How pinching pennies can make you penniless

As the economy continues to be sluggish, many people and companies are tightening their wallets and trying to shave every penny they can off their expenses.  While this makes sense on the surface, it can have damaging long-term effects.

I’ll share my personal history to illustrate this.  For several years, I’ve had quite a lot of debt.  About $10k in credit card debt, and another $50k in unpaid student loans.  Much of this debt was incurred as I struggled to find gainful employment out of college; and later, when I was laid off and was out of work for a few months.  To try to get out of this situation, I responded by trying to cut any and all expenses I could: reduce the heat and A/C, cut out all eating out, reduce entertainment to nil, etc.

I expected that if I reduced my expenses, the result would be more money available to pay off debts and greater stability.  Unfortunately, it didn’t work out that way.  Every time I started making headway, some mysterious emergency would come and wipe out my progress.  My cars broke down.  My son had accidents or got sick.  Unexpected problems arose.

Only recently, when I stopped focusing on money problems, debt and cutting, did things start to turn around.  I focused on earning more.  Bringing in more income, rather than reduce outflow.  I quickly found new opportunities to earn extra monet.  The bills settled down, emergencies stopped coming up, and I’m finally starting to pay off those debts.

I’ve witnessed the same phenomena in business.  When I worked for a wholesaler in the foodservice industry, I would inevitably run across cheapskates who haggled me down as much as they could to get a better price.  The worst ones had 5-10 separate vendors, and shopped around on every item.

Instead of getting rich, however, most of them went out of business or struggled just to keep their doors open.  They spent so much time trying to stop money from going out, that they never focused on bringing more money in.  None of the several vendors showed any loyalty to these customers, as they barely made any money themselves.  When the account went even slightly past due, they were cut off.

A better approach is to pick one or 2 vendors and partner with them.  Find the vendor that has the best combination of price, service and knowledge of their business (and yours) and give them all of the business.  They will take care of you.  They will give you creative ideas.  They will help you get the word out.  They will promote your business using their social media, word of mouth and other channels.  We’ve just started doing this with our vendors, and we are already seeing positive results.

More importantly, don’t skimp on your marketing budget.  While you shouldn’t continually throw money out without results, you shouldn’t cut marketing completely either.  The big advantage of social, online and email marketing isn’t so much in the cost as it is in the ability to track results.  Pay attention to which messages and specials get responses and sales.  Then, back up your online messages with print and hard copy promotional materials that repeat that message.  Some people still don’t use social media or respond to online marketing.  However, by using online marketing strategies first, you can eliminate a lot of the trial and error involved with finding a marketing message that works.  Then, you can use your hard copy pieces more efficiently to really bring in the income.

Happy hunting!

Jim

AFS

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Posted on August 31, 2012, in Business, Marketing, Promotion, Sales, Uncategorized and tagged , , , , , , , , , , , . Bookmark the permalink. Leave a comment.

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