FEBRUARY 2009
Greetings & Salutations:
Are you still thinking like a Wage-Earner?
Although some less-than-bright business writers have (for
more years than I care to remember) advised their readers that
there are ...
Two Ways To Get Rich ...
Make More Money - or - Spend Less Money.
That Is "Wage-Earner"
Thinking -- Not "Business" Thinking!
Granted, in order for a 40-hour-a-week salary-slave to improve
their financial position, they must either make more money ...
by getting a pay raise or a better job ... or, they must spend
less of the "salary" they are currently earning.
Either way, their disposable income increases.
In the business community, it just ain't so.
You can get rich by making more money - but ...
No matter how brilliant you think you are, you
will never get rich by spending less money.
Think about it! -- If a wage-earner decides to spend less
money by reducing their living expenses ... moneys spent for
food, clothing, lodging, communication, and transportation ...
it doesn't affect their cashflow. Their salary (cashflow)
remains the same. -- Every penny they don't spend becomes disposable
income to save, invest, or use to pay-off old, outstanding bills.
Wage-earners do not spend money to generate income.
Their cashflow is generated by selling their time and skills
to their employer. Therefore, if a wage-earner reduces
their out-of-pocket expenses, the resulting savings go directly
to their bottom line because it doesn't change the
time and skills they are selling.
In the business community, cashflow (revenue) is a result
of spending money ... buying equipment, fixtures, signage,
inventory, packaging, office supplies ... paying for advertising,
shipping, telephones, utilities, building rent or mortgage, postage
... and, in most cases, paying people to facilitate the warehousing
or stocking of your wares, and the sale and distribution to your
customers. Each cost helps create ... directly or
indirectly ... the resulting cashflow.
Unfortunately, all too many small business people attempt
to "make more money" by "spending less money"
in their business without considering what effect it will have
on their revenue. -- Why? -- Because, most of them, having come
from a wage-earner background, still have a ...
Wage-Earner Mentality
Since they have been told (frequently and repeatedly) that
to "get rich" they either have to make more money,
or spend less, they usually opt for spending less; because it
looks easier than trying to increase the business' revenues.
Looking through their costs, they see some on-going big expenditures,
and, determined to "spend less,"
they decide to cut those costs ... just because those costs are
obvious. -- Their wage-earner mentality tells them that, "if
we don't spend that money, it will be ours to keep" (after
paying Uncle Sam his share, of course).
Since they can't cut their on-going fixed overhead costs ...
like rent and utilities ... they usually decide to cut such things
as inventory and advertising. -- After all, "since people
already know where we are and what we sell, why should we spend
all that extra money on advertising" - and - "we've
got enough inventory, I'll just keep the money in my pocket and
reorder when I run-out."
But, unlike the wage-earner environment in which they were
reared, their income isn't static. The "paychecks"
don't just keep coming in ... regardless of the amount spent.
With the advertising expenses cut, fewer people come through
the doors ... fewer sales are made. Or, worse yet, the
people keep coming through the door, but, because the inventory
expense has been cut, they can't find what they came to buy and
don't come back later to look again. -- Either way, the money
that wasn't spent doesn't come back in to be put into the pocket
of the business owner ... .unlike the wage-earner's paycheck
that just keeps coming as long as they have a job.
Spending less money might actually allow a wage-earner to
get rich - but - the only way you are going to get rich in a
business of your own is by making more money. -- When a business
owner tries to grow their business by spending less, they inevitably
end up shrinking the business instead ... adding to the business
failure statistics.
Quit thinking like a wage-earner. Forget about "spending
less." Concentrate on learning ...
How To Make More Money In Your Business!
In accord with the advice of the not-too-bright business writers,
wage-earners who want to be better-off financially have an option
... either spend less, or make more. Business owners only
have one choice. They must do two things ...
Do More Of Whatever Makes The Most Money!
- and -
Do Less Of Whatever Makes The Least Money!
This is not an either/or situation. The business must
do both. -- That means evaluating your current cashflow and profit
centers to determine which are generating the most cashflow,
which are generating the most profits, which may be costing you
money without enhancing the viability of your business, which
may be costing you money but do enhance the viability of your
business, and which are losing money.
