Friday, March 02, 2007

More on Budgeting

Author Mark Terry kindly pointed out that my marketing budget was way too low on Monday. I agree. The point I want to get across is that you cannot put too much into a marketing budget. And here's the really fun part: Most of what you spend on marketing will net you zero sales.

At this point you're wondering if I'm suffering a little cabin fever. Let me illustrate my point with a non-publishing product. How about, oh I don't know, trailer brake controllers. Just so happens I manufacture and sell those things. If you're not an RVer and don't know what a brake controller is, that's fine, just think of it as a widget.

Let's say my widget costs $100 to manufacture. So my minimum cost per unit is $100. That's the easy part. Now I have to estimate my first year's sales, just like I asked you to estimate your first year's advance. Let's shoot for 1000 units. Which means my manufacturing costs will be $100,000. Now overhead-salary, office space, electricity, everything that costs money but doesn't go into the product. Let's say that's $200,000 a year. Now my minimum product cost is $300, at least for the first year. Oh, wait, there's that marketing thing. Here's where that big MBA degree is worth it's weight in Christmas tree tinsel.

It's not a science. Obviously, the more you market, the more you sell. But you just can't take out an ad in every magazine available. That'd cost millions. TV? Forget it. Not for my widget. So you set an advertising budget at $100,000 and carefully select where you'll advertise. For my brake controller, that's RV magazines and websites. For you? Well, you have to figure that out, that's why we're here.

But let me use my brake controller again. I spend about $3000 a month for an ad in a national magazine. Do I sell $3000 worth of brake controllers per month off that ad? Probably not. In fact, there's not one source I can justify based on direct sales. However, and here's the tricky part, I know that a combination of magazine ads, RV shows, web site, etc., will convince enough people to buy to cover my ad costs, and hopefully garner a small profit at the end of the year.

Do you see what I'm getting at? Marketing is like fishing. You'll make 100 casts before hooking a fish. But the 99 were necessary for you to find out where the fish are not. Not Randy Ingermanson, Not Terry Whalin, none of the guys I talk about can give you a magic formula for marketing. They can get you closer, just like a good fishing guide can find the hot spots for you, but it still takes a lot of trial and error, and a lot of money, before you figure out what works.


Robin Caroll said...

I do this a lot. Just playing with the numbers. It's quite an eye-opener, yes?

Sally Bradley said...

Ron, on Monday you mentioned $3000 as an advance. Is that typical for a first time author? I had thought it was a little bit more.

Ron Estrada said...

Sally, as far as I can tell, there's nothing typical about an advance anymore. It depends on a number of things. A first time author in the CBA shouldn't expect a large advance. It's rare that a first timer even sells enough books to cover the advance. My point, however, is you should be willing to invest that advance, no matter the size, back into your marketing plan.