The business plan
This is an update to the business plan I wrote in 2009 for my business. To see why I would do such a thing, check out my "What's The Plan" post. To check out the entire plan, please visit my business plan page. Enjoy!
Oh, the excitement!
I think you have to be somewhat of a biz nerd to be so excited to have your revised biz plan done. Man am I excited!
And no, it’s not only the relief of being finished writing the 7,000+ words.
I posted my business plan online in 2009 so that small business people would have a live case study of a real business in action. It’s what I wished I could have seen while I was in business school.
I’m so glad I did. I didn’t think the plan would be of that much interest for the first year or two, since there would be more talk than action. Where things get interesting is when you can see the results of the plan and compare the plan to reality. I now have some results in and can now feel comfortable telling people that if you’re starting a business and want to get a perspective of the process, you can learn something by seeing what I’ve done.
A quick look back
In mid-2009 I started my business career almost from scratch, after a failed attempt at running a ready-to-cook meal delivery service. I was completely lost and clueless. In that food business I had been making less than minimum wage for 3 years when you consider all the hours I was putting in (60-70 hour weeks).
After getting out of the food business, I was very apprehensive about getting into any business again, my confidence was shot and ambitions crushed. I honestly felt that I wouldn’t have a chance to run a business again, nor did I want to. So, after I closed down the ready-to-cook meal delivery service in 2009 I started applying for jobs and in the mean time was luckily able to fall back on my video production and small business skills I had acquired (that’s why I say that I had to almost start from scratch).
I felt I was lucky because I had family, former employers, and long forgotten contacts that were able to throw me work to keep my head above water. I was so thankful that I actually had work the minute I closed my business down.
After 6 months of soul searching – this would be the end of 2009 – I decided I was going back in business. This time I would be cautious, I would lower my ambitions, and I would be patient. I also wanted to document the process, since I was basically doing this from scratch, and being that a large part of what I wanted to eventually do was small business education.
I was in a weird spot where I felt I knew a lot about small business while at the same time feeling that I was also a failure at small business. Despite my planning attempts in my previous businesses, I was never quite able to hit the success at the speed I wanted to. I didn’t know if my new business, what I now call Small Business Doer, would be successful. But, I did want to try and show others thinking about starting a business the realities of starting and growing a small business. I wanted to show how you laid out a business plan and how things didn’t always work out, but that having a plan was still a valuable thing. And, sometimes things did work out.
Now, here we are, 2 years after I put my plan online in 2009 (actually I think I technically posted it in early 2010, but I was writing it in 2009). I’m excited because I’m starting to feel that I can actually be successful at business again, I’m starting to feel ambitious, I got my confidence back.
I’m also at a turning point, where I think 2012 will be a big year. I hope I’m not getting overly ambitious by thinking 2012 will be significantly better than 2011 financially. I actually surprised myself when I saw my 2012 budget numbers. I was so disbelieving that I had to run it several different way a few times to convince myself that it was a realistic budget.
I feel 2012 is the year where my business might actually become something that I envisioned when I wanted to be an entrepreneur. That’s when the business is more than myself, that it’s something that is more than “buying myself a job”. I’m finally going ahead with my smallbusinessdoer.com site plans, which is to provide small business education and actually make some money from this site. It’s the chance to reach and help many people. It’s also a year where I see my business investments paying off, after spending 2010 and 2011 planning, investing, and growing the business.
Perhaps it was good that I took a big fall in 2009, because every single year I’ve been seriously surprised at how the business has gone and fully appreciate where I’m at. Look, I’m still small potatoes, I can see a lot of people looking at the business and saying no big deal or even thinking to themselves they are glad they didn’t get into business.
2012 is the year that I might actually become a real business person… well… at least small business person.
Enough of the emotional intro, welcome to my annual update of my business plan. I will cover off:
- Goals – Why are they so hard to hit?
- Keeping focus
- Personal life is not separate from business life
- Profit & Loss – Budget vs. Actual for 2011
- Profit & Loss Comparison – 2010, 2011, and 2012 (Projected)
- Profit & Loss – Budget for 2012
- Optimal advertising spending and product pricing
- Investment in growth… at the cost of the short term
- Education products
- Where’s the time!
