Bonus with Purchase: Calculating ROI
Hello everyone and welcome to our bonus lesson on calculating r o I s o in less than fourteen we looked at how to analyse opportunities for your business on dh for some people really just doing that soft analysis maybe I'm sure the vibe is right and then checking in on their break even is enough to move forward with an opportunity but sometimes you anyone to do a deeper dive into the numbers and that's what we're doing here in this bonus lesson so how do you know if an opportunity is worth it? Well, one of the ways is to calculate the r o I n the r I stands for return on investment so basically what you've invested and then how much you stand to make and so calculating r o I is about much more than just did I make my money back right? Or how much above break even did I make calculating our eye is really about understanding how close an opportunity could potentially get you to your revenue goals, right? Because the best r o I is not something that just breaks even right it's something t...
hat puts us towards the goals for our business so when you're calculating our lie, what I actually want you to start with is start with that make a living number right start with that big picture of where your business needs to be financially and then figure out how much that opportunity needs to contribute to that number. So what percentage of your revenue needs to come from this opportunity to make the opportunity worth while I'm sure you guys an example so we can actually break that down and then from there you can run some of those other numbers what's the break even for the opportunity? What is your repeatable number? You're for me? I'm all these investing my time and trade shoes, so if I'm going to do a trade show and do it again, what's the number I have to hit to make it a repeatable part of my business, right? And then he and what is your time commitment? What do you need to get out of it to make that time investment worthwhile? So I want to give you guys a little case study here so you can see how this works in action on then we're actually in a hot seat. Some of our studio audience as well to me, put it into practice for them. So one of the questions that people ask me a lot is how do you calculate the orion, a trade show, and I usually give us slightly cheeky and so I was like, well, if I intrude trade shows, I wouldn't have a business right, and that is true that is absolutely true but I don't do every trade show that I've ever done all the time, right? Because some of them are much more profitable than others. And so you do have to have a way to calculate that our eye. And so I recently did a trade show, and so this is actually how we ran the numbers before I got to the show to figure out where it needed to be. So for me, my target revenue from the wholesale part of my business is one hundred twenty k annually. So in this case, that's, not my make a living number, it's, just the revenue goal from that part of my business. I have other things that feed into my business. To him. I make a living number, but I want to bring in one hundred twenty, kate annually from my wholesale business. And for me, my target number of trade shows a year is for right after years of doing trade shows, I figured out that that's kind of my sweet spot, right? So then I want to figure out what percentage of my wholesale revenue I would like my shows to generate. So the reality is all right would like this particular shows the reality is that not all of my revenue comes from direct orders of the show right? Some of it comes from those direct orders comes from people who order later and a large chunk of it comes from stores reordering right so those all factory so in the case of this show that I'm analyzing what I decided that I wanted this this particular show to generate twenty percent of my revenue so it's four shows but I want this one only bringing a smaller fraction because it's a newer show all right so my target my ideal scenario would be that this show would bring in twenty four k and revenue now not all at the show right? I know that's not possible it's not possible and I mean it could be possible but I don't expect it to be right what I see happening my business as I would want to write fifty percent at the show so I wouldn't write twelve thousand dollars that the show that I would want twenty percent of the revenue of that show to come from follow up orders within six months so people who I met at the show but then are placing their first time order after and then I want thirty percent to come from reorders within the next six months it's about seventy two hundred dollars to come from stores who bought either at the show or in that initial follow up and then placed a reorder right so I am with all these numbers just based on the patterns of my business and then where I needed to fit in my make a living number he's gonna look all different for you but I just want to show you this scenario but since it's my first time doing this show as I'm analyzing it these are my best case scenario numbers right? I also want to calculate my break even and my repeatable number I want to know what the bottom line is, right that's you know this last side that's my realtor target right? But what's my bottom line because sometimes it takes you a while to grow into a show right? It might take a while for an opportunity to pay off so what's my bottom line break even and what's the number that makes this show repeatable what would I consider enough of a success to do it again? So in this case my break even for this show I've got a twenty four hundred dollar booth fie thousand and lodging three fifty and travel a little bit in food and for me I didn't have to spend much on display already pretty much had everything about a couple new lights put all my suitcases moved on right this this is a super frugal show for me that was one of the things that I did because it was such a new opportunity as I kept it low you know, when I new york now my total investment is much higher usually usually the total investment that was about ten grand a show like a six thousand dollar both feet I've got all my other things I ship a crate so it varies but this was a new opportunity and I wanted to kind of do it at the bottom dollar and that's what it was for me so factoring and all of that my target break in was forty five hundred dollars of orders at the show I wanted to feel like I had walked out of there with it least my break even covered in orders, right? But then I also wanted to do my repeatable number because I can't just go to shows and break even alright that's not a business. So my repeatable number was that I wanted forty, five