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Guaranteed Advertising ROI in a Tough Economy

How in the world can they afford to keep advertising like they do?

You’ve seen ’em. Those companies who offer to do battle with the IRS if you owe large income tax debt. The credit counseling companies. The medical discount programs. Those who will refinance your mortgage or your structured settlement?

How can they afford the sheer number of ads they’re running? Is business really that good?

Perhaps. On the other hand, maybe they have a different deal. No, not a better price, but an arrangement under which they don’t pay for advertising that doesn’t deliver directly attributable sales.

The arrangement known as “Per Inquiry,” or “PI.” You may also hear it described as “Cost Per Lead.” In the U.K. it’s called “Cost Per Action.” On the World Wide Web it’s known as “Pay Per Click.”

How Does PI Work?

The advertiser and the broadcaster agree to turn some of the broadcaster’s unsold ad time into PI ads for the advertiser. The advertiser does not pay for the size of the ad, nor for the number of ads run, but only a pre-calculated percentage of the actual sales produced by that ad. No more. No less.

The ads contain toll-free phone numbers unique to each broadcaster, which ring into a call center. Experienced telemarketers convert the calls to sales, and report the number of sales to the advertiser and the station.

This can be a great deal for the advertiser.

Why Doesn’t Everyone Use PI?

Television stations, radio stations, and newspapers are looking to sell their time or space for the highest price the market will bear. Most broadcasters won’t accept PI at all, which eliminates the option for most advertisers.

Those who do consider PI will grudgingly accept it as better than nothing, but only at the last possible minute, after they’ve offered fire sale prices to their regular advertisers, after they’ve offered remnant prices to the standby advertisers, if there’s no other way for the broadcaster to turn the unsold time into cash.

That last possible minute schedule will vary from week to week, which makes it hard to achieve enough repetition to help people to remember your product, and imagine themselves using it. Will even the least popular broadcast outlet run a PI ad with enough frequency to make the phone ring? A new direct response campaign will need two or three times the number of ad exposures required for a long term branding campaign.

Another frequency problem becomes obvious when one realizes that PI requires quick response. If they can’t see a payoff this week, broadcasters won’t continue to run the ads next week.

It All Comes Down to Reduction of Risk.

If one is willing to overlook the cost of lost opportunity, performance based advertising is largely zero risk for the advertiser. For the broadcaster though, there’s a serious probability that the ads will never produce any revenue.

Why? Because the advertisers most likely to ask for a PI deal are under-capitalized businesses with ads that aren’t working well. Instead of fixing the offer and increasing persuasive appeal of their ads, these advertisers look at PI as a great way to obtain cheaper exposure for their existing lame ads.

And that puts all of the risk on the broadcasters.

The offer is selected by the advertiser. The copy is written by the advertiser. The production is again handled by the advertiser. The broadcaster has to trust that the advertiser has done all of these things well. How much risk will broadcasters take? Frankly, it depends on the amount of unsold commercial time on their stations.

How Much Will PI Cost?

Let’s take a lesson from our brethren in direct marketing. Direct marketers know to the penny the amount they are willing to pay for each response to their advertising.

But calculating what the advertiser is willing to pay is only half the equation. How much will it take to motivate the broadcaster to accept performance based advertising? That’s the other half, and it’s critical.

We can assume a broadcaster will be more willing to accept a PI arrangement if the advertiser is willing to reduce some of the broadcasters’ risk.

First, pay those broadcasters the highest amount possible for each response. Experience has shown that a 50/50 split will usually enlist the cooperation of the broadcaster. On most items the math works out to a minimum necessary profit margin of six times cost. Will the product sell for six times the advertisers cost?

If the advertiser can purchase or manufacture say, an orthopedic pillow for $3 each, sell them in pairs for $40, and allow another $5 for fulfillment, there’s a gross profit of $29 per order. Split the profit and offer broadcasters $14.50 per sale.

Second, direct marketers also test market. They’re sure the numbers work for each mailing piece, each list they mail to, and each new broadcast outlet which carries their ads. The biggest television stations, those which are making a handsome profit in PI, (think “Superstation.”), require proof that the ad has produced significant sales in other markets.

So, if our hypothetical advertiser pays for ads which test the offer, test the presentation, and offer broadcasters a proven product and predictable success, the odds of future PI arrangements go up dramatically.

Then there’s the customer.

Consider all that the customer has to go through to place that order. She has to understand the offer while she’s being distracted by life. (Most of us don’t pay rapt attention to advertising, regardless of the medium).

Then, before she forgets it, Miss Customer needs to remember the number, or to write it down.

