Posts Tagged ‘ROI’
I.T. Exec's – Now Is The Time
After talking to many business owners and I.T. Execs here in my area, I’m convinced most don’t understand or see the change that is taking place and think Social Media is a waste of time, a fad. Most are bottom-line thinkers and there must be a result for ever action taken, an immediate return on investment. They say I don’t have time for that sh*t! It puzzles me how those who think in these terms consider themselves Revolutionary thinkers, Visionaries in their respective fields. It would seem to me that this is the ultimate oxymoron. These individuals understand bricks & mortar better than most but they struggle with the soft side of what’s happening with Social Media and refuse to believe that it has any influence on the bottom-line.
How could it be that these brilliant minds are missing the shift, unwilling to accept that their roles will be obsolete as they know them. The argument is valid, someone must do the work, and, someone must be in charge, well, sort of. The Executive(s) that understand we the people are going to tell him what and how things will go will win, he must listen and listen hard before making a final decision. I’m not saying dismantle your hierarchy right this minute, I’m saying prepare to allow for a flattening of management and an empowerment of your staff unlike anything you’ve planned for in the past. Open yourselves up to bringing strategic I.T. and Social Media consultants (thinkers) in to help guide and wade through this new environment, this new era of Social Media and what it will mean to you and your business. How 50 Billion Dollar Marketing Dollars will go to firms that are smaller and can move faster than the bloated organizations we know today.
There will still be a need for large ERP systems and the like but they too are changing, as we move towards Virtual Reality and Nanotechnology, these environments are being built via the Cloud today rather than in big rooms with SANS and mainframe like servers. In the future we all will be wireless device’s, we will integrate with technology, in some ways we already have, manual processes will disappear in such a way we won’t see it coming. This isn’t fear mongering, this is asking you to look outside of your four walls and take notice of what’s really going on with technology, spend time looking ahead and consult with those who can help you see what you can’t see now.
I.T. Exec’s – The Time Is Now! You may even be too late in some circles, much needs to be done and you need to get started if you haven’t already. Don’t do things in a vacuum or you will stay inside your four walls and try to use old thinking to get you of your Executive Box. I know most of it seems logical but trying to put an ROI to conversation(s) is confusing at best when you try to get there using traditional equations. There are some sharp people who can help you and you must be willing to allow them to lead you through the maze, if you are looking for someone in your area let me know and I’ll get you connected.
I could go on and on but I think you’re getting the picture, get outside the box and ride the wave rather than be whipped out by it!
Return On Investment Selling
In July I wrote an article for you called, ” Your Break Even Point “. The premise was to help you calculate that number and for you to have a better understanding as to why you might be loosing money everyday and not know why. Your business depends on you knowing! I mean it’s not something real obvious because it’s kind of hidden, if you don’t have the right indicators in front of you everyday you won’t see it. Hopefully you were able to figure out what those indicators might be and you are monitoring them daily. I’ll assume you’ve done that because next I want to walk you through an advertising slash marketing concept with you.
Years ago when I was selling Radio Advertising we used a thing called Return On Investment Selling, it was an education and very interesting. The program was to show how you would be able to pay for a new ad campaign and make money too! Yep, pay for the advertising and make your desired ROI, sounds to good to be true right? Well….yes & no. Let me lay out a scenario and we’ll walk through this together, I think you will find it most interesting.
I’ll change the names and places to protect the innocent, just kidding. I’m going to take you through a simple Growth Objectives equation and an Investment Analysis so you can understand the number at the end when I’m finished. Oh, and the Forward Slash ( / ) means Divide By in my equations if I don’t use the ÷ Symbol, I thought I should clear that up right upfront 🙂
Let’s pick a market, let’s say you are in the furniture business and the Market Potential was say 5 Million Dollars. That means 5 Million Dollars in business is being done in the Market your business operates in. Lets keep it simple and say you have a present Gross Sales figure of $500,000. That means you have a 10% market share. But you want to realize a growth objective of $100,000 out of your market, what kind of additional penetration do you need to achieve your goal? You would need 2.2% more, here’s how I figured it out:
100,000 ÷ 5,000,000 – 500,000 = 100,000 ÷ 4,500,000 = .022 x 100 = 2.2 (actually 2.222222)
If you’re struggling with the equation, get your calculator out and punch it up. It works.
So now we know the Penetration needed to reach a $100,000 Growth Objective in your Furniture market. Next I’ll break down how many customers or prospects it will take per day to achieve your goal of One Hundred Thousand Dollars.
To make this equation work we will need to know a few things first before it will work. We need to know what the average customer worth is in your store, how much each customer spends in your store. We also need to know what your closing ratio is, a great way to see how well your sales staff produces I might add.