- Wife is now part of the business
Keep in mind this is an update on my business, some things I’ve learned, as well as a plan for 2012. It’s meant for people who are either looking to get into or who are already in business to read. It’s not a business plan meant for attracting investments or getting bank loans.
Goals – Why are they so hard to hit?
These past four months (September to December 2011) made me realize something. I keep on making these goals to work on business growth items and keep on not hitting them.
This forced me to evaluate why I’m consistently not hitting my goals and made me look at my schedule and what I spend my time on. I came to the belief that there are certain items in my day that I consider non-productive or non-essential that take me away from what I want to do for the day.
There are a lot of little administrative tasks that seem to eat in my time. A phone call for a quote. A request for a meeting. A quick revision that needs to be made to a project. Sending out an invoice. Paying a bill. My kids walking into the office (I work from home). Someone needing a favour. Something breaking down. An online article that catches my eye and takes me away in an hour of click upon click investigating it further.
These are items I need to take care of, but the way I’m currently taking care of them make me feel scattered and un-productive.
Another reason why I believe I’m having a hard time hitting my goals is focus. Focus is a part of my problem, but I realize not the only problem. Even when I’m extremely focused on getting to a task in the day, certain legitimate business items can pop up and keep me from doing my goal for the day. That means that it’s more than focus, it’s that I have too much stuff and not enough time.
So, too much stuff and not enough time. This means that I’m taking on too much and have to pare down my responibilities, either by abdication or delegation. I asked myself what are the things in a day that only I can do and that are productive towards my goals. What are the things that bring in good money into the business, and what are the things that don’t. What services do I offer that I’m good at and what services do I offer that I’m okay at?
From the types of services I offer, video production is something I’m pretty specialized at it. I know what I’m doing, can provide good value to my customers, and am accordingly compensated.
For other tasks that I do in a business, such as website development, marketing strategies, search engine optimization, and business plan writing, I’m decent at, but since I don’t do it consistently, I’m finding myself doing a lot of research keeping myself up-to-date in those subject areas and not being able to charge out as much per hour since I’m not as speciliazed and proficient in those areas.
Something that motivates me to continue learning is wanting to do something in the best and most efficient way possible. I want to feel that I’m doing a good job and providing good value. For those business services mentioned above, I think doing them causes me stress since I don’t always feel that I’m doing those tasks in the best way possible, to the best of my capabilities. Sometimes I doubt myself. It can make me not look forward to doing the work which also causes stress when I think about the task at hand. It’s that uncertainty that I don’t like. In other areas of my life, such as travel, I like some uncertainty, but for these types of things it’s not my cup of tea.
Another thing to consider about my video production vs. “whole mix of biz services”, is what I can make doing them. My business services are about $40-$50 an hour whereas video is $75 an hour. It’s easy to see that more video = more money.
With the aim of having less stress, providing better value, and making more money, I’m going to focus on three areas in my business, video, bookkeeping and online education (using video as the primary teaching method). Accordingly, I’ve forwarded my gregalam.com site to smallbusinessdoer.com. My gregalam.com site was an online resume which listed everything I could do for small business.
For where to put my focus, video is a no-brainer as it’s my main source of income and I enjoy doing it.
Bookkeeping may seem out of left-field a bit, but it’s also something that I not only believe I’m good at, but enjoy doing. It’s the one part of the mix of business services that I offered that I felt I really provided something great to clients.
The bookkeeping also falls into the online education part, since I will be teaching about bookkeeping using computer software. This is very related to my main source of income, video, since a lot of my education will be provided using video.
I’m trusting that this clearer focus and integration of my business will lead to a more productive, enjoyable, and profitable business in 2012.
How Will I Keep Focus?
As much as evaluating my business plan each month has helped me re-evaluate and keep track of what is important to me in my business, I need a more frequent and consitent push to keep me on my goals. That’s why I’ll be looking for someone to share goals with once a week and hold me accountable.
Scheduling and Prioritizing
To help me stick to my goals, I will also start to schedule my tasks in my calendar, on a weekly and a daily basis. I’ve been working on a system to keep track of all the things that I have to do and figuring out how to prioritize and schedule them. My system is largely based off of the Getting Things Done system.
