June 2020 Newsletter Feature Article

The only way to get smarter about how to invest your marketing dollars is to document and measure what’s happening now in your business.  What you’ve measured, you can then improve. 

Marketing Spend

The first step to measuring what you spend on marketing is to aggregate all of the costs.  They may be in one account or several.  Some of the places to look for marketing expenses include:

• Advertising: for online or print ads, trade shows, sponsorships, and other advertising costs
• Dues and subscriptions: for membership fees to networking and professional associations
• Education: for marketing training
• Marketing: for obvious reasons
• Office supplies: for graphics subscriptions and fees
• Payroll, salaries, and wages: for allocation of employee time spent on marketing projects
• Printing and postage: for flyers and direct mail
• Professional fees: for marketing consultants, coaches, designers, and writers
• Software/Technology: for marketing software and apps
• Travel: for trade show or conference attendance

Once you have aggregated all of these costs, you’ll have a good idea of what you’re spending on marketing and you can calculate the first metric, marketing spend.  The formula is

Total marketing costs / total gross revenue = Marketing spend

This gives you a percentage. 

Most companies spend five to ten percent on marketing. Higher growth companies will spend close to ten percent, and stable growth or slow growth companies will spend close to five percent. Large companies will spend more, from nine to 12 percent of gross revenues, than small companies.

CAC – Cost to Acquire Customer

Probably the most important metric for marketing is how much it costs on average to acquire one customer. To compute this, count the number of new customers for any period of time, and use this number in the following formula:

Total marketing costs / number of new customers = CAC

A more granular version of CAC is CPA, cost per acquisition. Unlike CAC, CPA is measured by campaign or marketing channel, or the source of how the customer was acquired. Example marketing channels include email marketing, social media, and paid ads, to name a few.  

Revenue per Customer

Revenue per customer is a good measure in many companies.  It can tell you how much, on average, a customer will spend at your company over a period of time, adding up all of the orders, projects, visits, or engagements for that customer. The formula is simple:

Total revenue for a period / total number of customers for the same period = Revenue per customer

A similar metric that’s valuable is how much a customer will spend at your company in their lifetime. That’s called CLV or customer lifetime value.  Use the same formula above but compute it based on the longest period of time you have records for. 

When you can compare revenue per customer or CLV with CAC, you can determine how much you can afford to spend to acquire new clients. 

Let us know if we can help you calculate these metrics so you can become wiser about how to invest your marketing dollars. 

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June 2020 Newsletter Feature Article

Deciding on the kind of business you want to start is a very big decision. Some require specialized skills that either the owner or employees will need. Others require a substantial initial capital outlay. In any case, it’s always a good idea to consider the health of the industry you’ll be entering in. 

While we are not giving any kind of investment advice in this article, we thought it’d be fun to list the business ideas that will be recession-proof in 2020, many of which were also fast-growing in 2019. They are not in any particular order.

Bicycle shops

Demand for bikes ramped up this year when people started staying at home due to shelter-in-place orders. They saw the need to exercise close to home, and a bike is the perfect accessory to get people out of the house safely. 

Building services

This group includes businesses that provide services like office and home cleaning, landscaping, and pest control. New demands in cleaning will continue for some time. 

Software development

Businesses with skilled developers are in demand as other businesses look to automate more and more of their processes. Workers with skills in artificial intelligence and virtual reality are in very high demand. In 2020, we added a huge demand for video conferencing tools, and other tech tools we need to work from home.  

Online publishers

While the traditional print media such as book publishers and newspapers are declining in growth, online publishers are thriving. This category includes bloggers as well as the internet stars on YouTube that are making great money through online ads and product endorsements.  The fast pace of the news in 2020 has simply accelerated this trend.

Building finishers

This category includes construction companies that provide drywall, painting, and flooring to finish out a building or house.  Th need will continue in 2020 as offices, shops, and other businesses remodel to meet social distancing and other safety rules. 

Outpatient care

An alternative to going to the hospital emergency room, these care facilities are growing fast. For patients, they are less hassle than making an appointment with a doctor and far less expensive than ER bills. Once tests and treatments for COVID-19 become universal, these places will become good alternative for people with mild symptoms.

Administrative services

There’s a growing need for businesses that need additional administrative support beyond what employees can provide. Virtual assistants are included in this category as well as staffing companies that provide temporary clerical workers onsite. 

Physicians

If you’ve ever been in a doctor’s office waiting room full of people, you know that this area is in demand. This include offices of physicians of all specialties. 

Professional drivers

Professional drivers fall into two categories: truck drivers and delivery/taxi services.  The demand for truck drivers is always increasing as online orders and ecommerce steadily grows. Many of these drivers are independent and own their own rigs as well as their own businesses.

