Video Transcript
Tax Season and Evaluating Your Marketing
Okay, Daniel with Jessen Bookkeeping, so I wanted to record our conversation today because I was telling you that this time of year when people are looking at their taxes or looking at their previous year, sometimes I will get questions regarding how much they’re spending on marketing and how to scale a business with marketing strategies.
And of course, it’s coming from a place, a good place, right? Their accountant is educating them on how much are they spending on supplies? How much are they spending on marketing? How much are they revenueing? I think sometimes what gets missed in that conversation though, right, is the understanding that the money that you spend, what’s your return on investment?
How to Scale and Grow Your Business Strategically?
And then also, how do you grow your business in the next year? So sometimes you’re not having that conversation of how much you need to invest in order to grow. And I thought it would be perfect to ask you because you do cash flow projections for businesses.
How to Look at Your Profit and Loss
So I’d like you to give your take. Yeah, I mean, first before I do a cash flow projection, I always go back and look at the profit and loss because, you know, past, present, future, finances, we start with the bookkeeping.
So I would see the same thing that the CPA would see and say, okay, wow, dude, you spent $30,000 in marketing. How can we cut that down is the first question that maybe somebody who’s trying to save money is going to say, but you know, then you got to drill down in that.
How to Calculate Return on Investment
You got to see where did you spend that $30,000 in marketing? Okay, well, and if you spent on Google Ads, Facebook Ads, BlueHuki Group, LLC, you got to ask, okay, well, how profitable was this expense? Well, see, this year I made $300,000. Okay. What did you make last year? I made $150,000. How much did you spend on marketing? Like $5,000.
How to Spend Money to Make Money
What did I say? Yeah, like $5,000. Okay. So it seems to me that how much you spend in marketing and more importantly, secondarily, where you spend in marketing absolutely determines how much you’re going to get back on your investment.
So what I would do is then plug those factors in to do cash flow projections to say it seems like in this example that 10% of your revenue goes to sales. And if you just simply increase that number, it’s most likely that you are going to see a higher return on investment on your overall sales revenue.
How to Make Smart Cost Cuts
So where you really should be talking about cutting money is anywhere that’s not earning you money. I mean there are things that you have to pay down like your rents or whatever Cellphone or whatever, but whatever is not helping you run your business.
Well, that’s where you should talk about cutting down There are certain miscellaneous supplies. You should probably talk about that if Your deductible meals are probably way too much on just eating out with his clients.
Real Client Results
And when I showed him that and what the return on investment was for just sitting down with like a, I don’t think it was a steak dinner, but I’m going to say just sitting down for a dinner. He said, Daniel, you have opened my eyes, quote unquote.
I’m saying, look, there’s nothing wrong with going out for a beer, I don’t drink, but taking your client out for like a little coffee, a beer or something. But how much revenue is that really generating? If you’re not taking that client in this meal example, from all the way to closing to signing on the dotted line for the real estate, is that really worth the steak dinner? Is that really worth the Great American restaurant?
Cheap is Still Not Free
It’s always worth Great American restaurant. Well, and I think two points that you made that I’d like to highlight. So one is that sometimes people think if it’s cheap, right? So let’s say it’s a $200 charge a month or something of that nature, which could be a meal. It could be SEO that’s not really SEO. That they think, okay, there’s no risk here, right? Because it’s such a low fee. But when you add those up, to your point, it can add up very quickly.
Don’t Burn Your Cash
And I tell people, you know, if you’re doing something like that, you’re telling me, and essentially you’re accepting that you’re okay with burning money, meaning you know that you’ll get zero return on investment from it. And really over the course of your business, that could be a very big amount of money that you’re burning, right? Yeah.
Don’t Expect to Spend the Same or Less and Grow
And then the other thing I want to highlight that you said was that, again, if you want to grow, right, you can’t expect to do the same and to spend the same and then somehow magically grow. That can happen, right?
There might be some movement in the market in your particular space, but most business owners I talked to today, they’re constantly dealing with more and more competition. And if you’re dealing with more competition, not investing more and not continuing to then do activities that grow your business, you can’t expect to spend the same or to spend less and then bring a huge growth number like 10%, 15%, 20%, 30%.
Set Goals with the Numbers in Mind
That requires you to do pretty aggressive growth. And I think that’s one of the things that can be lost in those conversations too, is that will cost cutting ultimately hurt your growth too? Because if your cost cut, you know, another big spend is personnel. And if you cost cut your personnel, you might not have the support there to then support any growth that you’re able to achieve too. So.
As you said about that they’re willing to burn cash. I would look at that as an investment opportunity right there because we’ve, you know, you and I have talked to our fair share of payment solution people.
Be Smart with Your Analysis
And I’m going to use this as an example. So you and I are completely OK with burning cash as long as it means that we’re getting the cash for us. What like two eight or three three percent on the credit cards? That seems pretty high for a lot of people and it seems pretty high to a lot of other credit card processors and whatever and so you and I do what we do because it allows the Integration within QuickBooks, and it’s just it’s just easy for us so whoever comes along next and says that I have a system that will integrate just fine and and also save you money there. Well, now we look at that.
When to Nickel and Dime
We see in burning cash, you could say, if you’re willing to spend this much on cash or burn this much cash on something that doesn’t earn you money, would you be willing to take that same investment and move it over to something that does? So the only reason I would probably, I wouldn’t nickel and dime my payment solution right now.
I wouldn’t nickel and dime my, my advertising budget or anything. But to go back to the payment solution, if switching payments meant basically earning a free client every month, in terms of how much I’m saving, then I’m definitely going to sit down and listen to you on that one. If you’re saving me somewhere between $500 and $1,000 a month, that’s a free client to me. Now, that’s just a small payment solution. I also have to have enough revenue to justify that. So we can talk about that later. So to your credit on the advertising, if someone is willing to burn cash on dead SEOs or dead Google leads, then really that’s just extra money for their investing budget right there.
Reinvest Your Savings to Make Money
Let’s take the, I don’t know what they’re burning, let’s take the $100, $300 that they’re spending on dead SEO engines and move it over a little bit to just maybe 2% or 3% extra, I don’t know what, of strategy behind them so that then they can justify the added expenses. But I mean, it’s not even an added expenses.
You would just take the dead cash and give life to it just by changing what you’re doing. Well, and adding to what you’re saying, not everybody feels comfortable with the numbers of their business, which is why typically this time of year I hear from people is because they are for maybe the first time reviewing those numbers with somebody. But I think the point is, is if you do have the right people in place, the right bookkeeper, Daniel, the right CPA, that maybe you can go over those numbers more than once a year, right?
Don’t Hesitate to Have Conversations About Your Money
And then have these conversations about like, again, it is understanding, what are you spending? What are you earning? What are you getting? This is how to scale a business with marketing strategies. And it’s not necessarily that you have to make changes. It’s just that it empowers you to understand your business better so that once the right opportunity comes in front of you, you know, with your cash flow management solution that you have, you understand that, okay, if I invest X, which I’m willing to do because I understand I have the cash flow to do that, and then hopefully I’ll get Y out from that investment.
How to Scale a Business with Marketing Strategies
Then that again, allows you to make calculated decisions in your business on how to invest in your business in order to get to your business goals. And do that in a way where you don’t feel like you’re just throwing darts in the dark. Like you’re actually, you have a plan and you know what you’re doing.
