The Basics of a Product P&L

Creating a P&L for all products that you sell will ensure the success of your small business.  The purpose of a P&L is that it allows you to have visibility into your profitability, costs, opportunities for cost reduction, and better management of your final retail price points.

My favorite P&L template divides your inputs and factors into four sections:

  1. Retail Price Drivers: Since the retailer that you are selling your product to typically will have a margin requirement to ensure their profitability, the price that you will be selling to them for ultimately determines the final SRP.  This is important because in small business marketing, we always want to be ahead of the game and make sure that we price competitively in-market by staying below key thresholds, undercutting or pricing in-line with competition, etc.
  2. Product Margin Factors: Your product margin is the area in the P&L that allows you to have visibility into the costs that you have control over.  For example, the cost to produce is controllable since you can always produce more efficiently, more cheaply (lower quality…not necessarily recommended!), etc.  The trade rate is the amount of funding that you want to allocate in market to offer discounts on scans (controllable) for the specific item that you are accruing a trade spend on (via the P&L).  The cash discount line is a way to incentivize retailers to order more product (i.e.: if you order a full truckload, I will knock off 2% off invoice).  And finally, if you are a food company, your spoils theoretically is a cost of manufacturing since you are over producing for what the market could bear – forcing you to buy back.
  3. Gross Margin Factors: The inputs that are typically out of your control.  For example, pre-negotiated rates if you sell through a broker, distribution costs, warehousing costs, selling expenses, and marketing spends.  Marketing spend is the odd ball here since you do have control over this spend.  However, at most companies the marketing spend is found below the product margin line since marketing dollars that you accrue don’t necessarily have to be used on the product that you accrued it on.  Therefore, removing this line from the product margin line frees up your marketing spend to be spent against any product that you sell.
  4. Profitability: The bottom line and how we manage to stay in business!

 

There are many things that I would like to explain to you on this P&L. In particular, two things that I will write about later are:

  • How to determine your trade rate and how to offer an EDLP (everyday low price)
  • How to improve your profitability while managing the retail price

In the meantime, what questions do you have on P&Ls?

Quality Assurance and 3 Small Business Solutions to Improve Quality

Here me out for a second: quality assurance is one of the greatest challenges of small businesses.  I know that some of you might not agree with this statement because small business owners take pride and ownership in their business and are producing their products/services in a much smaller quantity than any large business would therefore, you assume that lower volume equals higher quantity.  However, my argument is that this is not the case.  Although lower volume should equal higher quality, the issue that small businesses have is a limitation of resources, which impacts quality.

Take the example of a bagel shop in New York City – on a few occasions, if you ordered a bagel with egg, cheese, salt, pepper, and ketchup, they might forget the cheese.  For the amount of volume that a small bagel shop does vs. a large scale breakfast egg sandwich manufacturer (a product that you might find in the frozen aisle of your grocery store), the small bagel shop has a much higher % error than the large scale manufacturer.  This is so because a large manufacturer has the capital to invest in labor and systems to provide higher quality and assurance than a small business.

So what can you do as a small business owner to ensure quality assurance if you do not have the money to invest in systems or additional labor?  Below are my solutions for you:

Attention to detail:  This is the most obvious of solutions.  However, one that many small business owners forget as they get entrenched in a busy workday where the goal might be to produce “x” amount of product or finish “z” jobs.  In everything that you do, ensure that your T’s are crossed and I’s are dotted.  Don’t release product or finish a service without properly inspecting your product.  Although you might think that this will slow down your business and make you less efficient, in the long-run, your unprecedented quality assurance is a point of differentiation for your marketing strategy that you can charge a premium for or that you will receive more business for through word-or-mouth and referrals.

Kaizen: Japanese for “improvement”, the moment you or anyone that works for you comes across a problem, stop the service work or production immediately.  This will allow you to track back the source of any problem before you are too far along where you will never be able to find the source!  Finding the source of a problem will enable you to prevent future occurrences of a similar problem.

Check-ins: Enable a staging process in your production or service so that at the completion of each stage, you can review your work to ensure quality assurance (as well as anything else for that matter).  For example, review random samples of every 200 units that you produce.  Or if you are a service company such as gutter installation company, don’t focus on banging out your job and moving on to the next, stage your installation in 2 or 3 stages (old gutter removal = 1, new gutter sizing = 2, gutter installation = 3) to make sure that everything is still good after each stage.

Again, although you might think that the above quality assurance solutions will slow down your efficiency, the long-term benefits will lead to increased positive referrals and word-of-mouth, ability to use the quality assurance as a point of differentiation for your marketing strategy, or the ability to price your product/service at a premium due to the quality that you provide vs. any competitors.

Social Media Conversation Calendar for Better Planning

Have you ever wondered how large brands such as Popchips, Virgin America, Kraft, etc. have maintained a steady conversation flow on their social media accounts?  There is more to social media conversations than posting on the whim.  Although posting on the whim is within the rulebook, there is a deeper strategy to the daily tweets or posts that your favorite brands make.  The best thing about this is that you can take this social media marketing strategy right out of the playbook of these large brands so that you can adopt these for your small business social media strategy.

What is the secret?  A social media calendar of course!  It looks something like the following (this example could be for a local catering company)

The conversation calendar is simple in form: assign a post type (i.e.: Image, Recipe, Trivia, Poll, Fact, etc.) to each day and build a monthly calendar in advance.  By doing so, you will be preventing any lapse in social media conversations because you will no longer need to think of ways to generate engagement on the whim.  Furthermore, by utilizing a conversation calendar, you will now be able to divide your social media week by topic and therefore, always finding something to speak to.  For the days that you might not have a branded message that you would like to share for the daily post topic, you can use an un-branded message to keep your compelling conversations on-going.