Finally, she needs that last emotional push to tear herself away from what she was doing and to correctly dial that number.

There is a theory that, even though PI generates few calls, those who do call convert at higher rates because of all of the pre-qualification steps they’ve already gone through. But, any skepticism about your offer on the customer’s part and she’ll never bother to go through all those steps.

Here’s where we split from direct marketing philosophy.

In PI, the hard sell of direct response doesn’t work as well as does the soft sell of lead generation. An advertiser will dramatically boost results by changing the immediate goal from getting a credit card number to harvesting the names, addresses, and phone numbers of new customers in order to contact them directly in the future.

Offer a free information kit, free video demonstration, free sample, or free trial. Give a free estimate or free quote. Stack on additional value until Miss Customer is compelled to pick up her phone and call now.

The fulfillment program is critical.

Without the cash register ringing, how will your broadcast partner get paid? What will you consider a response? How will you track it? The math is pretty straightforward. If experience shows you’ll convert one prospect out of five, and your average profit is $30 per sale, then each lead is worth $6.

You may need to retrain or replace your call center operators. In this new two step process, its critical that they understand the art of the upsell as well as the secondary sell.

Final Thoughts About Making PI Work For You.

Think big. Do you sell manufactured housing? What’s it worth to sell an extra home this month? $700? $1,000? Cut a deal with a radio or TV station to pay that much for each unit more than your monthly average. Point out that they can come count the units on your lot to check their progress. Could your broadcast partner make an extra $3,000 this month by running your PI ads in prime time? Watch their resistance to PI melt.

Alternatively, offer cash, but ask for a guarantee. Tell your broadcast partner that you’ll place a schedule of $500 per week, but that you’ll need to see 25 responses each week. It’s been my experience that stations will work harder to protect $500 already on the books than they will to earn an additional $500.

Per Inquiry is not cheap advertising, but it does have the advantage of being accountable and replicable. Done properly an advertiser can generate high quality leads or sales at a predictable cost. Perhaps your company could benefit from PI.

Source: http://www.allbusiness.com/print/11736532-1-9a0bs.html#ixzz1bwlH1Jon
Gamblers, E-Mail, Religious Miracles, Word-of-Mouth, and Customer Delight
Word-of-mouth occurs when, through surprise, your customer has become emotional about you.

It can happen when astonishment leaves her delighted. Alternately, it can happen when disillusion causes dismay. The first produces positive word-of-mouth. The second, negative.

But either way, for word-of-mouth to sustain and grow, the high level of emotion your customer feels must be unexpected.

You see, routine events never get discussed. In order for an event to be worthy of being talked about, it must be out of the ordinary. And that becomes the danger in each additional step you take to delight your customers. The experience eventually becomes routine.

Offer a free desert in your restaurant to everyone who’s ordered an entree, and people will talk.

At least at first.

But as people react to your new generosity, two outcomes become predictable:

1) Your customers will grow accustomed to your new offer, and consider it just part of the meal they’re choosing when they enter your establishment. Delight fades quickly when the surprise goes away.

2) Your competitors will copy your idea. You’ll lose the competitive edge. When everyone does it, the only possible outcome is thinner margins for the industry. Think “frequent flyer” miles as a classic example.

What we need is a way to keep the surprise element high.

For that, we turn to one of the fathers of behavioral psychology, Burrhus Frederic Skinner.

B. F. Skinner created a branch of psychology known as operant conditioning. He demonstrated that when properly rewarded under specific conditions, living beings will change their voluntary behavior.

At Harvard in the 1950s, Skinner created the “Skinner Box” to condition laboratory rats. The rats were taught to push a lever, and get a food pellet in return.

Once they learned to feed themselves, Skinner split the rats into two groups. The first never got another pellet by pressing the lever. The second group got the reward sometimes, always following a pressing of the lever, but never at any predictable interval.

The first group quickly stopped pushing the lever. The second group never did.

We intuitively grasp the the actions of the first group. It’s not so easy to understand the second, but its important that we do. Whether discussing lab rats or your customer base, the second group is where the money is.

Do humans push levers?

Absolutely. And the more random the reinforcement, the more unpredictable the payoff, the more frequently they will push.

Watch someone feed quarters into a slot machine. Or go somewhere with casinos that accept Paypal and watch the feeding frenzy. Isn’t the attraction of any form of gambling the incredible delight experienced by the gambler playing Texas Hold ‘Em when surprised by a win?

This tendency to keep pushing the lever also describes why the faithful keep praying for miracles. Every now and then, at random intervals, their prayers appears to be answered.

