OK. There is a bit of science to it. Which by the way, my high school science teacher would be flat out amazed that I even remember the word let alone the practice off.

The world of setting pricing as it pertains to marketing is paramount to understanding ones business. It’s a world of spreadsheets and reports that can make anyone want to through up ones hands and say ‘enough’. However, if one wants to understand their break-even point is vs. profitability vs. loss. They are a must.

The first, basic, order of business is to know what your monthly operating costs are: rent, employee’s salaries (yours included), electricity, office supplies, etc. Next is to include your cost of sales (marketing, advertising, web, SEO, etc) and total these up to get at your cost of doing business. If possible sorting it down to the cost of employee to sales to break even per month is even better. It’s a lot to do and initial set up of this model is time consuming. However, if you know this information and manage it, life and managing the shop to profitability will be possible and satisfying.

So what next? Once you understand your operating costs you need to understand what each product costs wholesale, to include shipping (down to the number of skeins, etc). Last weeks mention of a good point of sale software that can manage the input and output of your product, both cost and quantity, can be immensely helpful at this stage. It can not only help you with inventory control, but also to see buying patterns that aren’t successful and holes in your inventory.

At this point, by understanding your expenses and inventory you can price your product to industry standard % to sell to the public at a price that your market will pay. If your store product includes higher end products your % point might be higher. If you carry product that can be had at three other local shops within a 25-50 mile radius as well as available on the internet you have less flexibility and some thinking to do on your differentiation. With this basic work done you’ll begin to have an understanding of what you need to sell to make your expenses and a profit.

These spreadsheets and models can get pretty complex. My rule of thumb is when they are getting unwieldy I stop and think how I can get (and read) the information in a simpler report. Sometimes that means creating several reports tied into a master model.

Now that you have a place to started you may be asking yourself, how do you get the customer to not only come in, but buy? We’ll tackle how to market (promote) your store and product next week.

Resources

Point of sales

QuickBooks, Microsoft, Possum, and Lightspeed (MAC)

Marketing spreadsheet programs

Spreadsheet Marketing, Marketing Insights, Business Power Tools

Disclaimer: I’m pretty comfortable in excel and have developed my own spreadsheets over the years.  For those that are not familiar with spreadsheets, a decent place to start is with an inexpensive program that you can by on the web. Caution, don’t spend more than $80.00 on a program and be prepared for only getting the basics. You’ll need to expand them to suit your needs.

Last week we tackled vision and mission, which hopefully helped you begin to sort out the why of why you’re in business. I hope it also helped you begin to understand your value proposition and your differentiators in the market space. The next big question to ask yourself is – who’s your audience. It seems easy enough eh?

Wait. Don’t stop reading this entry. Especially if your reaction is – I know who my audience is. Many of you do. However, when I scratch the surface with questions such as demographic, location (local and non local), aesthetics, age, style etc. it’s clear that most people have a clear, broad idea of their customer/audience but not the differentiating details of their customer base. All critical components for a shop or manufacturer to know in this local is global market space.

What does that mean for this week? Simple. Write out your Tier 1, 2 & 3 customer/audience group. Where they reside. Age. Buying patterns, fashion styles. Know yarn (product) and preferences . You get the idea.

If the question seems a bit daunting or you don’t know where to start, follow me. In a notebook or on the computer make three columns; at the top of each column label Tier 1, 2 &3 and under each title list/name the ‘audience’ (baby boomer, GenX, GenY, etc.) that you cater to with 1 being your largest/key audience. Usually by age demographic is the easiest. Next, if you’re an older shop or manufacturer checking revenues by yarn, patterns, books might be helpful. If you’re a new store, revisit your vision, mission and begin to map out whom you want to attract to your store; brick and mortar an online. Under this list, begin to fill in, styles, and purchase patterns, income range, types of knitting, knitting and buying trends, how they receive information (blogs, newsletters, etc.), what they read, and the average dollar spent on a purchase (and how often) that are specific to each group. Country may help as well. Hopefully you’ll begin to see trends emerging or think of other demographics not listed. Some will be overarching across all the groups, others specific to that audience.

If you’re a member of TNNA, they have a report from 2007 that can help. Be aware that this report is about 3-4 years old so buying patterns and average spend have changed. Another resource is Creative Leisure Communications; they have some great articles and links to possible research. Yarn Market News is a wonderful industry resource as are BPA statements from magazines (Knits, Knitters, Vogue Knitting, Knit-n-Style, etc.) and eZines (Knitty and Twist Collective). They can give you a sense of demographics that are invaluable.