Conversation calendars are used by all social media agencies that work with large brands – it is a way for these agencies to stay focused, provide on-going, compelling, and engaging content, and a way to measure and refine the daily post type based on measuring the reactions after making certain types of posts.

What Social Media Platforms Are Right For Your Small Business

A little over a month ago, I wrote an article that discussed the “Social Media Marketing Fallacy“.  It is very easy as a small business owner to get caught up in the latest marketing bubbles.  I truly believe that Social Media Marketing is a marketing bubble because many create social media accounts to develop a social media marketing strategy, even though it might not make sense to be on certain social platforms.  If you are doing social media marketing correctly, the rewards could be great but if you are are using social media incorrectly, you are just wasting your time.  Here are some things to consider in your small business social media marketing strategy so that you are using social media correctly:

What consumers are using what platforms?

The latest marketing bubble is Pinterest.  Many are recommending that small business owners create a Pinterest account to hop on this bandwagon.  However, sites like Pinterest might not make sense for all small businesses.  The Pinterest consumer is mostly females and moms that like digital scrap booking.  If you own a roofing company or a men’s store, Pinterest might not make sense for you.  The same holds true for any social media platform – Twitter users are different from Facebook users, who are also different from YouTube users.  Find the platform that is right for you before proliferating your small business social media accounts and wasting your time!

What platforms enable you to achieve your social media objectives?

Pinterest is more for sharing visual appeal, Facebook is for interacting, Twitter is for updating, etc.  If you have no images to show, then Pinterest clearly won’t be beneficial for your small business.  If your goal is to simply send updates to your consumers then Twitter and Facebook would be best.  However, if you do not have the manpower to monitor the Facebook conversations, then perhaps you should steer clear of having a Facebook account.  One of the worst things for your business is to have consumers ask questions on your Facebook wall and not receive a response!  Whatever platform(s) you choose to use, you need to own the conversation!

My List of What Not to do When Launching a New Item

There are many articles, books, writings, etc. that speak to what you are supposed to do when marketing a product – whether a new product or an existing one.  I decided to compile a list of my own for what not to do when launching new products because, frankly, there are too many dos out there and not enough don’ts.

So here it is, my list of do nots:

  1. Do not have inconsistent messaging across your brand
  2. Do not have a bad price/value relationship – evaluate what your competition is offering and at what price point they are selling as a benchmark
  3. Do not launch a product with negative profit, unless it will serve as a loss leader
  4. Do not arbitrarily set your price – evaluate your competition and price gaps to make a good pricing decision
  5. Do not advertise your new product for the sake of advertising.  Make sure that you are communicating your selling points only.  Too many messages makes the advertisement in effective
  6. Do not launch a product that doesn’t fit within your small business marketing strategy
  7. Do not forget about tracking the sales performance of your new item
  8. Do not forget about going after low hanging fruit opportunities.  The low hanging fruit opportunities in aggregate will equal a big win
  9. Do not position your product for any consumer that is willing to purchase your item, like most small businesses do.  Have a targeted marketing strategy to increase the effectiveness of your marketing.  In marketing, a small net will catch more fish.
  10. Do not forget to tell consumers that your product exists.  All new product launches must be supported with small business marketing support
  11. Do not discontinue your item if sales are slow initially.  It takes time to generate sufficient awareness, trial, and repeat purchases
  12. Do not discount your consumers.  If you learn their decision tree for purchasing, you have a high likelihood of selling more if you market to the points on the decision tree
  13. Do not forget to track your sales during promotional offerings.  Tracking will allow you to determine what promotional pricing provides the highest ROI for you
  14. Do not place your item on shelves that do not make sense (such as a child’s product being sold at a height that is above children); do not sell your item in stores where your targeted consumer does not shop
  15. Do not develop packaging without evaluating what you will be shelved with.  You want to differentiate yourself as much as possible on shelf so that consumers will easily spot you or be visually be gravitated toward you
  16. Do not forget to bundle your new item with other complementary items that you might have to sell as a package deal
  17. Do not have an idle social networking account.  Use your social media to run polls and interact with your consumers.  At the very least, when you run a poll you will find out something about your consumer!

A Twitter Follower vs. a Business Follower

Today I performed an experiment. To give you some background, this website was launched about 6 weeks ago and today, I have about 88 twitter followers. Granted, a small following but nonetheless, a following that will provide a statistically significant result.  As you can imagine, this website is still in the “developing awareness” phase.

I decided that I wanted to test my followers.  I tweeted that I am trying to achieve Facebook Likes and would like them to take two seconds out of their day to like eMarketingFreak.com via the Facebook Like Button on my homepage.  I retweeted this about an hour later.  Six hours later, I had zero likes.

There is clearly a way to target a twitter follower however, what this experiment has showed me is that 100% of my organic twitter follower fan base are just that: twitter followers.  I would prefer business followers, obviously.  But unfortunately, I am still in the slow process of getting ranked high in Google so that I can be found.

What does this mean for your social media marketing strategy?  Firstly, twitter is ineffective in the early stages of your website.  Your twitter followers will consist of twitter followers, but not business followers.  Business followers come through time as you develop trial, awareness, and market penetration.  Secondly, twitter is filled with business owners like yourself – people that are trying to promote their business.  They will follow you because you are relevant to their business in some way, however, they will only stay as twitter followers – never a business follower.