What Is The Cost of Scarcity?

What Is The Cost of Scarcity?

Here is a past email newsletter from 3/7/2018, “What Is The Cost of Scarcity?”

What you think about matters.

Those finance gurus that would have you focusing on budgets have your attention and energies being directed towards scarcity.  What if instead your energy was spent on creating more?

When it comes to money I am an advocate of being smart about how we spend it (to avoid scarcity), but I am equally an advocate of creating revenue (also to avoid scarcity).

One of the crucial elements for creating revenue is marketing.  Many business owners “feel” they cannot afford marketing. What you can’t afford is ineffective marketing.  Well you might ask: How can you tell if you have effective marketing?  Truly there is only one surefire way – use your financial information to measure the results of your marketing activities. There should be a correlation between what you are spending and the results (i.e., return on investment or ROI).

Not too long ago, I had a client who came to me because he wanted to evaluate a product he had been selling that had always done well enough during the holiday season but seemed to have lackluster sales the rest of the year.  He mentioned that he had recently stopped his social media marketing because he felt he was not getting his money’s worth (ROI).  Unfortunately, he had made this choice for a purely subjective reason, not one based on objective numbers from his financial reports. One based on scarcity because he did not feel he could afford the money for the marketing.

A review of his financial reports did reflect that sales during most of the year were sporadic and sometime in October sales would begin to steadily climb to peak at Christmas and then slow and sputter out around February or March.  We discussed his options, revenue strategies and how to better measure for results and concluded our meeting.  This was late Summer.  About mid-October he requested to meet again as he had concerns.  His sales were low and based on previous years they should have begun their holiday climb.  Again, we started with a review of his numbers and something immediately was evident.  His sales for the same period the previous year were significantly higher than they were for the current year.  Also, sales had consistently declined since…wait for it… he had stopped marketing through social media!  I pointed his attention to the expense line for social media and when it went to zero (no longer having service) and then to his sales.  There was a direct correlation.  Shortly after stopping his marketing activities his sales began to slide and had never picked up momentum.  We did not see that same pattern when the marketing expense was in place.  What does this tell us?

(1) We need to run our businesses by the numbers.
(2) We need to be able to interpret what the numbers mean; and
      (3) Consistent marketing matters.

What was the cost to my client from allowing a feeling of scarcity to guide his choices? He never recovered the lost sales from the months he had decided he could not afford marketing.  Using a subjective sense of scarcity to make our decisions and failing to measure for results commonly results with the business owner not sufficiently funding marketing activities and marketing is critical to our financial health.

For more read:  The Ultimate Financial Cheat Sheet for Small Businesses

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