Marketing in a basic sense is broken down into 2 main categories: Institutional Marketing and Direct Response Marketing.

What I am personally fanatical about tracking is the results to direct response marketing. By that I simply mean that if I send out a post card, create a website, or insert a piece in a newspaper, I want to know exactly how much revenue those marketing pieces generated for me. As a small business (i.e. you don’t have $100 million dollar ad budgets) this is the ONLY type of marketing you should be focused on.

Major corporations, however, invest in very sophisticated very expensive institutional marketing programs. By that I simply mean that hundreds of millions of dollars have been spent to create a recognizable name, character, and/or slogan. More importantly, that advertising has created a position in people’s minds ideally relating the name, character, or slogan to their brand unlike any of their competitors are able to do. Once you have that position you never want to give it up because changing an already established position can create confusion in the prospects mind and it gives room for a competitor to take over that position. Along these precise lines, I recommend a great book written by Al Ries and Jack Trout called Positioning: The Battle for Your Mind. Ries and Trout give example after example of businesses like Volkswagen, Chevrolet, Michelob, Miller, Avis and others who did and did not understand their positioning and how that affected their long-term profits. Some have messed it up horribly.

Camel cigarettes had deep enough pockets and understood the power of institutional marketing, branding, and positioning so well that more 5 year-olds in the previous generation could identify Joe Camel than Mickey Mouse. Obviously 5 year-olds can’t buy cigarettes so why do they want 5 year-olds to know Joe Camel? Because in a decade when teenagers start getting exposed to smoking by peers, whether they consciously understand it or not, Joe Camel has made a position in their mind that’s not easily forgotten. If you have a small business, you can’t possibly afford to do this. You need to pay your bills and make payroll this week, you don’t have a decade to build a position.

There are, however, 2 main “small-business” exceptions to the rule that small-businesses shouldn’t engage in institutional marketing:

1. Banks – In your lifetime, you are more likely to get divorced than change banks. For some reason, banks have customer retention rates somewhere in the high 90% range. My mother told me that when she moved across the country, married my father, and they started a family, the ladies at the bank were some of the first people who she would show her babies too. That sounds rather strange to me, but it makes sense. Any good marketing is about developing relationships and any bank worth it’s salt is going to train their tellers to do just that. If their good at it, it’s just natural that their customers would know all about their “favorite teller” and vice-versa. After all, it’s a very intimate relationship as that teller knows quite a bit about you that your best friends and family will never know. So how can banks invest in institutional marketing? I would suggest in the same way that Joe Camel did. Target children. If you know that you’ll have a 90% plus retention rate, it’s a race to see who can get that first checking account setup for the first job, right? Well what if you deposited $5 in an account for each middle school or high school student who came to the bank with an A on their report card? It may take a decade or longer before that pays off, but you’re almost guaranteed to keep that child as a customer as they need a car loan, house loan, student loans etc. etc. etc. At least you’re more likely to get those accounts from that child than you are to attend their 50 year anniversary.
2. Franchises – Obviously this is one of the benefits of a great franchise. Yes, of course, their are franchises that are downright terrible and the name isn’t worth a whole lot. However their are others that have been established for so long and have invested so much money in marketing over decades that their name is extremely valuable. This week I was speaking with a colleague who owns a franchise that’s one of the top 300 most recognizable names in marketing and has no competitor recognition in the top 1000 names. Their tag line has been known and marketed for decades. The business is a Culligan water dealership and the tag line is obviously “Hey Culligan Man.” Prior to his current business, he owned an independent pizza joint. In addition to loathing the late hours required at a pizza shop, he said it’s nearly impossible to make money when you’re competing with the big name pizza places like Pizza Hut, Papa Johns, and Domino’s. Even when you have a great product, which he did. All 3 of those pizza franchises have the resources to invest in both institutional and direct-response marketing. Each month without fail, I will get a postcard with the latest specials from each of those 3 pizza franchises. Why? They want me to cut out a coupon and take action right now to buy their pizza. Obviously they also invest a lot in commercials, websites, radio ads, sponsorships and other items that don’t generate a “direct-response” for them, however, it does help them create a position in their prospect’s mind so that when she starts thinking of pizza, they pop into her head.

