INDUS NET JOURNAL

Reports suggest that recession in the UK will not be over till 2nd quarter of 2010 and that the money made by Fortune 500 has shrunk by 85% to US$99 billion only.

There are two takeaways from this for you – 1) People are holding on cash and thus, your business will have harder time finding new customers whether you are B2B or B2C and, 2) Your cost of acquisition of new customers is going to go up, purely because of extra money that is required to be spent on marketing.

It is thus, vitally important that you take a hard look at the money you are spending on production of goods and services. If you are an online retailer for example, it means the money you are spending on designing, developing, maintaining and marketing your website.

What you would normally spend £5,000 on could cost you just £1,500, if you a choose value priced vendor.  About an year earlier, that may not seem like much of a difference, but now it makes one hell of a difference.

The cost of web design, development or maintenance is very important and can change everything. Let’s do some basic math. If the website cost £5,000 and you try to sell products worth £50 of which you only get half the money as profit, you would need at least 201 orders to stick (not refund) to make a profit. If you sell a product for £20 you would be profitable after 501 sales.

Now that the website cost is only £1,500 you only need to sell only 16, £100 ticket item to make money. If you go with selling £20 product, you only need to sell 76 of them.

Remember, these calculations about the number of products you need to sell have been made assuming, a jaw-dropping 50% profit margin. Now imagine these numbers taking into account 10% of 5% margin. Can you get 5000 new customers? If not, how will break even?

Working with a ‘Value Priced’ agency alone can mean all the difference between being profitable or not.

Think about it!

-    Mukul Gupta