And those folks who check e-mail multiple times a day, hoping that this time there will be something new? Yup. They’re also still pushing the lever.

Can you keep your customers pushing the lever?

Yes, you can, provided that you keep the element of unpredictability intact.
- If you’re the restaurant manager who occasionally comps desert to the birthday party, those customers will tell their friends about you.
- If you’re the carpet cleaner who is hired to clean only one room, but who treats a spot in the hallway at no extra charge, customers will tell their co-workers about you.
- If you’re the plumber who unplugs the sink, and then fixes the drip in the faucet for only the cost of the parts, customers will tell their neighbors about you.
- If you’re the television ad exec who tells the prospective client his budget won’t create any impact, then recommend he not buy advertising, he’ll tell other business people about you.
- If you’re the dry cleaner who casually mentions that your customer’s shirt was missing a button, and that you’ve replaced it, customers will talk about you.
Each of these word-of-mouth examples has two components: surprise, and delight.

Delight wears off quickly when the surprise is gone. You must keep both of them active to make word-of-mouth work in your favor.

One last thought: the next time a delighted customer (or the friends, co-workers, neighbors, business people, and customers she’s told) needs these services, which restaurant, or carpet cleaner, or plumber, or advertising sales rep, or dry cleaner do you suppose will get the call?
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Chuck McKay is a marketing consultant who helps customers discover you, and choose your business. Questions about surprising and delighting your customers may be directed to ChuckMcKay@ChuckMcKayOnLine.com.
Violated Expectations. Marketing lessons from the Dallas Cowboys.

The Dallas Cowboys haven’t had that bad of a season. Five wins, four losses. Slightly better than average. Unfortunately, the die hard fans are devastated. Care to speculate why?

Probably because their expectations for the 2008 season included the Super Bowl.

HBO’s “Hard Knox” may have started some of the hype, featuring the team in four episodes. ESPN picked up on the extra attention given the Cowboys, and focused their considerable airtime (and commentary) on Dallas.

Then, of course, there were all of the bloggers, themselves die hard fans, who enthusiastically trumpeted the inevitable triumph.

Had the fans not been led to expect more, this season wouldn’t be all that bad.

Is there a marketing lesson in the 2008 Dallas Cowboys?

Why, yes. Yes, there is.

It has to do with your customers expectations, when compared to their experiences. Outside what they’ve learned from your ads, many potential customers have no idea of what to expect from your company.

And then they have an actual experience with your company, and you live or die by whether your advertising is contradicted by your customer’s reality.

Advertise “fast friendly service,” but deliver an experience in which your customer stands in line for a turn with a discourteous employee, and every dollar you’ve spent on advertising is wasted – at least with that particular customer.

In much the same way that violated expectations have led Cowboys fans believe this season to be awful, your customer’s violated expectations may convince her that you deliver bad service.

Worse, that you deliver bad service, slowly.

Violated expectations make people talk. Good and bad.

I wrote about those effects in Love and Indifference, Part 1:

“When you thrill shoppers with their purchases and the way they are treated, they are likely to become customer evangelists. They’ll be out preaching the gospel of your company and winning converts to whatever the degree of their persuasiveness.

But the extremely displeased group turn into vigilante customers. In their minds they’ve been wronged. You could just as well have “Wanted, Dead or Alive” posters up with your name on ’em, ’cause they’re out to get’cha. Tell twenty more? Count on it.”

But what if your customer’s experience is only slightly off?

What if you don’t deliver great service, but you don’t do a bad job, either?

If the customer expects “a gourmet meal exquisitely prepared using only select ingredients,” and gets a meal that’s reasonably good, she may attribute superior qualities to the food.

That’s exactly what Antonio Rangel, associate professor of economics at the California Institute of Technology demonstrated in a recent wine tasting. Rangel altered the prices on the bottles, and found:

“The volunteers consistently gave higher ratings to the more “expensive” wines. Brain scans also showed greater neural activity in the pleasure center when they were sampling those “pricey” wines, indicating that the increased pleasure they reported was a real effect in the brain.”

Without any major disconnects between expectation and experience, there’s a good chance that people will accept what they’ve been led to expect. Which leads us to a simple formula for advertising success:

1. Use your ads to create an expectation of the experience your customer will have when she does business with you.

2. Then, ensure that her experience delivers on those expectations.

3. And though we haven’t yet discussed it, hold something back from your advertising. Use it to “WOW” your customers, and make their experience better than expected.

We’ll give that idea some consideration next time.

In conclusion, the most effective advertising reinforces what people already believe. The most successful businesses do nothing to contradict those beliefs.