So if you have a small business, what should you do? The answers is very simple, invest all of your marketing budget in direct-response advertising. If you decided to go the route of being an independent franchisee, you’ll obviously benefit from the institutional marketing your franchisor does on your behalf. However if you have any control over your own marketing dollars, you better make sure that every dollar that you spend in marketing is coming back with friends. In other words, with the use of micro-sites, web analytics, coupons, call-tracking phone numbers, and plain-old asking people (though you do always have to be skeptical of their answers) you should do your best to determine exactly which marketing investments bring money to your business.

In my business I’ve tested radio, direct-mail, newspaper, websites, gooogle adwords, yellow pages, local sponsorships, home shows, and just about everything else. Over 2 years I’ve tracked the results of each item and today can, with very high certainty, know approximately how many dollars of revenue I’ll bring in for my best marketing projects. For my business, newspaper (which was literally the last thing I decided to test because I thought it was dying) has out performed everything else even though there are still some profits to be made with home shows and direct mail if done properly.

So what does that mean to me? I’m going to put as much of my marketing budget into newspaper marketing as possible as often as possible until it stops working. Do you know what marketing projects can produce those results for your business? If you stop investing in institutional marketing and start investing in direct-response marketing, you will.

To your direct response marketing success, Bryan

P.S. If you’re looking for a great book on the subject and some more details on what numbers you should track with your marketing, check out my blog about Claude C. Hopkin’s book Scientific Advertising.

At the moment, I’m negotiating for a new car, and I’ve learned a few things:

1. If someone won’t negotiate with you via phone or email, they’re not real interested in negotiating with you in person. This happened to me twice. It wasted a lot of my time and energy and really annoyed me since they weren’t willing to make any good deals in person but assured me if I came to the dealership they would give me a great deal.
2. They can give you a very close estimate of your trade-in, sight unseen. Don’t let them tell you you need to drive 3 hours in one direction to get that information.
3. Whatever their first offer is, ALWAYS deny it. Do the same with the second offer, they can ALWAYS do better. In other words, BE PATIENT. How much better? Well upon my first phone call one dealer gave me a price of 36,000 and 0%. Second call he offered 31,000 and 0%. Third call he offered 31,000 and 0% and 18,000 for my trade-in. Fourth call he offered 31,000 and 0% interest and 20,500 for my trade-in. So from first to fourth call, we’re talking about a swing of about $7500. :-O  And I know I can get the price down even more. Another dealership, without even me prompting dropped the price on a car by $1000 from one weekend to the next. They didn’t even call me, they just emailed the new better offer to me.
4. Invoice prices that you see on Edmunds.com and similar websites don’t mean a thing. One dealership I went to had a “Market Adjustment” markup over MSRP for Mitsubishi Evolutions of over $3,000 and they wouldn’t even drop the price to MSRP!!! Another dealership across town agreed to sell me the same exact car for $3,000 under MSRP which was about a $1000 less than invoice. Do you really think that car dealer was going to sell me a car at a $1000 loss? Of course not. The salesman needs to get paid as well as the dealership. The invoice price doesn’t mean a thing.

As I mentioned in my blog about selling to the Internet Generation, we know how to get a good deal. One of the ways we can the best deal, is by being “dispassionate” about the purchase by negotiating via email and phone. If you didn’t just get out of test-driving a fresh, new car, it’s hard to make that split second decision to buy it cause it makes you feel good. Car dealers HATE unemotional buyers! As a matter of fact, they feed on them. That’s why they want you to test drive their cars, they’re convinced that you’ll give them the valuable information they need about how much you love the car so they can sell you that car. Granted, as Dave Yoho used to say, “There’s no such thing as an unemotional, dispassionate buyer, who buys solely on merit.” I’m no different. So the question is not whether or not I’m going to buy the car, it’s just what do I have to do to get the best deal. And therefore, which dealer will I purchase from.

How dispassionate can I be?  I make up a spreadsheet with the numbers I want to see based on the 5 year cost of ownership of the vehicle taking into account gas mileage, insurance, car payments, and up-front costs. If the numbers in the spreadsheet aren’t where I want them, I walk out. I even tell the car dealer that. “Hey I appreciate your time, however this is what I can afford, if you can’t make money on this deal, I’m not going to ask you to sell me the car. I’ll just wait till I sell my car at a higher price.” That’s when they start coming back with better offers.

