Marketing 101 – Setting Goals

By Maria Niles

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.

Find more blogs by Maria at http://www.blogher.com/haystackprofile/viewprofile/Maria+Niles