Tag Archives: Marketing

Does Your Marketing Actually Make You Money?

We are pleased to share this article by guest author, Rod Bristol.

OKAY! You went to your annual conference and heard the highly paid, highly profane keynote speaker rail at you for 90 minutes about how you need to run Facebook ads! You got convicted! You then went through the process of creating the ad, measuring the ad for reach, amplification, content, and engagement trends; figuring out if anyone likes it, comments on it, or actually shares it with others. But how do you know if you’re actually MAKING ANY MONEY from the ad?

To answer that question, I’m going to introduce you to the single most important financial number that every business owner needs to know in order to successfully drive up the profitability of their operation and know if the money that they’re spending on anything is actually helping them make a profit, or just digging them deeper in the hole.

It’s Your Contribution Margin %.

This amazing number helps you answer questions like:

“What amount of sales should my new Facebook ad campaign create to pay for itself?”

“Can I afford to hire that new salesperson?”

What do these questions have in common? Each relates to how changes in costs, volume, and pricing affect your bottom line. By the end of this article, I’ll have given you a single, simple formula to help you answer these questions more accurately than ever before.

It all starts with the concept of break-even analysis. Many of you may remember break-even from some boring, long ago undergrad accounting course. Your professor went through various mathematical gyrations, then finished by drawing two intersecting lines with a downward arrow pointing at a number that indicated Break-even – the amount of sales at which a company neither makes nor loses money.

“So what,” you thought then (and I bet you say now).  “Who wants to just break even?”

When is the only time you want to be at break-even when you own a company? When you’re losing money and writing a check every month for the pleasure of owning your ‘hobby.’ A business is supposed to PAY for the hobby, not BE the hobby!

Calculating your break-even point is just the beginning. Break-even analysis is a financial tool that illustrates the relationship between COST-VOLUME-PROFIT, and as such can help you answer all of the questions above and more.

We first need to define two broad classes of costs – based on how they behave in the business. First, FIXED COSTS. Within a reasonable sales range, fixed costs do not vary with sales or production volume. Examples would include administrative salaries, rent, interest, insurance, utilities, depreciation.

Next, VARIABLE COSTS. Variable costs are those which are directly proportional to the sales volume (i.e., no sales, no variable costs). Examples would include direct materials (cost of goods sold), commissions, and bad debts. Think of variable costs this way: sales cause variable costs.  If sales don’t cause them, consider them fixed costs.

Now to calculate break-even. From your existing profit-and-loss statement, you total all your current fixed costs. Let’s say your total comes to $100,000. Next, you calculate your total variable costs as a percent of your total sales. Let’s say your “variable cost percent” turns out to be 75%.

This means that for every $1.00 of sales, 75 cents goes to variable costs. What’s left?  Yes, 25 cents.  To cover what? Fixed costs. So now we have to answer the question, “What amount of sales do I need to cover $100,000 of fixed costs?”  The answer, of course, is $400,000 – this is your break-even point. I’ve diagrammed it below, using the term “contribution margin” to replace the term “what’s left?”

Break-Even Calculation Break-Even Proof
Fixed Costs $100,000 Sales 400,000
Variable Cost % 75% Less:  75% variable cost 300,000
Formula

 $100,000

100% – 75%

Contribution Margin 100,000
Break-Even Sales $400,000 Less:  fixed costs 100,000
Net Profit 0
But, as we said earlier, the key issue is not so much how to calculate break-even – it’s how to use it. Let’s take our Facebook ad example. We were planning on spending about $1000 per month with Facebook. Our annual cost for this ad campaign would be $12,000. How much in additional sales would we need to cover this increase?
Fixed Cost Increment = 12,000
100% – 75% .25
= $ 48,000

Yes, sales would have to increase $48,000 just to pay for the ad campaign. And it’s these “creepers” you must watch every day, because, with a contribution margin of 25% for every $1.00 increase in “fixed costs” (as they “creep” on you), you have to achieve a $4.00 sales increase just to stay even. Every business owner and every employee should know how much in sales is needed to be able to fill in the blanks in this sentence, “For every $1 in fixed costs, I need to make $______ in sales to cover it.”

Steps to Calculate Break-even:

  1. Divide costs into fixed and variable (don’t forget to include cost of goods sold).

  2.  Total fixed costs in dollars.

  3.  Calculate variable cost as a percent of sales to get your Contribution Margin or “what’s left”.

  4.  Use the formula:

Break-even =

     Fixed Costs

100% – Variable Cost %

And what about that $40,000 for your sales person you would love to hire? How much will they need to sell before they will begin to pay for themselves? It’s a very simple calculation:

$40,000 / .25    =

$160,000 in new revenue needed to pay for your new salesperson

And now you’ve got a terrific new financial tool to help you reevaluate every dollar your company spends to be sure that it’s driving up profitability in your operation.

