Budgeting for marketing activities

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!!!

80/20 for digital consumption

Focus, Leverage, Marketing, Product Management, single target market

I write quite often about leverage, using the 80/20 principle or its other fractal dimensions 64/4 etc. I am regularly trying to figure out more points of leverage so that I can become more effective and see how it plays out even in my practice of marketing.

I consume a lot of content through podcasts and I subscribe to a considerable number of them. Today while seeing my pattern of consumption of content from these podcasts, I realized that I predominantly end up with only 3-4 of them and within those also the primary ones are the Ilovemarketing.com podcast with Dean Jackson and Joe Polish and the Morecheeselesswhiskers.com podcast with Dean Jackson.

This is the true fractal nature of 80/20 where just these two podcasts are utilized by me for a major portion of my listening even though I subscribe to 15 or 16 of them.

If I look at at my consumption of digital entertainment platforms – Netflix, Amazon Prime, Disney etc. I have a subscription for maybe 10-12 of these platforms but I end up primarily on just Netflix or Prime.

Again concentration on consuming through a few platforms for a majority of the portion of my time.

The internet has created a level playing field in a lot of areas and the “long tail” impact exists where even small players get a chance to play.

On the other hand from a marketer’s perspective for you to be able to dominate a market therefore you have to be able to choose a very fine niche so that, for that category you can become the top player so that by default people have to use you.

There’s massive leverage in choosing a very small niche and then moving into other adjacent categories. As a product manager if you operate in the digital consumption category, you should be leveraging on this instead of trying to be everything to everyone.

Till next time then

Carpe Diem!!!

Perception is reality- in marketing

arrogance, Customers, ego, Marketing, Product Management

I was watching Shark Tank a little while back . There was this young lady who came with a business model which she called as an Ed-Fintech model and she started rattling some numbers from different global agencies on why they are in such a good space. They had not even started on revenue.

What happened – young person, giving “gyaan” with no revenue – suddenly with every statement that she made, most of the “sharks” pounced on her.

Problem perception- those sitting on the other side of the table thought she was acting as a “know-it-all”. They felt she was arrogant and that hurt some egos. No one ended making her an offer. From her perspective maybe she was just being confident with the research that she had done. Net outcome no investment

I remember about 25 years back there was a Korean company called Daewoo which entered India and launched a sedan. It was an extremely well engineered car which the Indian market had not seen till then. Now some of the early users of the car did not understand the way the fuel gauge was calibrated and they got the impression that it its a fuel guzzling car.

That perception got created with some users but the competition took advantage of that and blew it out of proportion. Eventually the car was a huge looser and whatever forecasts were made went south.

As a product manager or a marketing manager you have to keep an eye on the perception that is getting created and handle it, because once its made, it is not easy to brush off and it becomes reality.

Till next time then.

Carpe Diem!!!