Uber, Lyft, GrubHub, and DoorDash, to name a few, have increased the demand for professional drivers who can deliver food, medicine, or people to where they need to go. 

Data processing

The demand for data hosting, server farms, and data processing continues to grow as our appetite for technology increases.

Warehousing and storage

Places like self-storage facilities will be in demand for a couple of reasons. Families have more stuff than they have room for. And as families continue to be mobile, they will need temporary storage space.  All you have to do is look on your street at all the cars that don’t fit in their garages to see the demand in this type of business.

On the commercial side, increased ecommerce demand and the need for pickup and delivery services has increased the need for warehouses for businesses in the distribution space. 

Construction

In most places, construction is booming, so there is a demand for general contractors, subcontractors, architects, engineers, and businesses that support construction.

Architects should be busy re-designing spaces, such as offices, restaurants, nursing homes, day care centers, and jails, to name a few, to keep people safer.

Medical and diagnostic laboratories

Even before COVID-19 came on the scene, this type of business was growing fast for several reasons beyond standard medical test ordered by doctors. People are getting DNA tests on their own, and nutritionists are doing more testing as people realize diet is a huge factor in health and personal energy.

Now that COVID-19 diagnosis and treatment require a variety of tests, these labs will be busy for a long time in the future. 

Ecommerce wholesalers

There is a growing number of people who sell items on ecommerce platforms such as eBay and Amazon. While a few source these items through agreements with manufacturers, many visit flea markets, donation centers, and resell shops to make their purchases and repurpose the items. 

Smart wholesalers that have their systems set up can help brick-and-mortar shops without an ecommerce presence sell their items while they are shuttered. 

Professional services

Fields that are fastest-growing include technology and marketing consultants. An interesting new type of security consultant is one that trains groups on how to deal with violence in the workplace and schools.

Attorneys are busy helping individuals update their estate plans and will likely be busy with divorce filings after COVID-19 has let up some. Accountants have new laws to communicate to their clients, and many small businesses want their books caught up now. 

Educational services

This broad group include elementary and secondary schools and junior colleges. It also includes adult career education, including businesses that teach trades skills, computer skills, and business skills. 

Companies that provide an online component to learning will be in demand for quite a while.

Real estate agents

Competitive, yes. But the average home sells twice as fast as it did eight years ago, so the number of transactions have doubled, increasing demand. 

Personal services

While a broad category, the areas seeing growth include personal trainers, personal nutritionists, and wedding planners, to name a few.  

If your business falls into one of these categories, congratulations. If you’re considering starting a business and you have the skills needed to start one of the businesses above, what are you waiting for? 

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June 2020 Newsletter Feature Article

When the CARES Act was signed into law, it created the Paycheck Protection Program (PPP), which is a new loan designed to help small businesses pay employee wages and other critical expenses.  Proceeds from this loan can be forgiven if certain criteria are met.

Once the PPP proceeds are deposited to your account, the original guidance stated that businesses must spend those funds within an eight-week period in order to be assured maximum loan forgiveness.

Loan proceeds must be used on payroll costs, mortgage interest incurred before February 15^th, 2020, rent (lease agreement must be in force before February 15, 2020), and utilities (for which service began before February 15, 2020.)

Payroll costs are defined as:

• Salary, wages, commissions, or tips (max of $100,000 per employee)
• Employee benefits, including vacation, parental, family, medical, or sick leave
• State and local taxes

Examples of Situations That Would Reduce Loan Forgiveness

• Loan forgiveness will be reduced if an employer decreases their number of full-time employees
• Salaries/wages must not be decreased by more than 25% for any employee earning less than $100,000 in 2019
• Full-time employment and salary levels must be restored no later than June 30, 2020

Requesting Loan Forgiveness

Comprehensive record-keeping is imperative!  To request loan forgiveness, the borrower must contact the lender that is servicing the loan and submit the completed SBA Form 3508.  The lender has 60 days to make a determination on whether or not the borrower qualifies for loan forgiveness.

Changing Rules and Lots of Gray Areas

Congress, the Treasury Department, the Small Business Administration, banks, and the IRS are all involved in this program, which has led to conflicting guidance and many unanswered questions.  The penalties are stiff for impropriety or fraud. 

What Happens If My Loan Is Not Forgiven?

For any portion of the PPP loan that is not forgiven, interest is charged at a rate of 1%.  Payments are deferred for 6 months and full repayment of the loan is due in 2 years. 

If you need help with calculations or interpretations, feel free to contact us so we can provide advisory services for this process.   

UPDATE: June 5, 2020 – Please CLICK HERE to see updates to the PPP Rules.

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