that could be spent doing product development, market research, etc. If you hire a pro, you’ll likely want to retain an agency, and they usually charge a retainer of around $2,500/month and that’s on the low end. If you find a freelancer willing to work for an hourly rate, expect to pay $100/hour and up.
  • Accounting and Bookkeeping:
    Are you a wizard at Quickbooks? Do you have time to track all of your company’s financial activity? Do you understand tax codes as they apply to your business? You can either get up to speed or you can hire a bookkeeper and accountant. The average accountant charges $150.00 per hour. Bookkeepers are somewhat more affordable at $30-$50 per hour.
  • Legal Fees:
    Want to file a trademark? Freaking out because another designer is ripping off your work? Better get a good lawyer. The average lawyer costs $300.00 per hour
  • Web Developer/Graphic Designer:
    Your website is the first and possibly the only face of your company that customers see. If your site looks amateurish, customers won’t trust you and you will lose sales. Your competitors have polished, well-designed, lean, mean, conversion-optimized machines for their web presence. You need the same. Unless you’re a pro at web development and graphic design, you’re going to need a professional. Expect to spend at least $50.00/hour and up for these services. A fully-fledged ecommerce site can easily cost several thousand dollars.
  • (On the subject of graphic design: This is a skill that is tougher than it looks. Most people are NOT capable graphic designers, even if they are capable with other creative mediums. If you don’t have a background specifically in graphic design or any training, this work is best left to professionals. Having an amateurish logo in comic sans with a low resolution scan of a doodle you created makes your business look unprofessional. Avoid this pitfall and work with an expert.)

  • Support Staff:
    Successful business owners are busy people, they may need the services of an assitant, a junior designer, a receptionist. You may need someone to do piece work for your product manufacturing. You may need someone to help pack and ship orders. This type of staff usually demands a lower hourly rate, since it’s not skilled work, but they won’t work for free and you may need a lot more of their time than the expensive lawyers and accountants. Expect to pay your support staff $10/hour and up.
  • Sales Reps:
    Want to get into the wholesale world? You can try to rep your own line, but if you’re too busy or too inexperienced or simply hate doing sales, you’re going to need the services of a professional here too. Although sales reps work on commission, expect to pay some upfront fees. They may expect you to pay their trade show fees, travel expenses, printing costs, and a myriad of other expenses. On top of that, you’ll be giving them a commission on everything they sell, typically around 12-15%!

Are these prices freaking you out? Tomorrow we’re going to take a look at the cost of various services you may need to run your business. Thursday I’ll be talking about how to figure out what to budget for first, and then Friday I’ll be discussing how to get the funds you need to run your business properly.

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October 4, 2010

Let’s Talk Funds Week! Funding a Hobby vs a Business

Filed under: Growing Your Business — Tags: , — Meredith @ 7:04 am

This week I’m going to be talking about funding your business. Before we embark on this conversation, I want to explain what this conversation is and is not about. This conversation is about funding a for-profit business. This conversation is not about funding a hobby.

What’s the Difference?
A legitimate for-proft business has a lot of expenses. This week I am going to be talking about what those expenses are and finally how to fund a start up. A hobby can be cheap, or even free. You aren’t under pressure to turn a large profit, so you don’t have to worry about spending money on the same things that a for-profit enterprise spends on.

I Don’t Have Money to Spend so I’m Growing Slowly
I hear this a lot around the creative community, and for the most part it means you’re still in hobby territory. There is nothing wrong with that. It’s just different than where I am as a business owner, and it’s not what Smaller Box is really about. This blog is written from the perspective of someone who owns a for-profit business, for people who are running a for-profit business. I’m not anti-hobby, the goal here is just to get readers thinking about what they’re really trying to accomplish and what it will take to get there. Sometimes hobbies turn into businesses, but usually it takes some financial push to make that change.

My Business Makes $1,000/month! I’m a For-Profit Business
While technically your business is turning a profit, if you tried to live on that you’d be considered at poverty level in the United States. It’s great income for a part-time venture or a hobby, but it’s not enough to sustain a full-fledged business, let alone support a family. If this is where your business is, this week is about getting beyond that point. It’s about taking a good hard look at what it will cost to take things to the next level and ways to fund those expenses.

