Marketing 101. Chapter 2: Setting Goals

Businesses are concerned with making a profit. Very simplified, profit is what you make when your revenue or income exceeds your expenses. When expenses exceed your revenue, you have a loss. These elements are tracked through a profit and loss (or P&L) statement.

Thus there are two ways to make or increase a profit: either bring in more money or spend less. This is often referred to as either top-line or bottom-line growth. Marketing helps you grow your top-line and can be used to manage some bottom-line expenses.

In order to guide your marketing efforts, it is helpful to first establish your goals. Once you set a target for how much you want to make, you can then figure out the steps to take in order to reach your goal.

There are two primary routes to generating revenue. The first is sometimes called Household Penetration. Let's say you earn $1 each time you sell a widget. The more families who buy your widget, the more you make. The other approach is often called Frequency. Let's say there are 100 people who buy from you, and they buy once a year. If some of those same 100 people bought from you twice a year, you would increase your revenue without having to find any new customers.

So, when you set your top-line growth goals, decide if you want to increase your household penetration (customer base, membership, readership, reach ...), frequency or size of purchase, or both. Do you need to find more new customers or sell more to existing ones?

You can apply these formulas to non-business concerns as well. For instance, in your personal finances, you can increase your income or cut your expenses. With your blog, you might want to focus on finding more new readers or having your existing community read your posts more regularly.

In order to set your goals, you first need to know where you are starting. Collect some data. Determine all your sources of revenue -- or readers -- or whatever it is that you want to grow. Do some measurement over time. Establish a baseline - how many customers do you have in a year? How often do they buy from you on average? What is the amount that they spend in an average transaction?

See if the 80-20 rule (or some variation) applies; i.e., do 20% of your customers drive 80% of your sales? If so, what do their stats look like? For example, maybe 20% of your customers buy from you 10 times a year and the other 80% buy one time. What do your projections look like if you find new one-time buyers and what do they look like if your 10-time-a-year buyers increase to 12 times a year, or the existing one-time-a-year buyers increase to two times a year? Play around with the numbers. And if you are just starting out, look at what others are doing and make some estimates of what you could potentially achieve in one month, six months, one year, five years.

Next, list out all your expenses, such as the cost of materials; anything you are paying to employees; what it costs to operate your workspace; fees for services; and so on. Look at which ones are the same no matter how much you sell and which ones vary as sales go up. If you find more readers for your blog, eventually you might have to pay for more bandwidth. If you create aprons that you sell on Etsy, finding a source of lower-cost fabric would reduce your expenses. In both cases, your attorney fees for incorporating or securing a trademark would be the same regardless of how many readers you have or aprons you sell.

Once you've gathered this data and made a simple P&L statement,it should be easier to see whether your goal should be to increase household penetration, frequency or both. And once you have your goals in place, you can start to plan how marketing can help you reach them.

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Thanks for your questions so far, please keep them coming!

Previously:

Chapter 1: Introduction

Additional Resources:

TSH at Simple Mom: Manage the Family Finances by Cutting Expenses AND Increasing Income

Tricia Okin at The Marketing Mix: What's your ideal day?

Reviewing that schedule, it looks like roughly 5 hours a day, or 25 hours a week, is dedicated to client work besides email. How many clients do I or you need to bring in each month or each quarter to fit an ideal day? How much marketing do we have to do to attract those clients?

As it stands with my current need to meet $5,000 a month, I would need to bring in roughly 2 projects a month....

To get those projects and clients, Dani and I calculated: 2 projects/month = 10 proposals/month = talking to 60 people/month. This means I have to speak to or follow up with 2 new people per day to reach my goal.

Julie Chance at WebProNews: Reach Vs. Frequency

Seth Godin in his book Permission Marketing uses an analogy of seeds and water to demonstrate the importance of assuring adequate frequency in your promotional campaigns. If you were given 100 seeds with enough water to water each seed once would you plant all 100 seeds and water each one once or would you be more successful if you planted 25 seeds and used all of the water on those 25 seeds?...

When faced with the decision of mailing one direct mail piece to 10,000 people or mailing to 2,500 people four times think about the fate of those 100 seeds you can water only once. Unless you have water rights and can obtain additional water, opt for less reach and more frequency.

Eddie Yoon at Harvard Business Review: Tap into Your Super-Consumers

In any product category, roughly 10% of the consumers account for more than 50% of the profits. These super-consumers, as we call them, are the hot dog buyers who eat five pounds of hot dogs a month, wolfing down as many as 4 per sitting. They are the stapler users who own 8 different staplers. They know what they want, they'll buy a lot of it, and they'll pay a premium for it. They're passionate and engaged — sometimes even a little obsessive — and they exist in every category, from soft drinks and air travel to fast-food and oral care products....

We've found that companies that listen to their super-consumers and use their insights to refine their message ultimately grow sales and margins across all segments. These companies aren't trying to convert light users into heavy users. Rather, they're figuring out what it is the super-consumers like so much and then offering it to them.

Phil Weslow at Feedback Secrets: Contact Adhesion in Social Networking

In banking circles you’ll often hear marketing VPs talk about household penetration. The concept refers to the number of the bank’s products and services that a given household currently has. One of the ongoing goals, from the banks point of view is to increase household penetration....

So let’s extend this idea to social media marketing (SMM). If you are starting out in a SMM campaign your first goal is to build a list of contacts. Your second goal is to develop a decent level of interaction with as many of these contacts as possible.

Cross posted at BlogHer.