Author Archives: brian

How Much Should I Spend on Online Advertising?

I had a good conversation with a client about this the other day. He asked, “How much should I plan on spending on online advertising?”

It may seem like a fairly basic question, but it’s not. It’s an excellent question, one that goes to the fundamental issues of business and marketing.

One answer is that you should spend a million dollars on advertising if you can sell a million and one dollar’s worth of product. This, however, does not take into account the cost of the product and the opportunity costs of doing something else with your money.

The answer I like to give is this:

What is the lifetime value of a customer for you? If you are selling a consumable product, organic mac nuts, for example, you might expect the average customer to buy a few times a year for a few years. Factor in single purchases and client churn (how many you lose a year) and you might find the average new customer is worth $100, on average, in lifetime orders. Some will re-order frequently, and some will order only once.

Then figure out your lifetime profit for an average customer. That is, for the $100 in sales, how much do you make after you subtract all of your costs (this is a very hard number to get right!). You might be left with $50 for a very high margin product like mac nuts or $5 for a commodity like pencils.

The next step is to run some test campaigns on the pay-per-click platforms: Google, Bing/Yahoo and Facebook. Write solid, targeted ads and let them run for a few weeks. Make sure you have tracking installed on your website to be able to identify the source of your sales.

After a few weeks you’ll have some data about customer acquisition costs. How much does each new customer cost?

Let’s imagine that you have the following numbers:

  • $500 in sales directly attributed to pay-per-click ads
  • $50 per customer, 10 new customers
  • 30% profit on sales
  • $15 profit per customer on first order, on average
  • $75 lifetime value of new customer
  • $100 spend on pay-per-click ads

So, in the single transaction, the net profit way of looking at the advertising, you would have spent $100 to make a $150 profit (10 sales @$50 each with $15 profit each). Not bad, but not spectacular either, as you probably have more expenses than you realize.

But if you look at the lifetime value of a new customer, the numbers look much better:

10 new customers x $75 lifetime value of the customer x 30% margin: $225 return on $100 investment.

So, if you had these numbers, it would make sense to increase advertising dramatically, as you are getting a 225% return on your advertising dollars.

online-advertising-spending

The key is to keep monitoring your advertising and make sure that the customer acquisition costs and the lifetime value of a customer do not change for the worse. Our experience at Kona Impact is that the cost of each new customer gained through pay-per-click is fairly constant, and if we fine-tune our ads, the cost can go down.

So, the answer to the question about how much you should spend on online advertising needs to take into consideration advertising cost, customer acquisition costs, profit margin and the lifetime value of a client.

The take away lesson is that a data-based approach will help guide you to the best decisions for your business. It should be noted that no other advertising medium—TV, radio, print—allows you this level of accountability and data.

The Kona Impact staff has been running online advertising campaigns for over 15 years. If your business is on Hawaii Island and you would like some proven methods to help your business grow, give us a call at 329-6077.

Support Good

Support Good

Kona Impact is as busy as it has ever been, with multiple marketing and design projects going on all the time. We’re busy, which, of course, is a good thing. That said, it sometimes makes us too busy to take a step back and see the bigger picture of life.

Life goes on around us: we see homeless people milling around the area near our office; we witness an occasional fit of rage at the intersection where cars and pedestrians nearly collide on a daily basis; sometimes we see children smoking cigarettes and other stuff out back.

The world is full of things that do (or should) make us feel a bit of dissonance between our mostly comfortable lives and the plight of others who struggle to establish or maintain a good path in life.

The other day, I was thinking of a very simple bumper sticker for my truck: Support Good. It’s a simple statement, but it makes sense: focus on what is good in life and support it however you can. It might be with time, treasure (money) or talent. It doesn’t have to consume your life, but just the act of making a few positive steps can make a difference.