For the purposes of this exercise I’ll use an average customer worth of $1,000 and a closing ratio of 40%. That will keep the numbers easy to work with. The equation is somewhat simple, I’ll try to lay it out that way.
$100,000 / $1,000 = 100
Growth Objective / Avg. Customer Worth = Additional Customers Needed
100 / 40% = 250
Additional Cust. Needed / Closing Ratio = Additional Prospects Needed
250 / 312 = .08
Additional Prospects Needed / # of Selling Days (Days Open) = # of Prospects per day
Is the number of prospects needed realistic? Yes No
This is only part of the equation, this merely tells you how many prospects per day you would need above and beyond you current customer base over the course of one year or 312 business days.
OK, we now know what the daily number is, but it still doesn’t tell us what the additional Gross Profit is going to be. Well, if your Growth Objective is $100,000 we now need to multiply it by the Average Gross Margin. Let’s use a simple number and one that might be realistic, let’s use 25%. Using our numbers from above this is how the equations looks:
$100,000 x 25% = $25,000
Growth Objective x Avg. Gross Margin = Additional Gross Profit
So in order to achieve the additional gross profit of $25,000 you were going to need to make $100,000 more (above and beyond) in business over the next year. We figured out how many new prospects / customers it would take to hit that number (0.8 per day) and we felt it was realistic. Now, what kind of ROI did you want to achieve, I’ll assume you wanted 100%! You want to make $100,000 in additional business which would give you an additional gross profit of $25,000 and you want a return of 100%, right?
The question begs to be asked…..HOW?
Well, obviously you would have to do something different than you have been doing to achieve that fine 10% market share. You want to grab 2.2% more of that market right? That means you have to do something above and beyond what you are already doing in your advertising efforts. You WILL have to put more advertising dollars into achieving your goal of 12.2% Market Penetration, your $100,000 Growth Objective and put the additional $25,000 Gross profit in your pocket.
The ROI I’m talking about is what you have to spend in additional advertising dollars to make it happen. You are probably asking yourself how you figure out how much to invest in advertising dollars. the Investment Analysis is quite simple. Here’s the equation:
Desired ROI is 100%
$25,000 / 1 + 1 = $12,500
Gross Profit / Desired ROI as a Decimal (1 + 1) = Maximum Additional Advertising Investment
25,000 ÷ 2
So, you want to get 100% of your advertising investment back, you will spend $12,500 in new advertising dollars plus make $12,500.
You will Invest $12,500 in additional advertising to realize the Growth Objective of $100,000 in additional revenues that will produce and directly impact your bottom line by an additional $25,000. Cool & achievable based on the above numbers.
The above is an over simplified view, achieving a market share growth of 2.2% on top of the already acquired 10% market share is not easy, the numbers don’t tell the whole story. Now you still have to go through the process of doing the creative, copy, layout and cross promotional stuff but now you an idea in advance the hill or mountain you may have to climb.
I hope this helps you when you get the notion to grab more market share, do your homework and crunch the numbers. You will have a much better picture and it will allow you to enjoy the process of achieving it. Keep this in mind the next time your advertising sales rep wants to up sell you. If you want more real gross profit you will invest to get it, it’s a fact of life. Just make sure it fits your goals, think with the end in mind and work hard to reach it.
Until next Time.
Are The Words "Social Media" Missing From Your Business Vocabulary?
This question has been nagging at me these past few weeks like I was being pecked to death by a chicken, could it be that these words are not computing with local business owners? It’s like your smallest child learning how to read an can’t pronounce a word, they end up creating a new word because they can’t say what they are reading. No it’s not a learning disability, it’s an understanding of what those words actually mean and how to use it in this new age and environment of marketing. It’s changed, or has it? Anytime you have the word ” Social ” attached to a phrase or sentence, people think less formal, beach party, BBQ or relaxing on the deck with friends. Yes, that is a form of being social and it is somewhat related to the term in business circles as well. The problem isn’t the word, it’s the thinking that is attached to the words, and small business owners can’t seem to break how they feel or think about the word. It’s not that they can’t, they just don’t know how and it’s embarrassing enough that they won’t ask for help on the topic for fear of looking stupid. I mean come on, it’s the words ” Social Media ” how could I not know what that means! So rather than find out, they think, let’s not go there and or I’ll avoid the conversation all together. Worse yet, I’ll ask my kids. Small to medium business, all business for that matter needs to educate themselves on the tidal wave before them and how to ride that wave without being wiped out.
