Can your business afford not to?

DollarHouse_small“I can’t afford it” is something many of us hear from business owners, especially during tough economic conditions. It is a revealing expression of pain, fear, uncertainty or worse. Or is it? So the knee-jerk-reaction when sales are down is to immediately slash or eliminate all marketing activities – first advertising then PR, then trade-shows, then sales travel and the list goes on. If the business has a sales staff, the common practice is to apply 100% pressure on “the sales guy” to perform.If there is no designated sales position, many business owners find comfort in commiserating about the recession, the government, their luck and basically just hope for things to get better or worse, begin to lay off workers. In the meantime, your competitors’ sales team are out there pounding on the same customers and working hard to be the first ones to get the deal. When flocks of sales guys descend on customers, it creates a buyer’s market and a shift towards “commodity” pricing – your unique selling point (USP), long term relationships are all in danger.

The fallacy of "what appears to be the right decision" (cut expenses and beat up on the sales guy) is especially evident when you think you can’t afford something. The real question is: “Can you afford NOT to”?

Here's the "psychoanalysis" of "I can't afford it":

  1. It is a verbal expression that masks your inability or fear of making a decision. It is simply "safer" that way. Most of us don't love to part with our money.
  2. When you hear yourself say it, you believe it. Here's a little hint to trick your brain to believe otherwise "I think I can, I think I can".
  3. Denial. If you're a facing a situation like flat growth or declining sales, you have to confront the underlying reasons why you're in that position. If you don't spend money, you don't have to deal with it. Do what everyone else does, beat on the sales guys.
  4. If you mean "your price is too high" then just say it and keep your mind on the return on investment for you, not the pain of expense.

Consider the following scenario (greatly over-simplified to illustrate the point): Sales are down, activity is minimal.

  • Me: "I would recommend that you spend $1,000 on 3 half-page ads in the local paper for  3 consecutive weeks.
  • Owner: "Wow, that's a lot of money I can't afford it"
  • Me: "We know from our analysis of your customers that an average sale is worth $75 and your profit is $35. So we would need 30 sales to break-even. Based on your history and knowledge of the market, how many sales do you think you can make with this promo?
  • Owner: " That's 10/week to break-even, very easy. I think we can easily do 20-30 per week. But...people aren't spending money so easily now"
  • Me: "Let's focus on the fact that people need your product. Let's focus on the fact that they are spending money but they are looking for value. We are giving them a reason to spend it with you, correct"?
  • Owner: "Yes, they are getting a great deal"
  • Me: "And you're not giving it away are you? You are making a profit.
  • Owner: "Yes, but a $1,000 is a lot for me now"
  • Me: "I understand that, but if you agree that customers are spending money on these products elsewhere, you are taking yourself out of the game"?
  • Owner: "What if I spend the money and no one buys"?
  • Me: "Yes, it is a risk we take but with the right offer and your service, it is unlikely to happen. The risk of you doing nothing and being unable to pay your bills, or worse,  is much greater"

Interestingly, "I can't afford it" isn't limited to a business that is in decline. It is as common with businesses that are doing well! In this case it may be a combination of "if it ain't broke don't spend to fix it", or fear and the need to protect whatever you have.

So if your business is doing well, what's wrong with not spending money? A lot.

  •  Unless you have a product or service that no one can match, rest assured that your competitors know you're doing well and they are making plans as we speak to change that.
  • Take a step back and ask yourself: "Where am I going "? Do you have a plan for the business? I have to assume that 98% of business owners know that "unless you're growing, you're dying". So doing well today is great, but are you making plans and taking action to make sure you do well tomorrow?
  • Businesses must practice continuous improvement and innovation - you have to stay one step ahead of your competition and in-sync with customers' demands and expectations which are constantly changing.
  • All of the above require an investment in your future. It's not a case where you can't afford it. If you want to continue to grow, you can't afford not to.

BLOG TAKE-AWAYS:

  1.  "I can't afford it" as a verbal denial for investing in your business is a dangerous tactic - you may actually start believing what you say and it will backfire in the form of flat-lined growth or worse, decline.
  2. Having a marketing and sales budget is a must. Measuring performance vs. KPIs is a must.
  3. Numbers don't lie. They always tell the story, always.
  4. Review your overall business performance monthly! Watch your profitability metrics, when they change and why.
  5. Don't assume that when you cut your marketing expenses because "things are slow", you competitors do the same. Count on the fact that your competitors are actively protecting their market share and planning on taking yours too.
  6. If you're not sure, get an expert to review your numbers and marketing goals. CPAs are not marketing and sales experts. There is a big difference between accounting principles  and marketing and sales strategies.