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April 26, 2010

You Get What You Pay For: Hiring Pros to Support Your Business

Imagine yourself at a show or event where you’re selling your merchandise. You’ve spent weeks or months preparing for the event. You’ve prepared products, paid to reserve booth space, had a banner made, purchased a tent, you got up at 5am to load in and get all set up. You’ve invested time, sweat and cash, and now you’re ready to make some money. A customer picks up one of your products and says “Geez! You want $35.00 for this! What did it take you like 15 minutes to make this? It must have cost you like $1 in materials. I’ll give you $6.00 for it.” I bet right now you’re thinking “what an asshole.” You’re not wrong.

All of that said, when you balk at the cost of a PR rep, a small business consultant, an SEO consultant,a graphic designer, a web designer, ad space, a sales rep, etc. you sound like the exact same kind of jerk. It’s not okay to undervalue your labor as a small business owner or artisan and it’s also not okay for you to undervalue the labor of professionals who support your business.

Before you even think about hiring a professional to support your business, consider whether or not you actually want/need to do it. Are you prepared to invest in your business? Are you trying to grow a business into a full-time viable income source or are you a hobbyist? Can you afford to hire a professional?

The next thing to consider is that what you can afford has nothing to do with the value of a service. Like you, the person you want to hire to draw up a marketing plan or design a logo has bills to pay and a family to feed. He or she cannot work for slave wages nor should you expect them to.

“But what about designers who will do a logo for for $5.00?!”

Yes, you can probably find someone who will make you a logo for $5.00. What you’re going to get is a $5.00 logo. A logo that took no time to design and probably isn’t that great. A professional designer will spend the time to research your logo, select or design a unique font, create an original illustration. A professional will engage you in conversation about what you want your logo to be like. She’ll present you with a couple of concepts and go through rounds of revisions until your logo is perfect. A professional designer also probably spent thousands of dollars on specialized software that allows them to provide your logo in a format that can be used any place from a highway billboard to a business card.

“So you want me to pay $10,000 for a logo?!?!”

There’s a happy medium between the steep price tags paid by companies like Pepsi (they spent $1 million dollars on their logo) and the $5 clip art/comic sans variety. This is true with all professional services. There are consultants, web developers, graphic designers, PR reps, etc. that specialize in catering to small businesses. They are likely to give you a pretty low rate, but don’t expect them to work for free (or close to it).

Before you hire you should:

1. Do your research
Want to hire someone to make a website for you, google “how much does a website cost.” You’ll be sure to find some articles on this subject. Also find out what to expect when hiring a web designer. How many rounds of revisions typically come with a $1,000 price tag? How many design options should that price tag come with? Should the price tag include a content management system so you can update your own site? How much extra are shopping carts?

You need to make sure that you know what questions to ask before considering hiring a professional. It will save you from either getting ripped off or feeling disappointed by unrealistic expectations. Google “what to ask before hiring a web designer.” Research away until you’re armed with the knowledge you need to start a conversation with a professional.

2. Get competing bids
If you’re especially apprehensive about the cost of hiring a professional to help with your business, be sure to shop around. Get quotes from 2 or 3 different pros and make sure you’re comparing apples to apples. For example does the SEO consultant that costs $500 do both on-page optimization and link building or just on-page? Does the SEO consultant that costs $2,000.00 have a more impressive track record with past clients?

3. Find out what’s included
Always ask exactly what you’re getting for your money. PR, web design, logo design, SEO, etc. all come in different sizes. For design work ask how many revisions are included in your quote. Ask what format your design will be delivered in. Ask the PR person if they charge extra to make your press kit or build your media list. The more detail you have on what you’re getting, the better prepared you’ll be to make a hiring decision.

4. Ask for references or a portfolio
When hiring a professional to do work for your business experience counts. Really that is what you are paying for. So ask the professionals you’re considering hiring to provide references, details on the kinds of experience they have or ask to see their portfolio if you’re hiring for design work.

A few related reads I recommend:
Hiring a PR Professional for Your Indie Business
How to Hire a Good SEO Company
Why Do You Have a Cheap Looking Website
Why a Logo Does Not Cost $5.00
Logo Design Pricing and Rates

And last but not least…
Cost Helper – Helps provide a guide to costs you can expect for a large variety of professional services for small business.

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