In my corner of the world here in Western Canada, a very small group of people participate in the formal sense of the words social media. This group is comprised of mostly people from chat rooms or FaceBook and the like, not a many are business owners trying to add this environment into their marketing mix or even their support systems. I say this because I’ve been coming up against this lack of understanding everyday and this uncomfortable feeling when you try to share with them, to help them understand what it is or could be for their business. It’s like the words Social Media aren’t even in their vocabulary or business language, it’s completely missing, and if it is there, it’s a picture of people standing around a water cooler. So in light of that, I am posting the Wiki definition of Social Media here for all the world to see.
Social Media Definition
Social media is online content created by people using highly accessible and scalable publishing technologies. At its most basic sense, social media is a shift in how people discover, read and share news, information and content. It’s a fusion of sociology and technology, transforming monologues (one to many) into dialogues (many to many) and is the democratization of information, transforming people from content readers into publishers. Social media has become extremely popular because it allows people to connect in the online world to form relationships for personal, political and business use.
Distinction from Industrial Media
Social media are distinct from industrial media, such as newspapers, television, and film. While social media are relatively inexpensive and accessible tools that enable anyone (even private individuals) to publish or access information, industrial media generally require significant resources to publish information. Examples of industrial media issues include a printing press or a government-granted spectrum license.
“Industrial media” are commonly referred to as “traditional”, “broadcast” or “mass” media.
One characteristic shared by both social media and industrial media is the capability to reach small or large audiences; for example, either a blog post or a television show may reach zero people or millions of people. The properties that help describe the differences between social media and industrial media depend on the study. Some of these properties are:
1. Reach – both industrial and social media technologies provide scale and enable anyone to reach a global audience.
2. Accessibility – the means of production for industrial media are typically owned privately or by government; social media tools are generally available to anyone at little or no cost.
3. Usability – industrial media production typically requires specialized skills and training. Most social media do not, or in some cases reinvent skills, so anyone can operate the means of production.
4. Recency – the time lag between communications produced by industrial media can be long (days, weeks, or even months) compared to social media (which can be capable of virtually instantaneous responses; only the participants determine any delay in response). As industrial media are currently adopting social media tools, this feature may well not be distinctive anymore in some time.
5. Permanence – industrial media, once created, cannot be altered (once a magazine article is printed and distributed changes cannot be made to that same article) whereas social media can be altered almost instantaneously by comments or editing.
Community media constitute an interesting hybrid of industrial and social media. Though community-owned, some community radios, TV and newspapers are run by professionals and some by amateurs. They use both social and industrial media frameworks.
Here is the link from the above: Social Media Definition
The real issue isn’t what the words mean, it’s how a consultant or media firm explains them, provides a case study that reflects that a business can derive an ROI from Social Media. Thus, giving the term value and a new way of marketing and communicating with their customers, by building a deeper, richer relationship that builds a new kind of loyalty. More importantly it provides a forum where you the business owners actually cares about what your clientele think about your products and services. A place where you can give them and even better experience of dealing with you.
Another challenge for these words and business owner’s; there are people out there claiming to be knowledgeable and understand social media that just plain don’t. These individuals land high positions in large organizations, they get the position and then scramble around to figure out how to do the job when they have no business being there in the first place. A great rant on this topic is from my friend Olivier Blanchard of The Brand Builder, his video entitled, “Is your Social Media Director qualified?”, it articulates far better than I Olivier’s frustration and concern with these individuals in one short video. Take the time to view it.
As you can tell there is alot of work to be done, an educational track that needs to be articulated in a way that business owners can connect the dots, connect the words to a real opportunity and value they have not considered before. Each business owner needs to bone up and learn that the term Social Media is a new marketing environment but also a relationship they have avoided in the past. You can no longer avoid it because it is the new word of mouth, it can be your best friend or your worst enemy. You have to decide which it will be.
Social Media ROI
The topic of ROI is not a new one but it remains to be a stumbling block for most in the Social Media Marketing field. The problem isn’t that an ROI can’t be derived, the challenge is, most are using old ways & thinking to get to that ROI place in an environment that requires you to think differently. Using old practices does not help you get there because the rules have shifted yet once again.
I got into it with a few people on Twitter over the weekend, @CreativeWisdom @kriscolvin, @mackcollier, @thebrandbuilder and @virtualcfo. We bantered back and forth sharing our views, recognizing we could get there with similar but slightly different metrics. My conversation started with Kris & Mack, we actually started with the Quantity vs Quality of Twitter Followers topic and then we moved onto the ROI question. Then Olivier jumped in along with Leah & Scot. There is a distinct difference between ROI & Impact according to Olivier Blanchard (@thebrandbuilder), his definition is interesting and reasonable I think. He states, eyeballs are not ROI, Impact is not ROI, ROI can’t be calculated with an equation. In one of Olivier’s video’s I was able to relate to him because of my 15 years in Radio & Television, he uses F.R.Y. (Frequency, Reach, Yield) as a way to get to an ROI.
