I ask my marketing clients a lot of questions as we work together, because I believe there’s no such thing as one-size-fits-all marketing and I need to fully understand your business to make recommendations.
I can all but guarantee that the question that will raise a client’s stress level the most is, “What’s your financial goal?”
There are numerous, complex reasons their posture stiffens and they start to fidget.
First is we’re taught that talking about money is off limits. It’s rude to ask what someone makes and tacky to talk about your own income.
Like your accountant isn’t just being nosy asking for your financials, I need to know what you hope to earn so we can build a plan to get you there. If you aren’t making as much as you’d like, your three basic choices are sell more, charge more or spend less. Your marketing plan needs to reflect whatever you pursue.
Still, even when I reassure people that it’s confidential and that they don’t have to get specific, it can just be a general range, they still hem and haw.
Almost without exception, we ultimately come to confession time, when they sheepishly admit they don’t have a financial goal.
Depending on the size of the business, they might have a budget so they know they can make rent and payroll, but it’s based on what they made last year, not what they want to make. Self employed people are often looser than that, making their spending decisions based on what’s in the checkbook right now.
I get it. If you say out loud that you want to make $100,000 or $1 million or whatever your aspiration is, you risk not reaching it.
Maybe it’s less scary to just work hard and see what happens?
But not declaring it, even if it’s only to yourself, means operating without important information that can help you prioritize your actions. If you want to land three $25,000 sales a month, the way you market yourself might look really different than making three $5,000 sales a month or 3,000 $25 sales.
So let’s do some back of the envelope math for a self-employed person.
How much do you want to take home a year?
Take a deep breath. It’s OK to just write it down for story problem purposes. How much do you need to pay your bills, save for retirement, live the lifestyle you really want?
Boost what you want to earn enough to cover self-employment taxes.
The Billfold.com recommends planning on 25 percent. I use 30 percent to be safe. So I would take that top number and multiply by 1.3. You can use whatever rate is realistic for you. Ask your tax preparer if you want to get more accurate.
Add in business expenses.
For one rough way to get there, check last year’s tax form or your accounting software to see what you declared as expenses and gross income. Assuming you made a profit, divide expenses by gross revenue. You should get a number smaller than 1. Multiply your revenue-plus-taxes number by this expense rate.
It’s entirely possible you will need to invest more to reach your goal. For example, the Small Business Administration recommends you spend 7-8 percent of your revenue on marketing annually.But this is a starting point.
Here’s an example:
- Let’s say I want to take home $100,000
- To cover taxes, I multiply $100,000 by 1.3 = $130,000
- My 2015 expenses were about 20 percent of gross revenue, so I multiply $130,000 by 1.2 = $156,000. That’s my financial goal.
There are lots of ways you can approach the math if you run a business where you pay yourself a salary.
For simplicity, if you want to double what you’re taking home, double what the business made last year. Of course your rent and staff don’t necessarily double to make twice as much, you could work smarter or harder with what you spend today, but if you’re in a business where investment does have some relationship to revenue, that’s a starting point.
You could also think about how you want your business to look five years from now. Do you want to grow your staff, expand your facilities, have a more sophisticated online presence, use better tools? Make your wish list for your business and cost it all out, like you’re writing a new business plan, then multiply your wish list’s expenses by the profit margin you’d like to make.
Um, isn’t this finance, not marketing?
However you calculate your financial goal, either making a loose estimate or a five-year plan with the help of your accountant, it’s essential information for your business strategy, including your marketing.
Let’s go back to the example of wanting to take home $100k a year on gross revenue of $156k. That means selling $13k a month.
Using my business as an example, I offer a $300 quick-hit marketing review and I also offer social media strategic plans, starting at $5,000. To earn $13,000, I’d need to do about 43 quick-hit sessions or about two and a half social media strategy projects each month.
I can take a look at how much time and effort it takes to sell those services (as well as my other services) and how much time it takes to deliver them, then create a realistic plan.
That will help me decide how to market myself.
If I like the idea of doing 10 quick-hit consulting sessions a week, I might advertise my most inexpensive service in small business publications, promote it on my social media and e-newsletter, and mail postcards to my fellow members of Brooklyn Chamber of Commerce and National Association of Women Business Owners. Alternatively, if I prefer the vision of fewer, bigger projects, I might focus on networking with people ready to make more of an investment and create print materials to help them understand the value of getting professional help on marketing strategy.
What if I don’t see a realistic path selling enough of my existing services to hit my goal? Maybe I need to raise my prices, which might mean getting a new logo and revamping my website to look more high end. Maybe I need to rethink my services, which could mean rewriting my marketing materials.
This is a great moment for a reality check. What are your competitors or peers charging? How much can you realistically sell, based on hours in the day or space on your shelves? If you don’t think you can sell enough at a high enough price to get to your goal revenue number, that’s a time to consider whether you’re willing to accept making less — because otherwise you’re destined to work harder and harder but never achieve your goal. Or maybe you need to retool what you’re selling or look for additional ways to make money.
An Inc. article cited the Staples National Small Business Survey, which found more than 80 percent of small business owners surveyed said that they don’t keep track of their business goals and 77 percent have yet to achieve their vision for their company. I don’t think it’s a coincidence those numbers are so close.
Declaring your financial goal is a foundational piece of information for all your business decisions. You can always revise it later, hopefully upward.
For more on this topic, read my post: Drop the poverty mentality. It’s OK to make money.