Kona Impact as a business has been fortunate, because we have a lot of tools and talent that can support good. In the past month or so, we have supported the following groups through donations of resources and time:

Aloha Performing Arts Center (APAC) with a new, donated, website

Kona Parade Association with parade signage far below cost

Deep and Beyond with no cost printing

Habitat for Humanity with no cost printing

Kona Historical Society with signage

Hawaii Island HIV/AIDs Foundation with free signage for their Taste of Life benefit

Hospice of Kona with sign donations for Camp Erin

Truth be told, Kona Impact is asked almost daily for donations of time, materials or money. We can’t support every group, nor do we want to. Our giving is very strategic in that we support organizations that meet these four criteria:

  1. Extremely well run. We want our resources to go to groups that are efficient and run very well. We know the leadership of each of these groups and know them to be stellar in the execution of their goals.
  2. Local. We never give money to off-island causes as a matter of policy. We want our donations to make the lives of people in Kona better.
  3. “Needy” groups. By this, we mean we tend to support groups run on a shoestring budget. Habitat and Hospice are the exceptions to this rule.
  4. Impact. We know that donated marketing services and products are multipliers for these groups. They help them raise more resources, improve their awareness in the community and recruit volunteers.

As we move into the second half of 2014, we look forward to keeping busy with paid accounts, while at the same time continuing to support good in our community. We are always optimistic about what the future brings for business in Kona and our community. Kona Impact has always been a business that had dual goals: helping businesses grow, while at the same time strengthening what is good in our community to ensure that it is a vibrant and comfortable place to live.

Support good.

 

Is Hawaii the Land of Oz for Small and Medium-Sized Businesses?

“Toto, I’ve a feeling we’re not in Kansas anymore” Dorothy, girl lost in the Land of Oz

“The more things changes, the more they stay the same.” Alphonse Karr, French novelist

There is a constant pull, a tug of war, between the sides that argue Hawaii is a unique land, a place like no other, and Hawaii is a fundamentally like any other place to do business.

The truth is somewhere in between; that is, there are some unique aspects to business in Hawaii, and, for certain, most of the normal best practices found elsewhere tend to be apropos.

Here, are three “Land of Oz” business issues in Hawaii

  1. Hawaii receives an “F” for friendliness to small business. in a recent study by Thumbtack and the Kauffman Foundation. Much has been said about burdensome regulations, high taxes and employer obligations in Hawaii. Hawaii receives an “F” for its convoluted tax code and the onerous General Excise Tax. It is one of four states to receive an “F.” It is one of four states to receive an “F” for regulations. This is the reality of business in Hawaii.
  2. Personal networks often trump sound business decisions. These connections might come from shared ancestry–Asian, Hawaiian and Caucasian–or through shared educational connections– Kamehameha, Punahou and Iolani or through geographic ties (i.e., born here vs. “flew here”). These undercurrents are often unspoken, but they are very real and salient. You might not be able to break into certain parts of business or government just because of who you are.
  3. There are strong interest groups who often guide public discourse. Some Native Hawaiian groups are very effective at halting or greatly slowing down developments based on historical and cultural grounds. Environmentalist groups are very adept at using their voice and the court system to block developments, including the now-defunct inter-island ferry. Public unions for teachers and police have been very successful in ensuring a lack of change and strong union protections. No value judgments here, but a business owner needs to understand that there are many interest groups that can affect one’s ability to do business. Understanding these groups and working with them, when possible, can make a huge difference in the success or failure of an idea or project.

What is someone to do if they are thinking about starting a business in Hawaii?

The simple answer is to do a lot of research and know the lay of the land, so to speak. Talk to potential customers or clients, scope out your competitors. See what government permits are necessary and try to figure out what groups might be opposed to what you plan to do.

Make alliances with those who are likely to support you, including potential suppliers or others that might benefit from your business. Join groups of like-minded business leaders, including a Rotary club or your local Chamber of Commerce. Make connections through membership in a church, a sports club, a gym or a networking club.

Above all, set reasonable expectations and don’t be discouraged by things you can’t control. Thousands of thriving businesses exist in Hawaii; if you would like to be one of them, give us a call at Kona Impact 808-329-6077). We offer design and marketing solutions to small and medium-size businesses in Hawaii.

hawaii-receives-an-f

Happy Fourth of July!

We wish everyone a safe and enjoyable Fourth of July weekend.

As we enjoy the beach, the BBQs and the fireworks, let us not forget the struggles of those who came before us to make the United States what it is today.

By no means a perfect country, but by all means the best country in the world to live, work and have that ever so important concept of freedom to guide us day-to-day and into the future.

See ‘ya on Monday, July 7!

Happy Fourth of July

What Makes Your Business Special?

Most markets are brutally efficient. Start doing a bad job providing products or services to your customers and someone else will. Become arrogant and over price and a competitor will come in and eat your lunch. At Kona Impact we have worked with hundreds of businesses over the years, many of which have thrived because they keep innovating and meeting their customers’ needs. We’ve also seen many fail because they haven’t.