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Chuck McKay is a marketing consultant who helps customers discover you, and choose your business. Questions about delivering on your customers expectations may be directed to ChuckMcKay@ChuckMcKayOnLine.com.
What’s the Boss’s Most Important Job?

The boss has a unique responsibility. And it’s not the one most people think of when they describe the duties at the top.

Robert Kiosaki, in his best selling business book Rich Dad, Poor Dad, explained that as an employee, you have a job. As a self-employed professional, you own the job. And the owner of a business hires people to perform the job.

So, in terms of making business happen you are either someone else’s employee, or you’re responsible. There are no other options. And though there’s an outside chance that in good times any business can just muddle through, over the next few years if you’re not aggressively pursuing new business you’re not likely to make it. Sorry.

Some people are just cut out to be employees.

Consider a carpet cleaning business. Not just any carpet cleaning business, this one was being contemplated by a young man who asked my help creating a marketing plan. He had worked for another, similar, business, enjoyed the work, and saw the profit potential.

We spent two days together researching and building that plan. When it was finished, I offered my best advice: DO NOT OPEN THIS BUSINESS.

The market was strong, there was room for another competitor, and the young man with the ambition and the new marketing plan actually enjoys cleaning carpets.

Unfortunately, he hates selling.

And, as we’ve already established, the owner’s primary function is to bring in the work.

Does that mean face-to-face selling? Possibly. But it definitely means that the owner can’t simply place an ad in the Yellow Pages and wait for the phone to ring. Business owners who avoid selling end up with skinny children.

At any given time, roughly 2 percent of any market is actively seeking what you sell. That 2 percent will come looking for you, or someone else who sells what you sell.

The other 98 percent?

You’re missing them. Most of your competitors are missing them, too.

Most of your competitors.

Care to know who’s attracting that other 98 percent? Those who actively sell the value of doing business with their companies.

The competitors who have television ads that are being watched by potential customers are getting some of the 98 percent. Those competitors who’s postcards and letters are making it to the homes, who’s public speaking and referral programs are producing familiarity, and who’s Yellow Pages ads are being read by the very people who need their goods or services are tapping into the other 98 percent.

But, like the young man waiting for carpet cleaning customers to find him, those businesses which wait for customers/clients/patients to seek them out are hoping that their “share” of the 2 percent will pay the bills. It won’t. After all, we’re discussing 2 percent of a pie that may be shrinking for a while.

What will grow your slice of that pie?

There are two things you can implement immediately, and you should be doing them both.

Find a reason to get back in touch with every customer and every former customer, then remind them of the reason they chose to do business with you. That reason shouldn’t be price.

If they were originally drawn to your business because of your selection, remind them that you can help them find exactly what they’re looking for. If customers chose you for the speed of your service, point out all the other things they can be doing when they finish with you. If they chose you for your detailed knowledge, help them recall the value of getting exactly what they need.

You may indeed lower prices, but only do it if it will help you to gain some of your competitor’s customers. And remember that he’s going to be strongly tempted to lower his prices, too. Reminding people of why you’re their best choice keeps you profitable.

Bringing in the business is the boss’s most important job.

Are you the boss?

It’s time to start selling.

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Chuck McKay is a marketing consultant who helps customers discover you, and choose your business. Questions about marketing your business during tough times may be directed to ChuckMcKay@ChuckMcKayOnLine.com.
Can You Use Cognitive Dissonance to Create More Successful Advertising

A couple of decades ago I sat on the invisible side of a two-way mirror and studied the members of a focus group as they watched some television ads my company was testing.

One of my company’s most vocal supporters watched an ad that positioned our product as quite similar to our major competitor’s product. He immediately lambasted our competitor.

Did you catch that? He saw a test ad in which our product claimed the same marketing position as our major competitor, and immediately assumed that the ad had been produced by that competitor, and promoted the competing product.

Was he easily confused? I think the answer is much more interesting: he suffered an episode of cognitive dissonance.

Cognitive dissonance is a psychological term.

The term was coined in 1957 by social scientist Leon Feistinger to describe the uncomfortable tension which results from a person having two conflicting thoughts at the same time. Feistinger theorized that when the mind is presented with evidence which contradicts strongly held beliefs, the mind acquires or invents new information in order to justify the belief.

Our supporter in the focus group was presented with evidence that one company (ours – his favorite) was claiming attributes of a company he actively disliked. His reaction? It must be the OTHER company making these claims. To admit otherwise would be to admit that his favorite product had THOSE characteristics.