Separating business numbers and going straight to voice mail
Communication via phone, email, and text was something that caused me to lose focus.
One of the things I’ve tried so far is to separate out my business numbers, so that one goes to an automated voicemail.
A legacy business that I run is a kitchen rental business. 90% of the people calling will never rent, yet each call can cause me to lose focus and take away hours a week. By going straight to voicemail, I can get back to people at my convenience and schedule the calls better. I find that people who are truly interested will leave a message or send an email.
My facility is typically at maximum capacity, so I mostly don’t have space in any case. If the market was more competitive and my place not operating at full capacity most of the time, I don’t know if I’d follow the same strategy.
Turning off my email phone notifications, but leaving my phone (voice and text) notifications on. Anyone expecting an immediate response from me will phone or text. Otherwise, a 2-4 hour reply time for an email can work. I find that the constant email notifications distracted me. Now, I need to find out if I can even do this with my phone. My first attempt to do this on my android phone failed.
Email – Unsubscribe
I unsubscribed from a lot of newsletters and e-mail lists back at the beginning of fall 2011. This may mean that I fall out of the loop, but it also may mean that I’m able to focus better on things that do really matter to me. It can be convenient to get things straight to your email box, but it’s not like I can’t get that same information by frequenting different websites at times that are convenient to me. I don’t think I get many e-mails sent to a general e-mail list that really effect my business goals.
I can tell you that I’ve been feeling a lot better since unsubscribing, but it seems to be a constant battle, as I know have a whole bunch of new newsletters to unsubscribe from. I used to ignore them, but now I purposely take the time to hit unsubscribe to e-mail lists that distract me.
Email – Turn Off
I’m going to start simply closing my e-mail client and not checking it for 1-2 hours at a time. When it’s open, I find myself constantly looking to see if I’ve received messages, even when I’m trying to do something that requires a lot of concentration.
The problem is that not only does every new email make me lose my focus, but it also holds the danger of me receiving an email that I “HAVE TO” respond to right away and take me away from the task at hand for an hour, or even worse the whole day.
I know from shooting video, where I can’t be checking my email for hours or even a day at a time, that I don’t need to have constant access to my email. The world doesn’t stop. There are certain cases where I’m expecting communication where I can leave the email open if need be. Otherwise, I’m going to try and turn it off. So far, I’ve been managing closing my email for 30 minutes to an hour at a time, and I feel it has really helped.
Getting Things Done – Email Method
One of the teachings of Getting Things Done is to triage your email. Triage is what they use in hospitals, to figure out what patients need priority care and which don’t.
For emails, the triage system is more of a categorization system. As you receive emails, you file away into different categories, and as long as they don’t require immediate attention, you can take those emails out your mind and out of your inbox.
One of the big thing changes that I made thanks to the system is using the 2-minute respond to rule. The rule is that if you can respond to an email in 2 minutes or under, respond to it right away. If you leave it in your box, you’ll have to quickly think about that email every time your eyes pass over it, wasting your attention every time that happens.
News, Facebook, twitter
When I get little bits of free time, or little bits of boredom, I often check out news and social media sites. The problem is that this net surfing can really get me caught up in things that are not part of my daily goals and simply derail me. A 5 minute pleasant distraction would turn into an hour. Just like email, there’s usually nothing happening on these sites that need to be paid attention to every hour of the day. I can survive by checking in once a day.
Personal life is not separate from business life
A big thing that was “getting in the way” of my business goals was my life. Having to eat, being tired, the family, stress, exercise, you get it. Something I didn’t account for much when charting my business goals was how my personal life would come into play. It’s a fallacy to think that personal situations can’t come in and derail what you are trying to do professionaly. This is especially true when working from home. Your family wants your attention too, and rightly so.
When I’m stressed and tired, it’s hard to work. Ignoring your personal life can work for a day or two, or even longer when you’re crunched with work. But it always comes back. For me, it’s in the form of burn out, where I just don’t want to do anything. It’s also in tense relations with the family.
That’s why I have to mention these personal things as part of my business goals, because it’ll be hard for me to do well at business if personally things aren’t doing just as well.
