Budgeting for marketing activities

budget, life time value, Marketing

If there’s something successful about your model to regularly get clients, why would you ever want to limit your spending in marketing. Budgeting is effectively putting limits on what you are allowed to spend.

In case you are an entrepreneur and have your business, then the above argument would hold.

However when you work in a corporate setup, then every department gets allocated money because there are a lot of interdependent activities involved.

So if you work in a corporate environment or advise people in a corporate environment then below is my quick and dirty method of calculating what you may want to demand for your activities.

It starts with identifying what is the average life time value of a client for you. Do you have clients who give you recurring revenue or one time. Do you have repeat business possibilities including up-sell, maintenance charges etc. Put all of this together.

You can do this on a simple calculator and napkin.

Let’s assume you realize that your average lifetime value in revenue is $100000 over a period of 5 years and you would make gross 25% margin, then any new client has a potential to averagely give you a gross margin of $25000/- over the life of the customer or $5000 per year over 5 years.

To keep things simple I have not accounted for the referrals some of the customers may give you or additional activities during the term of the order.

So now we look at the first year – gross margin as $5000. This is the figure we will need to work on.

So suppose you were to be willing to forsake $5000/- to get a customer, you would be assured of getting a profit of $20000 over the next four years. If you have capacity then any additional business will not increase costs substantially. If you don’t have capacity then, this is not necessarily a good idea.

But for argument let’s say you have capacity, but you may still incur incidental costs of $2500. You still have $2500 you can happily spend to earn $20000 over the next 4 years.

The next item to look at is – what is the available capacity in your factory/delivery. So if your factory can deliver 10 more projects over the next 5 years, then you have to get 10 new customers for the factory.

So now you have a simple budget $2500×10 customers equals $25000/- to get an additional revenue of $1 Million (10 customers *$100000/customer)

So you need to now plan how you will spend the $25000/- such that you can ensure 10 customers come your way to your finance.

Till next time then.

Carpe Diem!!!

Finding the right market niche

Marketing, niche, single target market

Today I had an interesting discussion on choosing the right niche or the Single Target Market that I keep mentioning with one of my colleagues and she was not convinced on my logic. So I will throw this open to your comments. I will give my logic and my colleagues logic. In marketing there’s nothing right or wrong. The market decides. You try to go with as much common sense and logic.

We will discuss it by using an analogy of the Indian automotive market. The Indian passenger transport market for personal travel is primarily broken down into two wheelers and four wheelers. The two wheelers are scooters and motorcycles and then you have cars which start from 800CC engines all the way to the Bentley and Rolls Royce.

Suppose the product we have is a 1000CC engine car which is more expensive than the 800CC car (not our product) by almost 40%-100% and is more expensive than the general two wheeler by about 10 times.

So who should be the customer you should target. Someone who has an existing 800CC car and wants to upgrade in life because the car has got old or should we target the person who owns a scooter or a motorcycle and wants to upgrade in life because the family has grown and they can now afford to buy a car.

My suggestion would be to look at the person who already has a 800CC car and suggest our product as an additional car or an upgrade from the old car. My colleague’s logic was that there’s a much larger market which is driving two wheelers and if we can convince them to move to our product rather than to the 800CC car we would be able to target a much larger market even though it will be a tougher sale to crack

I would love to hear your comments below on what you think we should do out of the two options or if you can think of a third option.

Till next time then.

Carpe Diem!!!

Phones and Addiction

addiction, Distractions, dreams

My initial concept of addiction was drugs – opium, Marijuana etc. My parents would warn me of staying away from suspicious people.

As I grew older I realized that chemists / pharmacy guys were not giving cough syrup to unknown people without a prescription. These are typically over the counter medications so I was surprised about why this kind of behavior. Being curious, I asked one of them the reason. That’s when I was told that people become addicted to these syrups and need them because of that.

While these addictions cause harm to the body, one of the biggest addictions that we face today is because of our mobile phones. I have written multiple posts about how I am trying to de-clutter my life by removing all the Apps in my phone. The mobile phones and the Apps on them are so addictive that they drive you away from your dreams and aspirations.

However what I realized today, while reading a post, that this is a problem which is being faced by so many people globally. When something reaches a scale like this, its as bad an addiction for the overall generation.

I guess people will realize this situation and start taking steps, like me, to stop these perpetual distractions and live a more productive life.

Till next time then.

Carpe Diem!!!

Leverage – Sales

Leverage, Sales, Time

For a sales person, the biggest consumable she has is time. If it’s gone or wasted on worthless prospects or prospects who are only out there to take “gyan” or knowledge then your income reduces by that much.

For most people who work for someone else, they sell their time for money. With sales people the advantage is that they can get incentives which can really multiply their earnings. So there is a lot of leverage on their time. And the more leverage that they can build, the more they can get rich.

So one is clearly identifying the accounts you want to work with. Sometimes the company would decide this and you have little options. Sometimes the company that you work for may also limit the products/services that you are allowed to sell. That makes life a little more challenging.

In that case the other big leverage that you can get is by using referrals. If you can create happy customers and they can refer other customers to you, then you can get an amazing amount of leverage on your time. Happy customers are always the best source of new business because then there are less hurdles to cross even with the company you are referred to.

Most sales people however feel scared to ask for referrals because they think the customer is doing them a favour. I also used to feel the same way and used to ask it in a very apologetic manner. However, has a friend asked you for help identifying a good “Chinese” restaurant. You have felt happy to recommend a restaurant, if you have had a good experience. This thought was brought out to me by Dean Jackson and Jay Abraham and since then I keep thinking about various ways to be in front of my customer when they are having a conversation where I can be of help. Think from this angle.

Everyone has a time constrain, but for sales folks it has direct impact on their earning capability so choose your customers well and figure out ways that you will create happy customers and then create ways to get a steady state of referrals.

Till next time then.

Carpe Diem!!!