Selective observation is another manifestation of cognitive dissonance. We see this in each of the Presidential debates. Viewers accept those statements which reinforce their current beliefs (justification), and ignore those which contradict (denial). You can accurately gauge the politics of each network commentator by noting which of the candidates the commentator proclaims to be the winner.

How does cognitive dissonance affect advertising?

In general, people tend to be optimistic. They believe themselves to be virtuous, to be intelligent, to be successful. And pointing out the difference between people’s self images and the reality of their current situations can be a valid advertising strategy. The resulting cognitive dissonance can create an incomplete feeling in the customer who doesn’t own whatever the advertiser is selling.

Does it work on everyone? Of course not. But, it can work on enough customers to be a valid strategy.

John thinks of himself as successful, but he drives a 5-year-old car. Mr. Car Dealer reminds John that the new precision driving machine only appeals to those with discerning tastes, and that being seen in a performance car will telegraph to the world that John is someone to be reckoned with.

Jim loves his wife. Mr. Jeweler suggests that if he really loved her, Jim would show it with jewelry as precious as she is. Mr. Jeweler suggests that two months salary is the appropriate amount to consider spending to tell her he’d marry her all over again.

Jake is a young professional, at the beginning of his career. Jake has been advised to look successful in order to appear to management to be ready for promotion. Jake’s friends drink one of the mass advertised domestic beers. Jake has been affected by the advertising of an import positioned as higher quality.

Most advertising delivers images of what people say they want. Most advertising emotionally connects the those images things the advertisers sell. Cognitive dissonance adds the elements of guilt, regret, anxiety, or dereliction.

Am I recommending the application of cognitive dissonance in your advertising?

Maybe. Do you sell a premium product or service? For some premium products it’s a valid strategy. For most, it’s not.

The stronger your position, the more likely you are to be noticed by high-probability prospects. It simultaneously eliminates the low-probability prospects. The stronger the dissonance, the better this strategy will work, if implemented properly. Taken too far the customer can be made to feel like a failure, and won’t buy at all.

Of course, there are consequences to no image, too. Serious consequences.

What’s your image? How strong is that image? The stronger your image, the better the bait, when you’re fishing for customers.

Your Guide,
Chuck McKay

Chuck McKay.
Your Fishing for Customers guide, Chuck McKay, gets people to buy more of what you sell.

Questions about creating your professional image may be directed to ChuckMcKay@FishingforCustomers.com. Or call Chuck at 304-208-7654.

If you know someone who would find this article useful, please share it.
Cut Overhead – Surviving The Recession – Part 7 of 7
For the last week, as we’ve discussed steps to cope with the Recession of 2008, we’ve assumed that the recession actually exists.

But, what if you agree with Federal Reserve Chairman Ben Bernanke?

The Chairman tells us that a recession, by definition, is two consecutive fiscal quarters of “negative growth.” He says we’re not there, yet.

Maybe he’s right.

But, by the time Chairman Bernanke makes it official, we’re likely to be more than half way through it. The time to prepare is NOW.

If it doesn’t happen, there’ll be time to celebrate when our companies are healthy.

And the last of our seven steps is Cut Overhead.

Its not likely you’ll find one big cut.

What’s very likely is that you’ll find several smaller cuts that will add up to significant amounts, and every dollar you save can be the equivalent of ten dollars in before tax earnings. You can’t save your way to prosperity, but this exercise will help you find ways to free up operational cash.

Question every single expense. Look everywhere for savings. Do you need six incoming telephone lines? Do you need company box seats at the stadium? Do you need a company membership to the country club?

If you need them, keep them. If you have trouble justifying these expenses, cut them. Every single expense needs to be considered.

When you’re done eliminating, reduce.

Replace your incandescent lamps with fluorescents. Shut off the lights in rooms that aren’t being used.

Turn up (or down) the thermostat evenings and weekends.

Price awnings for your windows to cut down on the amount of direct sunlight, which will help your building stay cooler.

Save gasoline by assigning specific days to deliver, and planing the most efficient routes. (UPS has taken route planning to an art form by strategizing only right turns. It saves them time sitting at red lights).

Compare telephone service and long distance charges, and consider changing carriers. Do the same with your cellular carriers. You may find it less expensive to pay an early termination fee in order to move to a carrier with unlimited long distance, for instance.

How much can you reduce your inventory? It’s listed as an asset, but it also ties up operating capital. Don’t carry larger inventories than you need, and research just-in-time delivery with your suppliers. Stock slightly deeper in units that turn quickly, and reduce your holdings in low demand items.

We’ve already mentioned re-negotiating rent or reducing the space you rent, but consider that during a recession real estate prices fall. When landlords compare your low-ball offer to the zero revenue they’re presently getting on unoccupied property, you may find it surprisingly easy to move to a less expensive facility.