Scot Justice made this statement, “You can capture cost of Social Media by implementing a procedure where every prospect is asked about a blog then Calculate SM$ per impression then ROI”. That is an old school way of tracking and has some merit, we used a similar system in Radio to track campaigns, I would like to hear Kris & Olivier’s perspective on his theory. Talk about a hot topic with some very talented and passionate people, this would make a great panel on Owen Greaves LIVE! (I’m working on it).
I do recommend you visit each one’s website or Blog and see what they are doing and how they are doing it, contact them and ask the questions, I’ve listed them for you:
2.) Kris Colvin
3.) Scot Justice
4.) Mack Collier
5.) Leah Dossey
No they all aren’t Marketers in the traditional form but they do need to understand how obtain a form of ROI. There are many that claim Social Media Expert Status, many think they have a clear understanding of what an ROI is, in my opinion they aren’t and they don’t get ROI.
I’m certain this topic will never really go away because many will have an opinion, many will claim they have the secret formula, the list that do is very, very short. I love this kind of dialogue so I’ll keep bringing it.
Localize Your Social Media Marketing
What is considered successful marketing using Social Media Networks, is it how much money you made, how popular you are, how many hits your site(s) get? Many think Social Media is just being a good Internet Marketer, not so. There is this thought process of “looking out there” rather than looking in your own backyard in the Social Media World. Why is that? Is it merely thinking big or is it Ego, I think the later has a lot to do with it, we all want our 15 minutes of fame and this is the easiest way to get it.
The old saying, ” Think Globally, Act Locally” is the right approach regardless of the grandeur or weblebrity that might come from all the marketing efforts you expedite in these Social Media Networks. The Internet is the vehicle and Social Media is the platform of choice to deliver your opinion, to be heard, and too be seen! Video is now the rage within the Social Media Networks, be seen and heard is socially acceptable!
So how do you apply these Social Media Networks to a local way of doing business? If print is dead, what options do traditional businesses have in a tangible way to market their business. To quote Guy Kawasaki – ”Advertising is when you tell people how great you are. PR is when someone else says how great you are.”
Print ads have a life span of a day and a half, Radio & Television is a frequency problem and direct mail is a low ROI challenge, what should you do? You have to mass mail or run HIGH rotations of ads, you can spend more money producing no or low results the traditional way. The bigger problem isn’t the vehicle as much as the way business owners think! Old thought processes and methods are written in stone in the walls of their brains, making it very difficult to see the value in Social Media Networks.
Mike Wesely of Twittalk.tv during one of his shows suggested that building the relationship first is paramount, this will build trust which will allow you to influence those who follow you. This trust, like face-to-face relationships, takes time to develop so be patient and care about people. I had the privilege of speaking with Mike on the phone and I can tell you Mike loves people and truly wants to help people with Twitter. You can follow Mike on Twitter @mike_wesely and attend his Twittalk.tv Show for free.
Branding is the BUZZ word these days and frankly should be in traditional forms of making your business or product be top of mind. So, nothings really changed just the method has, the glue, the difference, is and always has been in the relationship. We have become markets of Social Circles that depend on knowing that its safe to buy or deal with a person or business. But most of us just want to belong and be in a safe fun place. Hang on, is that new? We as a people have always been like that, we are creatures of habits.
Now I’m really confused, if nothings changed then why has everything changed? The principles remain the same and have to be applied to every social market, only the methods have changed, not the principles of how and why people buy. So Think Globally and Act Locally helps me communicate to my target market or niche in a more accurate way. By the way, the original phrase “Think Global, Act Local” first appears in the book “The Evolution of Cities” (1915) by Scots Planner and social activist Patrick Geddes.
The world of business has not changed all that much, much of what you do to sell goods and products will continue, you will however add new ways of marketing. The principles of marketing will remain the same but your methods will change, this is going to be determined by where the largest flow of traffic is going not too mention where the greatest pool (demographic) of dollars resides.
You should and will have interaction with people at some level, so you will influence (sell) someone to get them to do what you want. Social Media Networks are best used in your PR efforts, not in advertising programs. No matter what you do, improve and be the best you you can be, because today’s markets are becoming very personal. I hope the shift to a more Social environment will make it possible for everyone to realize their dreams. Don’t forget your community for the sake of reaching the world, localize your Social Media Networks to serve your business and above all, care for your customers no matter where they reside.