Rod Bristol, CFE is the Executive Vice President of Profit Mastery. He guides business networks from “Profit Mystery” to “Profit Mastery®.” For over 30 years, business networks have improved their financial performance and unit profitability by following the Profit Mastery process: financial training, benchmarking, and accountability/bankability modeling.

Contact Rod at: 800.488.3520 x13 — or Bristol@brs-seattle.com.

7 Cross-Promotion Strategies to Boost Referrals

{4:15 minutes to read} There are a lot of different ways in which you can engage others in your co-marketing.

In the phoneBlogger.net world, we are, of course, focused primarily on blogs and newsletters. Cross promotion is the next level of marketing by utilizing these tools:

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3 Ways to Measure Results

{4:00 minutes to read} There’s an old adage: “Only 20% of marketing works; 80% is a waste. We just don’t know which 80%!” Even worse, the 80% is a changing set: What worked yesterday may not work tomorrow, and so forth. Unfortunately, much of marketing is trial & error and A/B testing. Still, I find clients who have “tried nothing and are all out of ideas” (a Simpsons quote; email me for the episode).

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Marketing Fitness — 6 Key Strategies to Implement (Part 2)

{4:45 minutes to read} Continuing our discussion from the last blog post, today’s article examines some more health & fitness lessons that can be applied to marketing.

Don’t overdo it.

Although pushing yourself can be a good thing, you don’t want to take it too far. In physical fitness, when you feel a tingling or slight burning sensation, it means your muscle fibers are breaking down. That night, while you sleep, the muscles rebuild stronger.

But sharp pain or severe discomfort is not good. Even though I’ve been extremely careful, I’ve realized that one of my previous injuries — a suspected torn rotator cuff in my shoulder — is preventing me from working out at the level I want to right now. But since I’ve made a commitment to my fitness goals, I’m seeking professional help to stay on track.

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Marketing Fitness — Don’t Sprint to Win the Marathon! (Part 1)

{4:50 minutes to read} When I was younger, with a rather extreme physical regimen of fitness including football, wrestling, tennis, weightlifting, etc., I often repeated the same cycle — I’d push myself too hard, get injured, and then I’d have to stop. And when I stopped, I stopped completely. I’d go from one extreme of activity level to the other. As I got older, I struggled to keep my weight under control.

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Facebook’s Instant Articles: Useful for Professional Services?

{3:12 minutes to read} Social media has revolutionized marketing in some ways by providing opportunities for free and fast marketing. The technology in this space changes quickly; the options that are available now will most likely be very different down the road.

As the social media landscape continues to evolve, we research and vet all potential promotional avenues. Our goal is to promote our clients in the most effective and efficient way possible. A critical component to doing so is utilizing marketing tools that steer people back to your website.

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How to Market Yourself During Conference Season

{3:50 minutes to read} Business professionals often wonder: Is it worthwhile to market my practice during the various conferences I attend?

At Practice Marketing, we’ve used conferences for marketing for a number of years, and fairly successfully.

Whenever possible, we try to be in a room full of potential clients.

Many of our clients don’t necessarily have that option, but they may have an opportunity to be in a room full of centers of influence or potential referral sources. We can use mediation as an example. Mediators often get referrals from mental health professionals and guess what? Mental health professionals have conferences and seminars.

So how can a mediator participate in those conferences and seminars?

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What Is CRM & Does Your Business Need It?

{3:30 minutes to read} Customer Relationship Management (CRM) is basically a hub where people organize, store and stay in touch with their customers or clients, whether for a service, product or company.

Unlike a standard contact list or email program designed for a single user, CRM is more functional and interactive. It allows you to host multiple users in one place, and makes keeping in contact by newsletter or email more streamlined.

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Is Social Media Getting You Referrals?

{4:54 minutes to read} Clients ask if we can advise them on how they can get more likes and interactions on their social media. There are many ways to encourage people to like your Facebook business page or LinkedIn company page including direct invites, giveaways, prize drawings and other enticements.

But I keep going back to my standard phrase: If you want somebody to pay attention to you, pay attention to them first. If you want somebody to take an interest in you, take an interest in them first. Go out and find the people on your network that you want to pay attention to you, and start paying attention to them.

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5+ Ways We SEO Your Articles

{2:15 minutes to read}

Recently a client emailed me to ask if we use Search Engine Optimization (SEO) practices to enhance the articles that we edit for her.

At phoneBlogger.net, we are SEO-conscious, and we use this knowledge when editing our client’s articles. Here’s how we “SEO” our client’s articles:

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