In order to accomplish your goal of business growth, each
primary product or service you sell should be considered as a
separate business entity. Then, each should be evaluated
independently to determine whether or not the marketing for that
product or service should be increased, decreased, or eliminated
all together.
Did you notice that I said, each "primary" product
or service, not "each and every" product or service
you sell?
Beyond its "primary" products and services, each
business (usually) has some "peripheral" products and
services that ... although sometimes highly profitable ...
cannot generate enough cashflow on their own to justify any separate
sales efforts. These are the products or services your
customers may want or need in conjunction with your "primary"
products or services but wouldn't normally buy as a separate
product or service.
To best explain the evaluations you must do in order to grow
your business, let's pretend that your business has just three
"primary" products.
Product "A" has annual sales of $25,000. -- Product
"B" has annual sales of $10,000. -- Product "C"
has annual sales of $5,000.
Although, at first blush, it might appear that you need to
put more effort into selling product "A" and
less effort into selling product "C" ... it ain't necessarily
so.
Product "A" has a higher cashflow, but let me 'splain
something to ya ...
Cashflow Allows A Business To Survive
Profits Allow A Business To Grow
"Cashflow" can be used to pay the bills ... maintain
the same level of sales ... but only returns the direct and indirect
costs of doing business (i.e., overhead costs, salaries, inventory,
advertising, shipping, etc.).
"Profits" ... over and above the costs of doing
business ... are the only money you can use to increase your
inventory and advertising; the two elements necessary to the
growth of your business.
NO ... I'm not talking about "net" (taxable) profits.
I am talking about "gross" profits against sales. --
"Gross" profits spent in the growth of your business
never reach your bottom line to become taxable.
And, when I talk about "inventory," I am referring
to whatever you sell ... whether your cost of inventory
is tied-up in tangible goods in a warehouse, stockroom or display
area; or just "available" from a drop shipper ... or
the intangible services you provide yourself; or employee others
to provide. -- Only "profits" allow you to increase
the availability of your inventory ... whatever it may be.
Going back to our example ...
Product "A" ... with gross sales of $25,000 ...
has a direct inventory cost of $15,000 and a direct advertising
cost of $5,000 (direct advertising cost being the amount of money
specifically spent on selling that product). -- That leaves a
"gross" profit of $5,000 from the sales of product
"A".
Product "B" ... with gross sales of $10,000 ...
has a direct inventory cost of $5,000 and a direct advertising
cost of $2,000; leaving a "gross" profit of $3,000.
Product "C" ... with gross sales of $5,000 ... has
a direct inventory cost of $2,000 and a direct advertising cost
of $1,500; leaving a "gross" profit of $1,500.
Although product "A" has the highest cashflow, it
only allows a "gross" profit margin of 20%. If
you take 100% of the gross profit generated by product "A"
and spend it for more of the same advertising, you will increase
the sales of that product by 100%.
Products "B" and "C" provide much lower
cashflows - but - each of them allows a "gross" profit
margin of 30%.
Like product "A", if you take 100% of the gross
profit generated by product "C" and spend it for more
of the same advertising, you will increase the sales of that
product by 100%. -- BUT ...
If you take 100% of the gross profit generated by product
"B" and spend it for more of the same advertising,
you will increase the sales of that product by 150%.
Get the picture?
A wage-earner can "spend less" in order to improve
their financial position but, in business, the idea is to "spend
the same amount but make more usable money." -- The increased
"gross" profit can, then, be spent to make even more
- or - improve your lifestyle, since a smaller piece (percentage)
of a big pie (net profit) will be much bigger than a bigger piece
of a small pie.
Now is the time to go back over your detailed revenues and
costs to determine how you can ...
Do More Of Whatever Makes The Most Money! - and -
Do Less Of Whatever Makes The Least Money!
Quit trying to "spend less" to "make
more" and figure out how you can "spend the same amount
but make more usable money."
Now, let's do some ...
Questions & Answers, Comments
& Other Good Stuff!
Harvey Segal
has a freebie for you ...
"I am sure you will LOVE my new book ... Rebranding
Super Tips. * It's short (14 pages) * It's free
* No sign up required."
Okay, Gang ...
What are you waiting for? -- Go get your personal "free"
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http://www.supertips.com/r/rebranding.htm
Copyright - 2009, J.F. (Jim) Straw. All rights reserved.