What not to cut.

You won’t have loyal customers without first having loyal employees. Your employees will understand if you cut back on non-essentials, but they will resent any reduction of their compensation. Cutbacks in contributions to retirement programs, or in holiday gift programs will create more long-term resentment than you will gain, short-term.

Reducing overhead is the last step.

Our seven steps to surviving, and thriving, in recessionary times, are:
Nothing will make your business recession proof, but implementing these steps will help you not only survive, but to profit during hard times.

And, one last thought.

Companies who aggressively promote themselves during economic downturns end up the big growth stories of the following few years.

Shall we get started?
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Chuck McKay is a marketing consultant who helps customers discover, and choose your business. Questions about helping your business thrive during an economic recession may be directed to ChuckMcKay@ChuckMcKayOnLine.com.
Speed up cash flow – Surviving The Recession – Part 6 of 7

Cash flow is tied to profit and loss, but makes allowances for lags which happen between the sale, and payment clearing your checking account.

The problem of a slow economy can work to your advantage if your suppliers grant you credit.

It can be fatal if you offer credit to your customers.

For the next few months its going to be critical that you have an accurate forecast of your company’s cash flows, and keep tight control over all of your customers.

Those folks who owe you.

Have you checked your customer’s credit history, recently? You should. All of them, including those who have (so far) paid on time.

Those with questionable payment history can be expected to delay their payments again during a cash crunch. Be prepared to cut back on their credit lines, and keep a close eye on potential defaults.

As soon as you detect a problem, get them on the phone. It’s much harder to ignore a phone call than a collection letter. Besides, your diplomacy will be even more appreciated in a one-to-one conversation.

Ask for a specific day that you’ll receive payment, and telephone your client again if payment is not received when they promised. Most will pay to avoid another call from you, and another explanation.

Speed up the process.

You can help your financially healthy customers to want to pay faster by offering a 1 to 2 percent discount for payment within two weeks. Perhaps you could go as much as 4 percent for those who pay in cash at time of purchase.

Include your invoices with each shipment of goods, if possible. If not, be sure to send them on the same day.

The Internet has become another powerful cash management tool. You can speed the billing process by e-mailing your statements and invoices (not to mention that you’ll save on printing and postage).

Accepting credit cards on-line or over the phone can also speed the process and reduce costs.

Collecting.

You’re probably already computerized, but have you explored the credit controls and debtor reports that are usually built into accounting software? Get familiar with these tools, and use them.

It’s as bad to dun customers who have paid on time as it is to ignore those who haven’t paid and are past due. Whomever on your staff handles collections will need real-time data to keep customers from taking advantage of potential inefficiencies in your operation.

Do what you can to preserve customer relationships, but recognize that there’s no benefit in maintaining a relationship with someone who can’t, or won’t, pay. And even your best customers may themselves have genuine cash flow difficulties. Be very careful not to extend too much credit and let them get even farther behind. Once the amounts owed appear impossible, even your best customers will become discouraged and stop trying.

If payments are lagging, consider a collection agency. Some will work for a percentage of the amounts they collect. Others will offer specific services for a flat fee.

Paying.

Now, go to your own suppliers and ask for extended payments. Ask for better terms in the form of lower prices, lower interest rates, or longer payment periods.

Renegotiate any leases or other contracts which will soon be coming up for renewal. Consider reducing the amount of space you’re leasing.

Should you be changing long distance carriers, or looking into VOIP technologies?

Your personal credit.

Small business loans become much harder to acquire in tough times. You may be able to tap into your good personal credit to inject the liquidity needed to keep your company afloat. Keep close tabs on both your company and your personal credit ratings.

Perhaps you’ll find yourself in a short-term situation, and a one-time infusion of cash could make a difference. If your margins are high enough that you could discount your prices, maybe you should be looking into outside financing (factoring). This is a process in which you discount your accounts receivable and sell them to a factor (a short-term lender), for cash. Since this cuts into your profit, use it only as an emergency measure.

Whatever you call it…

This economic downturn is likely to affect your business. Keeping enough cash on hand to pay all of your obligations, even those you don’t expect, may help your company survive.
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Chuck McKay is a marketing consultant who helps customers discover, and choose your business. Questions about helping your business thrive during an economic recession may be directed to ChuckMcKay@ChuckMcKayOnLine.com.
Lower Your Profit Margins – Surviving The Recession – Part 5 of 7

Supply and demand tend to be somewhat elastic. Changing one causes a reciprocal effect on the other. When demand drops, supply increases, and all too often consumption decreases, too.