hundred at the show and another forty, five hundred over the next six months so that I was at least at about nine k revenue for the show. I want to at least double my break even to think t even think about doing the show again yeah, not my ideal just to think about doing it again and if I failed to hit forty five hundred of the show I would still consider repeating it if within six months I generated nine thousand dollars of direct revenue from the show so I may go and find out that it's not the kind of show that generates revenue right away, so I had that is my secondary target if I'm calculating this out and figuring out if this is a good opportunity, I also look at how achievable is this goal? So in this case, I figured my average opening orders at seven hundred dollars, so at the show I'd have to write six to seven orders total for the whole show did my break even and to hit my make a living number target, so hit that twelve k at the show, I would need seventeen eighteen orders and it's a four day show, so for me that all felt very achievable, right? That was enough for me to take advantage of that opportunity, and also that forty five hundred dollars break even I knew would not break my business if I didn't make it back. So that's hide how kate are right for that show now, full disclosure if you were paying attention in less than fourteen, this happens to be the show that was a bad aesthetic fit for me, so I missed the due diligence on that one, so this is really key? What you want to run these numbers, right? But again, you had to make sure the other thing is that is the best fit. Does that make sense about how to start with your make a living number? So what I want to do now is just pull somebody up for a hot seat and work through this with an opportunity for you guys, and I actually pick on christine first. Now that now that you're taking a pretty because I think you haven't an interesting opportunity that were kind of looking at with this workshop idea, so go ahead and sit down. We're really put you on the spot. Yeah, s so we've been talking about this idea for you of doing some workshops tell us about your products that everyone's kind of on the same page here. Okay, so right now I'm working on starting ah scrapbooking paper company type thing. So I want to kill the display. So one part of my products, um two is clear stamps that most scott bookers are very familiar with, but everyone else not so much. So how these work in another trailer? Just these air clear stamps that you stick on to clear blocked ex um, and then you just stamp them out. So for you, you're kind of playing with two different things here. One is that you have to figure out if you could make the production investment in those but then we also have to look at your revenue generating opportunity and so we're talking about this idea for u of running some workshops which I think is a really cool idea because it's a way to educate people on the product without making them feel like they're being taught to buy right? It feels like it's part of the brand so what I want todo is look at how may be running some of these workshops would fit into your business schools and you make a living number to see kind of where you would need to be financially right because in the last lesson I asked you that question about how much would a workshop need to bring in yeah you were like I don't know we're going to figure that out right now all right, so do you have an idea of what you're making living number is kind of a rock real rough uh sixty okay, probably higher than that, but well, we start with that right and so let's think about you know, if you're using the workshops, how many would you be comfortable doing in a year? One a month to month? What feels good crazy, insane maybe two a month to month right? Especially in the beginning to really kick start stuff and they won't be very long right? So you're talking about two months so twenty four year and how much of your income do you think that these workshops should contribute? Obviously you're selling your product on line two, you're going to kind of generate these this future revenue, but you know how much income with these need to bring in to sort of make it worth your while? So, like a percentage of the spanish, maybe thirty percent you're trying make sixty a year, so that means that you want these to bring in about eighteen, divided by our twenty four workshops, so each workshop would need to bring in seven hundred fifty dollars, to contribute to make a living number. Okay, so then, in your case, now we have a couple different scenarios, right? Because ultimately, you're not trying to make your living running workshops. You're trying to make your living selling product, right? So we're using the workshops of the marketing tool, but the beautiful thing is there were marketing tool that can also be revenue generating. So what you have to decide is in this seven fifty what is the best way to make them generate that number? Is it workshop fees? Is it selling something? Is it selling something after right? Yeah, so it's a couple different options, but I think the first way to start is how many people you wanna have in each workshop, so we know what the revenue is per person okay so what do you think is a manageable number what do you envision happening at this rate? Are we stamping your thinking a lot of people who aren't a scrapbook you mean you don't know about these stamps right? Maybe it's like a fun designing stamping thing what I envision it like there is a finished project that everyone has to do it right so maybe you're like a step stamping standing a journal or maybe your everyone will put together like a journal perfect awesome okay, so how many people can you reasonably manage? Okay let's see ten you want only where you were protecting you wanna keep it small, intimate awesome perfect. So that means but if we got ten people thank you I know I need a calculator for that why you guys are here right? So that means you have to generate seventy five dollars of revenue per person so now you can figure out and that doesn't mean you have to do it all at the workshop. The other important thing to do see here because this is part marketing opportunity so you're thinking about long term customer acquisition as well because you have the kind of product that you don't people to buy once right you want repeat customers so then the other thing that you want to figure out is how much revenue you want to generate immediately at the workshop versus through the life span of your customer now you might have a couple of things to consider. One is if you have to pay for a space right or if you have to pay any processing