So, I’ve taken a business (i.e. organized and logical) approach to my personal life, by scheduling in when to wake up (actually setting alarm like most working people), what time to have the kids fed by (they’re in preschool and kindergarten so have to get them off in time), making sure there’s healthy food (good food makes you feel better), taking the time out of the day to spend with the family (is fun and reduces stress), and so on.
It’s also blending my business and personal goals. For example, I started bike riding the kids to school (it’s an under 5 minute ride for each kid, so nothing heroic). This gets me a little exercise as well as spending some times with the kids. So far, I’ve found I’m less stressed and have some energy to get started on work when I get back from the bike ride.
I’ve even started figuring in some household chores into my daily work routine. I do a lot of brain work, which makes my head tired. So, it’s actually a nice break to do something physical that doesn’t require thought, like vacuuming or doing the laundry. Little things that allow me to take a mental break. So far I’ve found that I’m processing all my thoughts as I do these chores, allowing me to come back to the task at hand ready to go.
Profit & Loss – Budget vs. Actual for 2011
The item that immediately catches my attention is my actual net income vs. my budgeted net income. I was $15,000 short of my goal or only achieved 77% of my goal of $66,000 in net income. This may be alarming, especially since my revenues hit 94% of it’s goal at $90,000.
The two major reasons that for the net income shortfall are that my gross profit (income – cost of goods sold) was $7,300 under budget while my expenses were $7,800 over budget. That accounts for the $15,000.
Looking at the revenue side, I got pretty close to the numbers I predicted. I think 94% isn’t bad. However, perhaps a better goal to look at it is the gross profits, that is what I make after I pay out costs that are directly related to the money from the jobs I produced, such as subcontracted work and input supplies. At 92%, it’s still not bad, but in $$ terms that’s $7,300 less profit than I was expecting, which is a lot of money.
For the expenses, there were some things that were higher, some things lower, but the biggest culprit for me going over budget was my equipment expense. I went over by $6,000. I would like to think of this as an investment into the future.
I would also like to point out that the majority of advertising and promotion expense was on my website, vancouvervideographer.ca, which if maintained with fresh content, will continue to bring in clients at no extra monetary cost to me year after year.
Interest expense at $1,527.68, was $1,527.68 more than I budgeted. You can blame this on a couple things. Spending money on equipment using credit cards instead of cash. Not collecting fast enough on my accounts receivable. Sometimes there are business expenses that you can wait to spend on, sometimes you can’t wait. Perhaps I could have waited longer here and there and avoided those charges.
Even though I ended up $15,000 less net income than I had planned, I am extremely happy with the results. For revenues, I believe I did about as well as I could have. If I had landed a couple decent size gigs, that would have made up the difference. I’m not going to agonize over that as I think the direction I went in was the right one.
For going over on expenses, that really was my equipment budget that ate it up. I’m also happy that I spent money on the equipment, so I can’t complain. I’m much better off this year than I was at the end of last year.
Profit & Loss Comparison – 2010 vs 2011
Looking at 2011 in comparison to 2010, there’s a couple things I’d like to highlight.
Income vs. Gross Profit – 2010 to 2011
My income in 2011 was $22,263 more than in 2010, but my gross profit was only $19,085 more than 2010. This was because I produced larger contracts that required me to work with subcontractors. For 2012, this tells me that I should focus more on gross profit than income, as looking only at income can be misleading. This also tells me that as I plan to do more larger, collaborative projects in 2012, my subcontracted expenses will make up a great percentage of my income.
Equipment – 2010 to 2011
My equipment expenditures were $9,291 more in 2011 than in 2010. This is largely because I was making investments into equipment that I could use for years to come. This was an investment into the growth of my business.
Net Income – 2010 to 2011
If one looked to hastily at my numbers, they might have saw that my income (revenues before expenses) was $22,263 more than 2010 yet my net income (revenue after expenses) was only $5,702 more than 2010. The biggest factors were those mentioned above, which were more money to subcontractors as well as a big investment in equipment.
In 2012, as you will see, I expect my expenses to actually decrease, mostly because I will be spending less on equipment. I will also see my income increase, meaning my net income will be a much more dramatic jump from 2011 to 2012 than it was from 2010 to 2011.
