You know the deal:
- Sally gets new idea.
- Sally gets funding.
- Sally spends 100% of $$ developing idea.
- Sally runs out of cash.
- Sally goes bankrupt.
Where should you spend your startup cash?
Unless you've already built a magnificent-recurring-client base who's ready to buy from you tomorrow, do this: Focus a humongous chunk of your initial capital (and time!) into:
At the end of the day, banks, investors, and potential prospects will bail you if you're generating heaps of customers -- but need more money to develop your products/offerings to serve those customers.
- Sales generates cash.
- Cash is your lifeblood. It gives your company working capital to live.
- Without cash, you'll have no business.
The biggest destroyer of new businesses is a lack of cash. Why? Entrepreneurs unfortunately get the mistaken notion that:
- "Marketing is easy."
- "Sales is a piece of cake."
- "That's why we look down on salespeople for a reason."
They think customers will eventually come knocking. Then, after finishing their products/storefronts/teams/etc., they can't "frickin' find customers AT ALL". So, they attribute their downfalls to "bad luck" -- instead of the bigger culprit: Their sales/marketing skills suck.
How Important is Sales?
- Great sales without great products have built billion-dollar businesses (i.e. glance at the Fortune 500).
- Shabby sales with great products have destroyed businesses (i.e. no one knew how great they were to begin with).
The Reality: You can have a bad product with great sales (i.e. repeatable and foreseeable customer transactions), and still establish your company for years to come. It's frickin' hard doing the vice-versa. How do you get out of that startup stage and establish your company? Hint: It's not through perfecting every inch of your product.
Sidebar: Sell First, Build Second
Sure, it's a controversial approach -- but hey, it's the best strategy we know to conserve cash for the smartest investments (i.e. spending resources of products you know for sure will give you a positive return).
So, How Much Should You Budget on Sales?
Pop-Quiz! Your sales budget should be:
- a) 10%
- b) 20%
- c) >55%
What'd be the smart answer?
- c) >55%!
Of course, every business is different, but we think budgeting at least more than half of your total budget on sales serves as a good rule of thumb. SalesForce.com, makers of CRM software, budgets about 70% of their total budget on sales. (They're pouring millions-by-@#$%-millions into their software, so imagine the magnitude of their sales budget.)
Handy Tip: How to Budget Your Sales
How do you spend your "sales" budget wisely? That's an article in itself, but here's the gist:
- Don't put everything into one pot.
- Test and experiment with different marketing channels to see what works best for your particular product(s) -- using very little cash for each to allow for more future experiments.
- Pour more into those that succeed, and less into those that fail.
Rinse and repeat. (Marketing channel examples: direct marketing, advertisements, AdWords, calling prospects cold, flyers, networking, PR, speaking, hiring a sales consultant, yadda, yadda, yadda)
Running shabby ROI campaigns?
- Analyze how you can cut costs with your better-performing campaigns. (You usually can -- by a lot; eventually, you'll gradually find a way to optimize your ROIs for each channel.)
- Simultaneously, experiment with other marketing channels as well.
Once you generate good globs of customers knocking on your doors, you'll free yourself to perfect your products to rock the world.
Sales = Muy Importante
Posted on January 13
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