The way to not only survive, but to thrive, is to be the best at what you do. By best, I mean the best products, service, order fulfillment, prices or some combination of these. These are what Marcus Lemonis of “The Profit” fame call the “3Ps”: Product, Process and People. Excel at all of these and you probably have a good business.

At Kona Impact, we have identified five things that we feel set us apart from any local competitor, and perhaps more importantly, people buying online.

They are:

Local Service. This includes having an office for clients to meet with us and discuss their goals and projects. This means being able to visit our client’s businesses and have a deep understanding of what they do and what works for them. You can’t get this online.

Fast Turnaround Time. For many of our signs, we can do them the next day, and in many cases, same day. We try to keep ample inventory of all of our materials to ensure that our clients to not have to wait while we wait for supplies.

Highly-skilled staff. All of the Kona Impact staff have been doing what they do for tens of years. We are not learning how to do what we do; we are highly skilled at what we do and are not using our clients’ projects and money for on-the-job training. This makes our work top quality and, because we are very efficient, our clients’ costs are kept down.

Community Involvement. We are actively involved in making our community a better place. We volunteer. We donate materials and finished products. We organize events for non-profits. While growing Kona Impact is not the reason we are involved in our community, the outcome of the contacts we develop and the goodwill our efforts create is a stronger business.

Local Knowledge. As people who have lived and worked in Kona for tens of years, we have a good understanding of what works and doesn’t work here. We often share insight and connections with clients, many of whom have moved from the Mainland recently. We love connecting clients with people and businesses that will help them grow or solve a problem. When businesses go online for most of their needs, they miss these connections, and from our perspective, they make a lot of bad decisions and miss a lot of opportunities.

Kona Impact local business

Project Compassion to Benefit Habitat for Humanity

One of Kona Impact’s favorite non-profits is Habitat for Humanity West Hawaii. It’s an extremely well-run organization, and their impact on the community is immense.

I encourage anyone who has an interest in Habitat to check out the national website or the local website. Their list of accomplishment is vast and their management of resources is impressive.

As with most non-profits, they need to fund raise. Houses are not built for free, even though a lot of materials and most of the human power is donated, there are still costs.

One way you can support Habitat for Humanity West Hawaii is to eat at the Kona Denny’s this Sunday from 4pm to 9pm. During this time, 100% of tips to the special guest servers and 20% of all food and drink sales will go directly to help Habitat with their next build project. All you have to do is eat! How easy is that!

Hope to see you at Denny’s this Sunday night!

habitat-banner-dennys

 

 

Mistakes are Unavoidable: How to Avoid Them

I used to start each university class by writing, “make misstakes” on the board. The misspelling was intentional. I wanted to encourage my Japanese students to push themselves to the extent that they would make mistakes. I would tell them that making mistakes in writing shows you are expanding your skills, and, when identified by a fellow student or the professor, mistakes are a great way to learn.

Now that I run a business, I still expect mistakes, for making mistakes is how we learn about to innovate and offer new products to our customers.

Careless mistakes, however, are the bane of design and marketing companies. For example, sending a file to a printer with a typo or misspelling is like throwing money out the window.

Over the years, we have developed procedures and policies to avoid the (costly) mistakes. They include:

  • Requiring client approval, even if the last change was just adding a comma, before anything is printed
  • Requiring review of all products by at least two sets of eyes Kona Impact prior to finalizing
  • List of procedures for all equipment use
  • Regular meetings to discuss mistakes we have made and how we can prevent them
  • A culture of accepting mistakes as learning opportunities
  • Keeping equipment is proper working order
  • Replacing cutting blades frequently. This is a big way to reduce cutting mistakes

In the end, mistakes are often made when employees or clients are in a rush, unfocused or simply not attentive to their work. Find ways to help employees overcome these issues, and careless mistakes will decrease.

And, yes, the inspiration for today’s blog came from my lunch today:

no tomato please

No Tomato, Please!

Perceived Value Pricing or Cost Plus Pricing?

Pricing is always a challenge for businesses. In the ideal world (from a business perspective), prices are set high relative to costs and combines make a bunch of money. In the ideal world (from a buyer perspective) products and services would be priced slightly above cost, just enough to the keep the supplier in business and innovative, but not so much that the buyer’s capital was going to fund excessive seller’s profit.