In our terms, that means gross sales will head south as people determine they can’t afford to buy as much of what you sell.

But truthfully, people will still buy.

They’ll buy from someone. Will they buy from you?

Two years ago Best Buy cut their profit margins by three to five percent. They watched same store gross sales rise by 8.3 percent.

Last year Wal-Mart cut prices on back-to-school items by as much as 50 percent, and saw their sales climb by 6.5 percent.

This year it’s Safeway and Amazon. As a result of their decreased prices Safeway’s revenue increased 7.3 percent, and net income 11 percent, while Kroger and Supervalu dropped 1.8 and 18 percent respectively. Amazon cut prices and watched their second quarter sales shoot up 41 percent, doubling their profit in the process.

What can we conclude? Consumers will continue to spend, and lower profit margins can help you gain disproportionate share of that spending.

Those extra shoppers can actually push your gross sales to record-breaking territory.

Should you be discounting?

Yes. Yes, you probably should. Slow times are when you drop the prices on your products and services to motivate those customers on the fence to come shop with you.

Reduce your margins by enough to stop the bleeding. Ten percent? Fifteen? You’ll have to keep close tabs on your costs, your volume, and your margins, but there is a number that will spur sales enough to keep you profitable.

But don’t just drop prices. Make it part of a promotion so that shoppers take action NOW, and so that you’ll have less resistance to raising those prices again in a few months when the economy improves.

Notify your existing customers of your new promotion. Buy advertising to inform potential customers.

One more thought:

Until the recession shows signs of easing, you’ll need customer goodwill more than ever. And you can’t gain goodwill with a sales event.

A sales promotion will attract customers. It will generate revenue. But, it will also draw those customers which will be the first to shop your competitor when he drops prices, too.

Goodwill results from personal service, which is created by your staff. Low prices will bring them in.

Good manners, friendliness, and appreciation will keep them coming back.

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Chuck McKay is a marketing consultant who helps customers discover, and choose your business. Questions about helping your business thrive during an economic recession may be directed to ChuckMcKay@ChuckMcKayOnLine.com.
Adjust Your Staffing – Surviving The Recession – Part 4 of 7

As much as we dread any economic recession, there are economists who insist tough times force us to become more efficient, and that’s a good thing. Perhaps this is most obvious when it comes to staffing.

In many retail businesses, and nearly all service businesses, people are the largest cost item. That’s because in addition to wages and benefits, they spend your operating capital and consume other resources.

And, its common to add excess people during good times. If you had companies like Fort Collins PEO services advising you, you’d know that you shouldn’t overpay in payroll, as that’d heave more weight onto the company’s funds.

It’s time to carefully evaluate your staff.

Sort your people into four groups – A, B, C, and D. This sort has nothing to do with rank. A great cashier may be more valuable than a so-so executive.

Your A group are the excellent employees that you couldn’t get along without. Tell them how important they are.

The B’s are good, consistent performers. Tell them, too, that they’re important to your company’s future.

The C group are average. Determine which of them can grow into the B list, and make sure they understand that their jobs are secure as long as they stay focused on helping your company through the rough times.

The D’s are under-performers. They, along with the C’s you can’t grow, should be cut immediately.

And be sure to look at your management team. Can you combine jobs by reallocating work? High-paying unnecessary jobs should be the first to go.

What about your sales team? A good salesperson is golden in any economy, but more so when sales are so critical. Carefully evaluate your non-producing salespeople. Are they improving? Then consider them a valuable investment in your company’s future. If you don’t see that happening, cut them quickly. Its likely that your sales stars can take over any billing clients that need attention.

And remember, too, that attitude is critical in coming months. Negative employees, those that fight change, and those who’s favorite word is “can’t” are all people you can’t afford any longer.

Do it, and do it all at once.

Make all of the necessary terminations happen at once.

Do not explain why the terminated employees are gone, but make sure the rest of the staff has specific reasons that you’re keeping them. Make sure they know they represent your company’s future.

If there aren’t enough talented, motivated people remaining after the cuts, consider hiring temps, or even outsourcing some of the basic functions.

Now it’s time to be a superior boss.

Teach your people how to do their jobs better. Catch them doing it right, and make sure the praise is sincere. As they become more successful, so will you.

Involve your whole staff. Make brainstorming of both cost-cutting and revenue generating ideas part of your group routine.

Lead by example. Be the first one in each morning, and the last to leave. Never take off early on Friday, or take excessive lunch breaks. Never justify any behavior that you don’t want your employees emulating.

And always tighten your own belt, first. If employees wanted to make sacrifices, they’d have started their own businesses.

