Money Money Money

Now it's time to shift gears and move over the the payables side of the ledger. While it's fun to talk sales, receivables, etc., it's also naive to think that you can grow a business without taking on some added expenses. As the saying goes: It takes money to make money.

With that said, it's also important to think about how you spend, or invest, your money.

I can't tell you how many times a client has said to me "Ola, I paid for this really great advertising campaign. I only need to sell 10 widgets to break even!"

The client has so much enthusiasm in their voice, it breaks my heart to tell them that they may have made a bad investment.

After all, who is in business to break even? Even Tiger Woods knows better than to simply par every hole, right? Why would anyone invest in a campaign and attempt to only get their investment back? Let me show you the numbers aside from the basic rationale.

If you spend $1000 on a targeted mailer, you no longer have that $1000 to spend somewhere else. Duh, you might say, right? Just keep reading.

If you make $100 per sale, you need to make 11 sales to be ahead. And to keep the numbers simple, you'd gross $1100 on your $1000 investment. That's a 10% return. Easy math, right? Not so fast Einstein.

If you elected not to invest in that campaign and instead targeted 10 existing clients, spending $100 on each of them, you'd probably have a higher return on your investment. These are existing clients that already order from you on a regular basis. Assume that your show of affection generates 1 additional sale from each of them next month. Again, you've generated $1000 in sales, so this is break even, right?

Wrong.

This existing client takes no extra work by your support staff since the account is already set up and in place. Think about that for a minute. No extra hand-holding, coddling, training or walking them through ordering on-line while attempting to develop a relationship. By the time you add up man hours involved in a new account, the cost will likely be well over $1100. Assume 11 hours (1 hour per new client) at $10 per hour. Now, you've essentially spent $1100 on ten new accounts who may, or may not, use you again depending upon how well you "performed" for them. In essence, the only person who made out on the deal is your salesperson. You've just gone $1000 in the red. Congratulations.

Consider spending your money on existing relationships to solidify future business, new technology opportunities, data sharing, etc.

If you don't like spending your money on existing clients, stick the $1000 in a 30 day CD generating 3% per year or sponsoring a contest for your sales reps who exceed goals by 20%. Whatever number works out to be $1001 or more. Give a $1000 AMEX card to the sales rep who can increase her top account invoice by 10% or more in a month. Do something...anything. But always be cognizant of the numbers behind your new campaign.

We're going to move on to paying our receivable next week, so be prepared to dust off the abacus (or TI BAII plus.) If you don't have one, I do and I'll do the math for you and prove that sometimes it doesn't make sense to pay your bills ahead of time to receive a 2% discount.

That's called a "teaser," by the way.

Profitable week to you all and please post some comments!