fees, so say you use like eventbrite to handle registration, so percentage is going to come out for a processing fee if you want to figure that out so you would figure out we don't know that on top of her head, so you would just say you're going to figure out what the event space cost, if anything, if you're spending any money to market in the beginning, maybe you're running some targeted facebook ads and you're doing something like that and there's any kind of event processing and of course, how much you have to spend on the materials for the workshop, so this is going to get you to your break. Even so, I would say you at least want to hit that break even immediately at the event, and then you want a method to keep in touch with those customers to continue to generate that revenue. So once you figure out that break, even you could think you could say, okay, you know, maybe this number let's just argue it's, twenty five bucks a person, right, so you could decide I want the workshops to be cheaper than that. I want them to only be five dollars, but then I'm going to give people the cell at the end, so that doesn't really seem like your style, right? But I could sell them more stuff on top, right? So what you could say instead is you want the cost of this workshop is twenty five a person, but it gets you like this little starter kit, right? And then you can do two things. One when they register, you're going to ask them to join your email list right away you want. You don't have to make that ask at the at the workshop, right? Because we're probably going to try to upset about the workshop. So let's, make the ass right in the beginning, right? Okay, join the email list. So that way, you can keep tabs on them, show them new products, get them out there. Right? But it's going to get them a certain kid and then you're going to bring more goodies, expanded kids, more fun stuff. And if it's a good workshop with the fun vibe, chances are pretty good that you might have an easy time up selling more stuff, right? Yeah. So that's really gonna be your goal so that's, how you would figure out what the r eyes on these events and you could really track this so you could, you know, put people on your list and know what event they signed up for and look at their total revenue what's your online store built off of right now I'm on scoring, okay? I'm not familiar with scores faces back in, but I'm guessing you can probably look each customer and how much they said right same thing on job so right if you know who joined you in which workshop you're right and so I would actually truthfully probably handles workshop sign ups through your own website, so you've already got them established as a customer and then when they buy more, you could go back and see oh, they bought the may first workshop in l a and now this is how close we are into their seven hundred fifty target so that and then the great thing is that any customer that you have acquired through this workshop method once they're over this number that's all gravy, right that's all extra money because they have more than covered their customer acquisition costs right? Reduction out seven fifty seventy five you'll have to have seventy five dollars a box that's easy paper products over a life span of a customer that's pretty small that's pretty easy once you get hooked right right and it may be that you have some people who buy more right see me only me in two or three enthusiastic customers to get you to that seven hundred fifty dollars number for that workshop right and could she do that thing like if she has her regular every dealer customers they get like some kind of either an extra care something if they bring a friend along so she's getting a new person on top of it with the person right I mean there's lots there's lots of incentives right once you kind of get this rolling yet to bring a friend to bring other people there's all kinds of ways that you can incentivize this but the most important thing is that if you're gonna run these workshops and you're gonna use them as both marketing and sales I want you to know what your bottom line is what you have to do to make this worthwhile and what you may find is that this target number you can actually hit that really easily. Maybe after you do a couple you realize you know what? I could take fifteen people instead of ten or it turns out that seventy five dollars spent per person is really easy to get teo when it's all said and done maybe you got to take this number down right so in the beginning you might be doing to a month but then you'd be able to say you know what I mean? You have to do sixty year these because now I've got the ball rolling on the business, right? So all these numbers can change, too, as you start to see what works could she incorporate that she wants to kind of test how those printing of those x amount of numbers could she use that best with the workshop? Because she wants to know if she should invest in making the new product so there are a few ways you could do it with a workshop, there's some other ways they do it to that particular thing might be really right for a crowdfunding campaign, a cz another way, tio pre sell the production, and you may actually just take brewers online for those there's a lot of ways that you could do that outside of the workshops. But the other thing that you could say is if that's gonna become part of a kid and you got four workshop scheduled each with ten people right there, forty of those air sold right off the bat. So then you only have to sell sixty to make it easy, and that starts to feel a little bit easier. So if you're scheduling these workshops far enough out in advance, you can probably project the sales of those just based on that awesome thanks, all right, thank you. And I wanted to run that because that's obviously a very, very different opportunity, then say a trade show. I know a lot of your thing about trade shows, but we wanted to run that something very different. So regardless of what you're doing, you can really sit down, run the numbers, look at the r o I and figure out what works best for you. When you're calculating that roo, I for opportunity, always start with the contribution you needed to make to make a living number right. That's, really what we wanted that was, how does it contribute to the big picture of the business? And then from there you can figure out your break, even your repeatable number, your time commitment, how many people you need to convert and what you need to make them spend to really figure out if you're going to see that return on investment on the opportunity, so that's it for this bonus lesson. Thank you guys for joining in.