Profit & Loss – Budget for 2012
More detail for income sources in 2012
For 2012, I’ve decided to try and separate out my sources of income with more fine-grained detail. I’ve split my business services income into day-to-day bookkeeping and setup/training bookkeeping. I have a category for business consulting. I don’t plan on attracting any new clients, but expect there to be some income from existing clients. So, leaving the budget at $0 probably won’t end up being accurate. I’m using the budget as a tool of what I want to focus on, so I’ll leave it as that. The business consulting line is also a bit of a catch-all for income that doesn’t fit in the other categories.
You’ll see that there is a $14,500 income budget for educational products. In my past budgets I haven’t put this explicitly in, and I think that is a big reason I didn’t generate any revenue. By putting educational products in my budget, I know have a concrete goal for what I want to achieve.
I have a reimbursed expenses income line. That’s so I can see how much money I received from customers who were simply paying me back for something that I purchased on their behalf. Not true income.
I split my video production income into self-produced and subcontractor categories, both evenly matched at $45,000.
In 2010 my video income was virtually entirely comprised of income I received as a subcontractor, being $44,000, and only a small portion was self-produced income, at $1,000.
In 2011, subcontractor income was $49,000. Self-produced income was $24,000.
In 2012, subcontractor income is budgeted at $45,000 whereas self-produced income is also budgeted at $45,000.
A large increase in income from 2011 to 2012?
I’m budgeting a 43% increase in income from 2011 to 2012 or $38,650. Here’s my reasoning:
- From 2010 to 2011, the increae was 33% or $22,333. The increase is largely attributable to the $23,173 in new income that I received from self-produced videos (videos where I negotiated the contracts vs. being a subcontractor). The reason I grew in 2011 was because of my vancouvervideographer.ca website, that allowed me to gain new clients.
- The great thing about gaining my own clients, is that many of them will be repeat clients, adding to the base of money to expect in 2012. If my website can bring in the same amount of $ figure worth of new clients, that would be $24,000 in new clients that I can get in 2012. For repeat clients, I feel comfortable that I will at the minimum receive half of that amount in repeat business. It may be I get the entire amount, who knows.
- The other thing to consider is that my website and portfolio has increased in quality and status. I have more videos up that are higher quality, allowing me to bring in larger value contracts.
So, the quick and conservative calculation for revenue growth on the video side is:
1/2 of revenue from existing 2011 video clients = $12,000
Revenue from new 2012 clients = $24,000
Total = $36,000
Increase from 2012 over 2011 = $12,000
2/3 of revenue from existing 2011 video clients = $16,000
Revenue from 2012 clients (25% increase from 2011) = $30,000
Total = $46,000
Increase from 2012 over 2011 = $22,000
I’m fairly confident with my expected 2012 self-produced video income since I know there are existing clients who are looking to repeat with more business in 2012 and my website is attracting larger and more valuable projects based off the portfolio. Back in the last part of 2010 when I acquired the website, I had a few videos in my portfolio, and had about $1,000 in sales for 4 months.
So, with a growth of approximately $20,000 on the video side, that leaves approximately $20,000 worth of growth to come from somewhere else.
I expect that growth to come from both providing bookkeeping services as well as bookkeeping video tutorials. I’m already doing the bookkeeping for 6 companies. From September 2011, my wife has joined the company to work on the bookkeeping side. This creates the opportunity to take on additional clients.
For 2012 I will be conservative and expect to grow bookkeeping by $20,000. This will be divided fairly evenly between set-up and training services and day-to-day bookkeeping services. Similar to the video business where I target local keywords such as vancouver videographer (which in turn provides web traffic that turns into sales), I will target local bookkeeping keywords such as bookkeeping vancouver with my smallbusinessdoer.com site, which thankfully has a decent online profile and authority due to the couple years of work I have put into the site.
Since my focus is shifting away from offering an array of business services and concentrating on two areas, video and bookkeeping, I will lose some of the income I was receiving for business services in 2011. I expect the losses (around $10,000) to be evened out by the sale of educational products (bookkeeping video tutorials).
Educational products is the wild card, both in income that can be generated and in time that I will spend working on it. Obviously, the more money I can generate from it, the more time I will put into it. If the educational products are successful enough, I will have to turn down some video production work so that I can continue to produce the educational products.