These two perspectives roughly correspond to perceived value (charge as much as you can because your product has a high perceived value to the buyer) and “cost plus” pricing where products are priced at some level above costs, usually a small percentage above cost. At the extreme of this is commodity pricing, which basically says corn is corn and the buyer wants the lowest price.

One extreme of perceived value pricing was in the news recently.  Apple paid $3 billion to buy Beats by Dr. Dre headphones.  These high end headphones, which retail for up to $450 dollars, cost only about $14 to make, a markup of 3,200%! . This, of course, is a dream margin for any business.

How can Beats get away with 3,200% margins? They have a very high perceived value to the buyer. Aligned with youth culture, the iconic Dr. Dre and music, these headphones brand the wearer as a hip, youthful music lover. It doesn’t matter that the headphones have only receive mediocre reviews; they are cool and the thing to have.

We see these margins on everything from Air Jordan sneakers, Apple computers and nearly all perfumes. Perceived value can be very profitable.

Few businesses can make products that buyers are so caught up in perceived value that they have near limitless pricing power. Try to charge and arm and a leg for notebook paper and pencils and you’re destined to failure.

Here are a few local business types in Kona that have very strong pricing power due to perceived value:

  • Specialty Agriculture
  • Urgent Care providers
  • Tow Trucks
  • Bail Bondsmen
  • Pest Control Companies
  • Star Gazing Tours
  • Helicopter Tours
  • Wedding Providers
  • Medical Specialists

All of these have scarcity—we’re on a geographically isolated island—and a high emotional value to the problems they solve. The price of beauty, health, weddings, freedom and access to remote areas give these business a strong case to price according to perceived value instead of cost plus a small markup.

Businesses that can develop ways to create a niche of high perceived value products that are in demand, will have good pricing power. The closer you come to the commodity level, the lower your per unit profits, and the higher need you’ll have to sell a large volume.

At Kona Impact, we work with businesses in Kona, Hawaii every day and often talk about product pricing with them.

perceived value

Getting Found Locally: How Clients Find Coaches

How do your clients or customers find you? Do you ask?

One of the keys to successful local marketing, attracting and selling to people in your community, is gathering information about how people find you. One thing we do at Kona Impact is to ask every new client how they found us.

Was it a referral from an existing client? If so, I want to reach out to that client and say thanks.

Was it online? Did the new client click a paid ad or was it through organic search? The difference is important.

We keep this client acquisition data private, of course, because it becomes part and parcel of our marketing plans, budgets and strategic planning.

I can, however, share how coaches get their new clients. By coaches, I mean Life, Business and Wellness coaches, not soccer, baseball and swimming. This data comes from a marketing survey we did for FindCoaches.com an online coaching directory.

How do coaches find clients?

Of the following, what are the THREE most common ways your current clients have found you? (Check no more than three.)

Referral (from other client, friend, relative, etc.) 83.5%
Personal connection (you knew each prior to your coaching relationship) 67.1%
Your website 41.2%
Social media website (Facebook, Twitter, Linkedin, etc) 23.5%
Seminar, retreat or training session 23.5%
Online coaching directory 14.1%
Print advertisement (newspaper, phone book, magazine, etc.) 5.9%
Online ad (Google AdWords, Bing ads, etc.) 2.4%
Radio or television appearance 2.4%
Direct mail 1.2%
Radio or television advertising 0.0%

As you can see, referrals and personal connections are critical for coaches to grow their business. Social media, seminars and coaching directories also had a role in client acquisition.

Traditional media–radio, television, mail–were seldom used by coaches.

The results are clear: if you have a personal services business, you need to get out in the community and make connections with people. Don’t neglect your online presence either; a website, social media and online coaching directories might make the difference between a few clients and a lot of clients.

Should you avoid the traditional media like radio, television, mail and newspapers? These might be missed opportunities for coaches, or, as many might assert, they are not cost effective for coaches.

Clients often ask us where they should be found. Our answer is always the same: everywhere! This is especially true when it comes to professional services: you want anyone who is considering your services to come up with your name first. Simply relying on one medium or strategy is clearly not effective. That said, the survey results clearly show that some of the old media are likely to be ineffective.

The other thing that comes from the coaching survey is the need to ask clients or customers how they find you. Keep records. Use this information to fine tune your marketing.

survey your clients