- The true key to optimizing your business
- Why saving is one of the most powerful business optimization tools
- When should you spend more to make more?
Q: How do businesses use optimization?
A: Businesses use optimization to minimize the amount of money they spend while maximizing the amount of money they bring in. While this may sound simple, true optimization requires a carefully thought-out plan of action. This article explores how you can optimize your business by spending where it counts and saving where it doesn’t.
Anyone who’s taken the time to learn about finance understands that stability is difficult to achieve and often requires quite a bit of careful planning to achieve ambitious financial goals.
While this has always been the case, it is becoming increasingly relevant in the modern world. According to Pew Research Center, roughly half of non-retired Americans say that the aftermath of the pandemic will make it more difficult to achieve their financial goals.
The economic consequences of the last few years are still unfolding, but one thing’s clear:
Now is an important time to pay attention to your finances.
This is even more important for small businesses. Business optimization is becoming more critical than ever before as small business owners looking to grow in the face of these economically turbulent times.
While the importance of business optimization is clear, it remains a confusing goal for many business owners.
Humans are inherently drawn to clear-cut answers and easy-to-follow rules. Unfortunately, the economics just isn’t that simple.
But business optimization is achievable.
With the right strategies, you can maximize profits and set yourself up for success.
- The true key to business optimization
- When saving is the best approach and where to cut back
- When should you spend more to make more?
- Summing up the facts about business optimization
What Most Business Owners Think Optimizes a Business
If you have the self-drive to start your own business, you already have everything you need to optimize it. But determination is only one aspect of the equation, and you’ll also need to learn how to accomplish this goal.
Many business owners think the key to business optimization is marketing.
This is highly understandable, as marketing is a very important part of any successful business.
But small business owners often put far too much emphasis on marketing. They get the idea that marketing should be the foundation of their business optimization plan, and they start dumping huge amounts of money into this one area.
Other business owners follow a similar logic but instead focus too heavily on branding. They do everything they can to make their business stand out with the assumption that this will ultimately optimize their business.
While building a strong marketing strategy and brand are both important, they aren’t the true foundations of your business.
The True Key to Business Optimization
What really matters at the end of the day is money.
Businesses are only as successful as their net profits. Of course, money isn’t everything, and the pursuit of profit doesn’t have to be your sole driving goal.
Nonetheless, a business can only flourish and grow if it continues to bring in profits. The more money you have at the end of the fiscal quarter, the more you can grow your business with reinvested profits.
That is why true business optimization comes down to raking in the biggest possible profits.
Business optimization techniques that focus on any other factor only succeed due to happy accidents.
Make no mistake:
Focusing on spending and saving is the only way to strategically optimize your business.
Where Most Business Owners Go Wrong
Even when business owners focus on their bottom line, they often run into business optimization problems because they approach this area in the wrong manner.
There are two traps entrepreneurs looking to optimize their businesses fall into:
The first is an excessive focus on frugality and cutting back on costs
Many business owners try to optimize their margins by taking every opportunity to pull back on their spending.
But this reasoning only makes sense in a vacuum. While it’s true that spending less while earning the same amount of money will result in higher profits, real businesses don’t operate in a vacuum.
When a business owner cuts back drastically on all forms of spending, they almost inevitably sacrifice many important business optimization tools in the process.
This leads to lower earnings, a reduction in net profits, and slowed business growth.
Aristotle believed all virtue lies between two vices. If spending too little is bad for business optimization, the opposite is equally detrimental.
Some business owners think they need to invest as much as possible into their marketing and growth strategies to optimize.
While making smart investments is always a solid plan, blindly throwing money at your business expenses is a recipe for disaster.
When entrepreneurs take this approach, they wind up throwing cash down the drain by investing in ineffective marketing strategies and overpriced services that don’t provide sufficient returns.
It’s not that either of these approaches is entirely wrong — each gets something right, they just miss the forest for the trees.
True business optimization examples are more nuanced.
