Importance of Calculating Costs

First let me say there's nothing wrong with exploring every possible marketing venue. There are lots of ways - both good and bad - to pull in sales. However, while something you have considered may seem like a good way to pull in sales, a closer look at your costs to run the campaign may prove differently.

Let's say for an example you decide to give out freebies at random. Giving samples can be a good way to bring in sales, but at the same time can make you completely broke. Just for this example, let's say you've sent out 100 samples and from this you pulled in 5 sales. Sounds like the campaign worked, right?

Many would stop here and say "I'm going to send out more samples, because this is bringing me sales". Before you start in on your victory dance, I can't stress enough the importance of comparing your costs to your profits. When doing something like this, you absolutely cannot rely on reorders or repeat customers. Keep in mind it takes nearly as much time and money to KEEP a customer than it does to get them in the first place. The mind set of "I’m getting my name out there" has GOT to go. With a small business, you are working on building relationships and repeat customers, not branding like the big businesses do.

Breaking down our example, let's say our freebies cost $1 each. There's more math involved in figuring your costs, but for this example we'll just set that cost for each sample. Now since you sent out 100 samples, your cost was a $100. Quite a bit of money for just one campaign! Sent out over a period of time (say several months) you might not even notice that it cost this much. Another reason why it's important to watch these things, because you can see how easy it can be to go broke quickly.

From our example we decided that 5 sales were made. Let's say our average commission is $9 per sale, so with 5 sales that makes $45. Great! You made sales! But wait - take a look at those costs again. Remember how it cost you $100 to send it out? You just lost $55 as well as precious time.

The purpose of this example isn't to scare you off of marketing all together, but rather to figure out your average costs BEFORE you start handing out samples or any other type of marketing. Regardless of how much figuring you do, there's still a chance for a loss instead of a profit, but that's fine. It happens, and it's normal. Testing, tweaking, and tracking are how we learn. After comparing your first try, decide how it can be better and try again. Either that, or try something else that will bring you a profit.

If I didn't mention it enough before, it's EXTREMELY important you track your costs closely. Our examples above proved this. Regardless of what you are told, it's not about getting the sales, it's about making a profit. That's the key word here - PROFIT. Just like a major company, it's all about the bottom line.
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Anita DeFrank & Kara Kelso, authors of Direct Sales Success, specialize in coaching direct sales representatives to reach their goal of becoming successful in their field. If you need additional help calculating costs, visit http://www.directsaleshelpers.com/calculating-costs.html