It’s worth noting that this is definitely a buyers market. With the sluggish economy car dealerships are hurting and are much more willing to make a deal now than they were 2 years ago. It’s not your fault that they need to badly sell cars. They don’t have to accept any offer that you put forth. As a matter of fact, you’re trying to help them out by buying a car from them. Always keep that in mind when negotiating for a car, business, or anything else.

To your negotiating success, Bryan

The reason for this is actually extremely simple and direct: Taxes

If you could consistently make 20% MONTHLY returns in the stock market you’d still benefit from a small business. Realistically, I can’t think of a single reason not to own a small business. Even if the business only employs you, there are tax advantages though there are certain advantages, such as healthcare, that are only possible with people working with you.

Keeping in mind that less than 12% of millionaires, according to The Millionaire Mind, are professionals (i.e. doctors, lawyers, engineers, etc.) and the vast majority create their riches through building a business, that’s actually beside the point. My point in this blog is simply that owning a brick and mortar business has many advantages that even your 1-man-show-no-employees-to-deal-with internet business can’t match. Let’s look at a few:

1. Taxes
2. Room to cutback
3. Health Insurance
4. Retirement Accounts

The quantity of tax advantages possible with a small business are for more numerous than a short blog can cover so I’ll touch on a few highlights:

1. Pre-tax Expenses – Your gross pay is meaningless. Your net pay is all that matters and when your phone, internet, car, car insurance, business meals, and travel are all paid for by your business the savings are huge. As an example, if all of those pre-tax expenses add up to only $10,000 per year and you are in the 30% Federal Income bracket, have 5% state income tax and have to pay 15.3% in FICA (7.65% from the employee and 7.65% from the empoyer) you’d have to pay yourself over $20,000 in salary to afford the same expenses. If you own a business and those expenses only amount to $10,000/year you probably need a better accountant. Keep in mind you have to be honest about the use of those items. For instance, my company doesn’t pay for my entire cell phone bill because obviously I use the cell phone personally a portion of the time. The same is true for my vehicle allowance.
2. Distributions – When you have a pass-thru entity you have to pay yourself a “reasonable” salary and the rest of the profit you can take as a distribution without paying any FICA tax (a savings of 15.3%).
3. Racing - This is probably my favorite! In essence, if you like racing cars, motorcycles, airplanes, bicycles or have some other hobby and you don’t mind plastering your race vehicle with your business’ logo, then your vehicle and most of the expenses related to racing can be paid for pre-tax as a marketing expense for your business.
4. Real Estate – If your business requires a building and you own the building in a separate entity (most likely an LLC), your business can rent the building from your other entity and the rent is passive income that isn’t subject to FICA (again saving you 15.3% over a salary). Obviously the rent has to be reasonable.

As you can see, just these few items can quickly add up to tens of thousands of dollars in tax savings even with a business grossing less than $500,000 per year. Obviously, the larger the business, the greater the savings.

By room to cutback, I simply mean that if you have a business that employs just you and sales drop, guess who the first one to get fired is? On the other hand, if you have a business with just a dozen employees and sales start dropping now you have a lot more room to cut payroll before you’re out of a job or taking a pay cut. As a small business owner, I know personally that cutting others before you cut your own pay is extremely difficult to do, but you can’t deny that, if necessary, you and your family have a bit of extra security.

As for health insurance, if you have a few employees (at least prior to the new Healthcare Reform Bill) there were health insurance advantages to being on a group plan such as your rate is primarily based on your age and not pre-existing conditions. I learned this first-hand as I couldn’t get insurance as an individual but had no problem getting on my business’ plan.

Since it’s your business, you get to structure your SEP-IRA or other retirement vehicles in any way that you want. Of course you have to make the accounts available to everyone on your team, however you have the ability to structure the accounts to best benefit you. This power can have a major impact on your overall tax bill today and into retirement, so don’t overlook it.

Finally, if you’re looking for what type of entity to create, I highly recommend an LLC filing as an S-corp. Also, make sure you have a GREAT accountant to take care of all of the details of these tax advantages and to make sure you’re doing everything legally and ethically.

To your tax-saving success, Bryan