So, that’s the explanation behind the increase for 2012. I’ve actually been quite surpised that my growth projections have been fairly on track for the short life of my business.
Expenses Budget in 2012
For most of my 2012 budget for expenses, they are set to reflect what happened in 2011. More budget for meals and entertainment, less money for automobile, etc… Minor adjustments as well as some re-categorizeation of expenses and elimination of categories not used.
The two expense items that I really had to think about were the advertising and promotion budget and the equipment expense budget.
Advertising and Promotions Budget in 2012
At first I had the advertising and promotions budget at around $1,000 for the year. I had already built up my vancouvervideographer.ca website and my smallbusinessdoer.com site was based off people naturally finding my site. I revised my advertising and promotions budget after looking at the results from my vancouvervideographer.ca site (as well as knowing the results of advertising in my other businesses).
For vancouvervideographer.ca, 28% of all the money I took in was spent on advertising. That’s pretty high and I don’t know if it would make much sense if I had to pay that number every year. However, I don’t.
Firstly, I don’t have to spend that kind of money on repeat customers. Sure, there’s costs to retaining clients, but nothing close to the cost of acquiring them.
Secondly, my website is like a semi-permanent online billboard and magazine that I don’t have to pay to keep paying for (like in traditional media). I still have to create fresh content and keep the site up-to-date, but I don’t have to build it from scratch and pay people to come to the site. This means that any new business I get from my site in 2012 is very close to being free in terms of advertising costs.
So, if I want to grow my educational products and bookkeeping side of my business, I feel that I can afford to pay 20% to 30% of projected revenue on marketing in order to build up a base of clients. However, the educational products and bookkeeping services are two very different things, so my reasoning for spending marketing dollars on each is different.
Bookkeeping work is paid on an hourly basis and the work is done is usually done on an on-going basis, meaning that I’ll have repeat clients. So, while the initial cost of attracting a client may be 30% of the revenue brought in for the first job, it’s virtually 0% spent on jobs I get after that.
For my educational products, my cost is in developing the product, not producing. Since my delivery method is digital and online, it costs me very little to provide the product to each new client. This means that I’m able to consistently spend a decent percentage of my revenue promoting the product.
My main three methods of marketing will be:
- SEO – Ranking high for targeted keywords, leading traffic to my sites
- Affiliate Marketing – Paying referral fees to people who sell my products
- Online advertising – Pay per click for search results or other targeted online ads
Notice, my whole advertising plan involves online methods. This is not only because I’ve found it effective, but I can track the effectiveness or ROI (return on investment) for every dollar that I spend. It is easy to quickly adjust the advertising amounts and move the money to what is working from what isn’t.
For me, equipment satisfies a few of my desires, needs, and goals.
- The right equipment makes my life easier, which gives me great job satisfaction and lets me enjoy what I do. That’s good stuff.
- The right equipment lets me produce high quality work, which makes me more money. Also good stuff.
- The right equipment lets me be creative, by removing boundaries on equipment that can’t do what I want it to do. All good here.
- The right equipment acts a safety net, whether it’s because the right equipment won’t fail on me or because the right equipment is helping me to prevent failure (backup system). Important stuff.
That’s how I think about equipment. So, the equipment budget is very important to me and it is mostly money I enjoy spending.
I spent a lot on equipment in 2011, much more than what was in my budget. So much so, that I don’t foresee needing so much money in my 2012 budget.
I’ve decided that in the 2012 budget I’ll have half the budget allocated to items I can see now that I’ll need, and leave half the budget open to items that I may need in the future.
Computer / backup system
The thing that I believe I absolutely need is a new computer / backup system. I’m starting to reach my hard drive capacity limits (due to the high storage nature of video). I need to have a good backup system that will provide a safety net in case the hard drives on my computer fail, are stolen, or are damaged in some natural disaster.
The second set of items that I believe I’ll need to spend money on are minor equipment upgrades. I can do my job with what I have, so the equipment upgrades are not pressing, but will make the job easier and allow me to handle more situations. These would be items such as a secondary wireless microphone, lens, adapters, lens filters.
Some items I consider bonus items are a new desk and some new computer monitors.