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Chuck McKay is a marketing consultant who helps customers discover, and choose your business. Questions about helping your business thrive during an economic recession may be directed to ChuckMcKay@ChuckMcKayOnLine.com.
Accelerate Your Advertising and PR – Surviving the Recession – Part 3 of 7

This is a photo of a Boeing 747-200. This aircraft requires 219,000 foot pounds of thrust to get airborne, but only 100,000 foot pounds to cruise at altitude.

Think of your ads as the jet engines which power your company.

As soon as you remove the thrust, you’ve grounded your campaign. And that’s a shame, since it typically takes four to six months for a campaign to start producing solid results.

Conclusion: Do not interrupt your advertising during tough economic times.

Study after study has delivered the same results: companies who pull in their resources and hunker down to ride out the economic uncertainties fall way behind when things get better.

Those same studies show that companies who aggressively pursue revenue in good times and bad leapfrog over their competitors in the following years.

This may take a certain amount of faith, because the evidence that your plan is working won’t be available for months. If you’re getting a bigger share of a shrunken pie, it may appear that you’re standing still. At least, for now. When the pie grows, your share will grow, too.

Think of it as buying market share at a discount.

There are two reasons your dollars go further in slow times.

First, when you’re one of the few voices still speaking to the market, your share of mind increases.

Second, when you’re one of the few active voices, all of your media representatives will suddenly become VERY negotiable when it comes to rates.

The average recession in the U.S. has historically lasted eleven months. We’re half way into this one, so during your negotiation be sure to lock in those new, lower rates for a full year. (Longer if the media will allow it).

What does advertising do?

No matter what the economy, aggressive advertising can:

Generate immediate sales

Upsell current customers

Provide new leads and prospects

And, don’t overlook the long-term benefit: the more people feel familiar with you, the more likely they are to choose to do business with you.

The strength of your advertising, and the revenue which results from it, will depend largely on your focus up to this point.

Direct response will be less effected by the economy than will image advertising. The more transactional your messages have been (full of facts and details), the more you can expect business to continue.

But, if you’ve been using brand-oriented messages (service and commitment based), don’t change them, since they tend to pay off better the longer you use them. (Remember, only 100,000 foot pounds of thrust to remain airborne). You will, however, want to create an additional transactional package to generate immediate cash, and to cover today’s operational costs.

Focus on Value – and on family values.

At times of economic uncertainty, people tend to “cave.” They spend much more time at home with their families.

Consider using family scenes in your ads where possible. Dump the rugged individual image. Extreme sports and adventure are bad images during a recession.

Do your ads cultivate a trust factor?

Is the ad about you, or about your customer?

Are you talking directly to your customer?

Are your claims credible, or full of hype and sensationalism?

Do you make a claim with full intention of backing it up, or do you know you’ll have to explain that claim because people will not understand the weasel clauses?

Can you use someone else’s credibility?

The concept is known as endorsed mailing. You send a letter endorsing another business to your customers, and he does the same for you with his. Select your endorsement partners with care. If the other business is trusted by his customers, you’ll be perceived as trustworthy, too.

Or, work out deals with other businesses to stuff their flyers into your merchandise bags. Of course, you’ll reciprocate.

Or, get three or four other reputable companies together and share the cost of printing individual offers on card stock, then mailing them all to your own lists. This one is known as “marriage mail.”

Focus on your existing customers.

Focus on media that you’ve proven will provide a sufficient return on your investment. This is not the time to experiment with ideas that might work to attract new customers. New customers are more expensive.

Instead, apply the 80/20 rule, and invest whatever you need to keep your 20 percenters very happy with you.

Cut money out of any project that you can’t prove return on investment (like trade shows, for instance), and use those funds to increase direct marketing to every customer in your database.

PR is golden.

Got positive quarterly results to report? Won any industry awards? Have a fabulous customer service story? Call your local media and share the news.

What’s interesting about your story? If it’s positive growth during a recession, financial editors will want to know how you did it. If winning your national award draws attention to your local business, most editors will want to play up local pride. And human interest stories always make great content – especially on a slow news days.

Public relations has two wonderful benefits: it’s much more credible than advertising, and it’s free (other than the investment of your time, and a few postage stamps or phone calls).

In summary:

When times are good, you should advertise. When times are bad, you must. But, don’t be reckless about it. Make every dollar count, now, to pay off in multiple dollars over the next few years.

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Chuck McKay is a marketing consultant who helps customers discover you, and choose your business. Questions about helping your business thrive during an economic recession may be directed to ChuckMcKay@ChuckMcKayOnLine.com.