In our approach to “link” the metaphysics of life in business as well as in your
personal world, we introduce to you -
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“Simply Put” by the Dollar $ Llama
Vol.4, Article11.2008
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Letter from the Editor:
This is the first in a series of articles designed just for you, the small business entrepreneur. We
believe that life coaching is a matrix of many insights that we can utilize to “follow our bliss” to
success and happiness. We would like to think of ourselves as a company that helps to build bridges
for our clients to achieve success both personally, spiritually and in their career life. We are pleased
to make available to you a page dedicated to finance and current events that can affect our businesses
and finances. Please feel free to email questions or topics of interest on this page below and we will
consider addressing them in future articles.
The "Dollar Guru" talks this month about the interpretation of monetary value
and how it effects being an entrepreneur.
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Only a few years ago, it seemed as if the business person’s main problem was to choose the best product lines or
service areas into which they should expand their business. Many projects seemed worthwhile undertaking since
credit was readily available and banks seemed more than happy to make loans. Today many small businesses are
experiencing an entirely different situation. A slipping economy and tighter bank lending policies, despite a very low
2% Fed Funds Rate, has forced business owners to switch from expansion mode to cost cutting mode.
Unfortunately, the usual business strategies during economic slowdowns: staff cutbacks, curtailment of service and
product quality or a cutback in advertising expenditures, typically involve the proverbial “throwing the baby out with
the bath water”. And while your business may survive the tough times using these strategies, its image may become
tarnished and you will barely be able to compete during the economic recovery.
Because most well run small businesses already have the minimal number of employees needed to operate and
compete effectively, the burden typically falls upon the marketing side of the business. But saying: “You need to
stretch your advertising dollars,” leaves most people clueless as to how this can be done I an effective manner, so
here is one way to approach the problem:
If you haven’t done so already, determine the contribution margin for each bit of advertising that you do.
(Contribution margin is a fancy term for a number that tells you how effective your marketing is for bringing in
business, based upon each dollar’s cost) Next, see which forms of advertising you currently engage in give the best
results. At this stage, you may wish to look at advertising mediums and outlets that you are not already engaged in
and estimate what their expected contribution margin may be before continuing your review. Compare the results and
determine which combination will best work for your business.
This following example illustrates the process:
Suppose Rambo Security Service spends $10,000 in the following manner: $5,000 goes to trade journal ads, $3000
is used for an internet radio station and $2000 is used for ads in a regional newspaper.
After reviewing customer file, we find that $35,000 of sales is generated through the trade journal ads, $12,000 of
sales comes from the internet radio show and $2500 comes from the regional newspaper.
Doing the math, we see the following relationships:
Trade journal ads contribute $3 ½ in sales for each dollar spent.
Internet radio contributes $4 in sales for each dollar spent.
Regional newspapers contribute $1 ¼ in sales for each dollar spent.
Using a simplified analysis, if your gross profit margin on sales is only “50%”, the company is actually losing money by
advertising in the regional newspaper. Some of the $2000 saved by cutting out regional newspapers could be used
to increase the most effective advertising outlet (internet radio) and the remainder could be used for general cash
flow purposes like paying utility bills!
The simplified analysis may enable Rambo Security Services to generate enough savings to meet their needs, but
they may wish to go further and explore other modes of advertising that could have potentially higher contribution
margins than what you are currently obtaining.
For example, suppose a local radio station Rambo Security Services currently does not use is expected to bring you
$7 in sales for every dollar spent. The company may wish to change their marketing mix: reducing but not eliminating
trade journal ads while initiating the new advertising outlet.
Obviously, there are factors such as unit advertising costs, personal relationships and risk tolerance that have to be
considered when switching from a known advertising outlet to an entirely new one. As always, you can reduce the risk
involved in changing your advertising mix by gathering accurate information from your current clients, other business
owners and even your competitors. If you have any questions or comments about this article, feel free to email me.
Wishing you success,
Dollar Llama
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