I saw some standing desks that look like they could help me get a little exercise and focus while working. I have no clue if it would work out for me. At the moment, I would consider this nice to have, and if I’m doing well, or my priorities change, perhaps this is something that I could get.
The new monitors would be useful in allowing me to have more accurate colour work in my video productions. How much more accurate, I couldn’t say. 10%, 20%, 30%, 5%? I don’t think my work suffers in any way from my monitors, so that’s why it’s not a priority.
One of the reasons I love having my own business is I can make these types of budget decisions. That control really does make me happier, especially since I can tailor the money spent to suit my work style and goals. When you don’t have any money to spend, this can also work against you. I’m happy that with my type of business and my needs, I feel I have the money available to spend on what should be done. This was not always the case.
Optimal Advertising Spending and Product Pricing
How do you price a product? How much do you spend on advertising. Here’s a little example of what advertising spending can do to demand and profitability.
In the above case, the optimal price for me to pay out to advertise the product is 25% of the product price. Paying 50% gets me more revenue, but not enough to justify the increase over spending 25%. However, I make a lot more money by spending 25% or 50% of my revenue advertising than I do spending 10% advertising.
Now, pricing a product is tougher for me to figure out than figuring out what to spend on advertising. It’s fairly easy to adjust advertising dollars without too much risk. With product pricing, the price determines the value of the product as well as potential referrals. Customers don’t want to see the price of the product changing randomly, for no apparent reason. This doesn’t mean that you can never adjust price. But, every time you adjust the price it changes a customers perceived perception of the product.
I honestly can’t say what is the best price for the product. If I have a choice, I’d rather have 1,000 people benefit from the product than 100, even if the income in the end is the same. That’s because my goal is to help out the most amount of people possible. However, since a goal of my business is to also make money, if selling the product to 100 people made me twice the money as selling the product to 1,000 people, I’d be hard pressed not to simply sell to 100 people.
Investment in Growth… at the cost of the short term
After going through the numbers, I’m so happy I decided to invest in vancouvervideographer.ca as well as the new equipment that let me produce the videos that I needed to build my portfolio and book new work. If I had played it safe, and went with the status quo, I would not have grown in 2011. In fact, four months after purchasing the site, I was having second thoughts if I had done the smart thing, since at that point in time it had only brought in about $1,000 worth of work. 2011 proved it a wise decision as it brought in $23,000.
What I would like to say is that any extra money I made from self-produced videos was spent on the site acquisition (marketing) and equipment. So, in reality, I didn’t make any extra money in 2011 because of my self produced videos. I only made myself more work.
However, the benefits will really come to fruition in 2012. I now have the equipment, repeat clients, and new clients coming in.
The success of my video website lets me feel comfortable in spending 20 – 30% of my projected revenue on the bookkeeping side of business (both services and educational products) to gain new business. Like the video side of things, as long as the marketing is effective, it will help build up a base that will continue to feed me in the future.
I would also like to point out a caveat to these investements. This is all based on building up a client base that will continue to use my services and refer me to new customers. If I hadn’t provided quality service that gave my clients good value, the investments wouldn’t go far. So, marketing helps to start the relationship, while the quality of the services and products keep and grow the relationships.
My online education products is the growth side of my business that I always want to work on but never seem to find the time. This income is different than video income, as it’s a product (information) that I would be selling as opposed to an hourly service. Once the product is made, the time and money spent, how much I make depends on how much I sell. If it is really good and marketed well, I can make a lot. The amount of money I can make would not be limited to how much time in a day I have but instead be limited by the amount of people willing to purchase my product.
Selling products is riskier in a way as I will be spending time and money upfront to make the product without the guarantee of sales. For the past two years I’ve studied, tested, and planned for what kind of products and marketing would work and what wouldn’t.
I know there’s a need for business education, especially education that can be easily and affordably accessed. Whether or not I have the right product fit for a big enough market will be seen. The risk is that I never make a sale, or make very little sales, and my information products were a waste of effort.
If I were younger, and less business experienced, I might be able to drop everything I’m doing and focus on the information products and take the risk that it will work. Instead I’m taking a more cautious approach by keeping my video income coming in and paying the bills while I create the information products. I also enjoy my video work and wouldn’t want to completely stop doing it.