Hopefully this list will help you begin to develop a SWOT (strengths, weaknesses, opportunity and threat) for your business. Which in turn will help you develop a marketing plan that targets your audiences broadly (when possible) and in smaller niche opportunities. It will also help you understand how to change, how to communicate, market, advertise, budget and be able to move with that demographic as it moves/changes. If you have any questions, email me.

Good luck this week! Next week. A step back to look at the process in developing a marketing plan, why and budgeting with a small budget.

PS: Here’s hoping I see some of you in my hometown of PDX this week. I’m heading to the Sock Summit to see friends, make new ones and buy some yarn!! Which I need like I need a hole in my head…

Value proposition. This week’s been all about answering this question in 5-minutes or less. Less being key. More like three points and quickly. Which brings up a good point. Actually a critical point. Do you know yours and if so, can you tell me or your customer in less than 5-minutes? If not. Read on.

On the whole those that can articulate there why, what and where capture the attention of the people they are speaking with and the customer that’s buying from them. And let’s be real. We are e a short attention span, mind set kind of crowd. Sad, but true.

What is a value proposition? What does it mean for/to a marketing plan? For an effective plan (even the smallest ones) knowing it and having it can be the difference of closing a sale, catching the eye of a new customer and/or communicating your brand and values to future customers.

You can begin the process with a few key questions:

• Why do you do what you do? (The guiding principle of the company – Vision)
• What do you do? (What’s your business and to whom – Value)
• Where do you do what you do?

It’s the first question that trips people up.  It defines your values and commitment of who you are as a business and rarely changes once it emerges. One of the most visible examples I can think of is Nike. Their why is all about performance. In hind sight it’s an easy one. But one that once defined, has seen them through to becoming the definer and leader in sports equipment. Subsequently their markets define there what and where. OK. it’s a longer story, but you (I hope) get the meaning of how important understanding your why, which is attached to your Vision is so important.

Here are some questions I use in identity branding to get the ball rolling.

Vision (why)

1. What 5-words (adjectives) best describe your aesthetics what you want to achieve?
2. In 10-years what do you want customers and the industry to know about your brand?

Mission (what/where)

1. What best describes what you are now and what you want to achieve in 3,6 and 9 months, and in 3-years?
2. With whom in 1, 3 and 5 years?

Once you’ve made a list of adjectives and/or bullet points, in 3-sentences develop each question. Once you have these, you’re on your way to being able to build an effective marketing and communications plan. BTW…you may tweak these in the planning process, but not much.

Until next week.

PS: I have a white board on my wall that I list these on for clients. We (or I) then develop key descriptions/points of each adjective to help develop the descriptions of each.

PPS: Treat this as a team exercise with several in your office (if you can).  Plan a half a day (or at least 1-2 hour sessions x 2) to move through these questions.

I’m (still) always amazed at the many small businesses (start-ups, venture backed or boot strapped) that I speak with that wonder why they don’t do more business. When I ask, a seemingly simple question. Do you have a marketing plan? I’d venture to guess 1/3 are honest enough and tell me yes, but they haven’t been executing on it and the other 2/3 look at me kind of funny and in an oh so casual way ask… Do I need one?

Um. Yes.

If you have one and your not implementing it, start implementing it. If you don’t have one, take a deep breath and FIND and CREATE the time and so you can develop one. No time? Prioritize what you have on your plate and carve the time out to do it.  Take it in small steps. A bit each week. You’ll be surprised.

Which brings me to the meat of this post.  In the next weeks (OK maybe 8-weeks or so) I’ll post a down and dirty on the ‘how’ of building the basics of a marketing plan. You’ll learn the how’s, why’s and wherefore of the infamous 4 P’s – Product, Price, Place and Promotion – and more.

Moreover, at the end of each post I’ll pose questions and action items for you (homework) that, I hope, will help you. For the more adventuresome, I’ll also supply references for more in-depth digging.  Or feel free to email (leslie @ urbanfiberstudio dot com) and I’ll help you and most likely others, get ‘unstuck’ if you get stuck.

See you next week.

What do you say?

As a side note, I’ll be making the time to re-work the marketing plan of Phase II of Urban Fiber Studio. I’ve slotted 2-hours, every Friday morning to do this. It’s not much, but well, it’s something!