What I will start doing is turning away the business services work that I have taken in the past that doesn’t pay as well, and just as importantly, causes me to take focus away from my goals.
Where’s the time!
I’ve mentioned this before, and I’ll say it again, there’s only so much time in a day and only so much one person can do. If you want to grow your business, you have to find ways to move beyond an hourly wage. Additionally, you must find ways to be more effective in your use of time.
One of the things I’ve been bad at accounting for is the non-revenue generating time I spend in a work day.
When I looked at it my revenue generating vs. non-revenue generating time spent on the business, those two figures were almost exactly the same. Crazy! That’s why I feel so unproductive! Looking at my list, anything that is not revenue-generating or content creation, I feel unproductive.
So, this gives me an idea. What if I shift what I consider non-productive items to times of the day I don’t consider my main work hours? As much as possible during the 9am to 6pm shift, I focus on the productive items. In the off hours I focus on the non-productive tasks. Most of the non-productive things are smaller tasks that can usually be done in 15 or 30 minute chunks whereas the productive stuff needs to be done in big blocks of time.
I’m going to try out a new work day schedule and see how the hours work out. The nature of my job ensures I won’t always be able to follow a set schedule, but I think this is something that I can roughly follow.
I feel that what the time I need to spend on the business is 61 hours a week.
If you look at the breakdown, it also includes lunches, breaks, and unpaid travel time to certain jobs. When I considered some regular office jobs, where people leave home at 7am and get back at 6pm, that’s 55 hours a week. So I’m not too far off of someone doing a schedule like that.
It’s hard looking at the time I spend on items and finding much that I can cut from my non-revenue generating hours. Ideally, I’d love to cut the total number of work hours down to 2,500 hours in a year. That would work out a lot better. That would be more like an average of 11 hours a day, 5 days a week, spent on work items.
I also would like to point out that my total horus needed in a year, which are 2867 hours, includes 4 weeks of vacation time and 1 week’s worth of sick / can’t work time (304 hours).
For 2013, I will be able to look at where I’m spending time, and decide if putting more focus on my educational products is more valuable than getting paid by the hour.
Looking at my time budget scares me
I have to admit, I’m a little nervous looking at my time budget. It feels like it’s too tightly scheduled. I’m feeling that I have to keep on looking at where I spend time and continue to cut down on what I can. After all, there’s only so much time in a day.
Wife is now part of the business
My wife is now part of the business. She used to work in finance departments and office administration, so it’s suitable that she’ll be doing the same thing at smallbusinessdoer.com. Having a spouse work in a small business is quite a common thing.
This give the business an opportunity to grow at a faster rate, since we can divide tasks and specialties between two people, not to mention the extra work hours available when there’s a second body.
We personally made the decision to do this for a couple reasons.
The first was the flexibility that it would allow my wife. Since we have two small kids in preschool and elementary school, it’s nice that she can take care of the kids during the day if their sick, attend school events, and work at times that are convenient to our life. This is not true for all types of small businesses and work, but with the majority of administrative and bookkeeping work, this is fairly true.
It’s also nice to have us both working from home. It’s always nice to have another body in the office. I tend to go a little crazy if I’m on my own all day. Also the commute to home is 0 hours a day!
There is risk to this as well. Obviously, if the business doesn’t do well for some reason, we’re both doing badly. It’s not as diversified as in the situation where we have two unrelated sources of income.
While starting my wife in the business, the training and integration took time and cost us money while she wasn’t working at another job. We tested the two person team out for the last four months of 2011 while we didn’t bring in any extra revenue.
2011 was definitely a loss in terms of time and money, 2012 should be decently beneficial, while 2013 would be the year that it would really pay off.
First off, I’m impressed if you’ve gotten this far. At 7,000+ words, I believe this is actually longer than my original business plan.
I’m feeling really good about the whole process.
Revising the plan each year, and updating each month, has forced me to think about how the business is doing and what I could be doing to do better. I also love looking at how everything has progressed and get excited about what the future may bring.
If you have any questions or comments don’t hesitate to lay them down!
- Check out the next update Business Plan Update January 2012
- Check out the previous update Business Plan Update December 2011 – Big Ambitions, Big Letdowns
- Check out all the updates
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