Why Saving Matters
Efficient business optimization consulting will focus heavily on saving in the right spots.
Saving money boosts your margins, allowing you to make more money, even if your sales stay exactly the same.
What’s more, saving money on your business operations gives you more capital to reinvest. You can channel the money you save into effective growth strategies that will ultimately make you even more profit.
That’s what business optimization is all about, getting the best ROI on your investments. Saving, when done properly, is of enormous benefit to that goal.
The key is to cut back on spending only in the areas where it doesn’t hurt your sales.
Is Your Marketing Ineffective?
Ineffective marketing can seriously drain your business of its resources, and this is a common issue for many entrepreneurs.
Effective marketing boosts sales, resulting in a net gain for your business. This makes it a crucial component of your business spending — one that you shouldn’t neglect.
But not all marketing provides returns. It is entirely possible to dump hundreds or thousands of dollars into marketing campaigns that don’t provide any profits.
This may happen for a few reasons:
Firstly, you might not know where your target market spends their time.
Advertising on the wrong platforms is a great way to throw money down the drain. It doesn’t matter how many people see your advertisement if none of them are interested in buying.
Luckily, it’s easier than ever to tell when this happens. Thanks to the features of modern digital marketing platforms, you can actively see how people interact with your ads.
If you notice that the vast majority of people seeing your ads aren’t clicking, liking, or even pausing to look at them, you might be advertising on the wrong platform.
The same goes for content marketing. If you post on social media, create blog content, or send out emails, examine these platform insights closely. If your engagement rate is very low despite reaching plenty of people, you know you’re in the wrong place.
Many digital marketing platforms will even provide rich demographic data about the audience for a given ad or piece of content. Take the time to analyze this crucial information.
If you’re not reaching your intended audience, your marketing is probably costing you more than it’s bringing in.
Secondly, you might not adequately understand your target market
Perhaps you’re reaching your target demographic, but you still aren’t seeing any returns. If the data supports this conclusion, then the problem is likely the actual content of your marketing campaigns.
Effective marketing shows your target market that your products or services are helpful. If they’re seeing your ads but not responding, your marketing campaigns probably aren’t achieving this goal.
If you’re experiencing either of these two issues, you know your marketing is ineffective. Stop throwing money at the problem and instead redirect those funds towards more effective marketing strategies (which we’ll talk about a bit later).
Is Your Supply Chain Costing You?
Another common spending mistake involves supply chains.
It goes without saying that you need a strong supply chain to run your business. A supply chain provides you with the raw materials you need to produce products, and it allows you to distribute them.
But while a supply chain is important, many business owners overspend in this area, miscalculating and spending money on shipping options or materials that are far more expensive than they need to be.
For instance, a business may think they are optimizing by ordering cotton from halfway across the world – simply because they’re getting a cheaper price per unit.
But while the cotton itself may be cheaper, the shipping may make it more expensive than local materials.
These seemingly insignificant expenses add up, especially as a business scales. And with inflation outpacing raises in income, it’s more important than ever to pay attention to the details.
That’s why it’s important to analyze your supply chain and compare your options. This can help you save money that could be put to better use.
Do You Really Need Those Bells and Whistles?
One final area where entrepreneurs miscalculate and overspend involves vanity purchases.
It’s completely understandable that small business owners seek to create a professional image for their businesses. They want to show the world they are serious, credible, and reliable.
But while that public image is an important part of your success and growth, it doesn’t have to be as costly as you might think.
Hiring unnecessary employees is a great example of failed business optimization.
Business owners might think they need to have more employees so they can appear bigger and more professional to consumers or investors.
But all this does is drain your resources, and with more startups and small businesses than ever, the public has become incredibly receptive to smaller businesses – to the point where being small and local is actually attractive.
Another great example of unnecessary spending is on physical office spaces. In fact, Forbes lists physical office rentals as one of the biggest unnecessary business expenses.
While prior generations may have seen working from home as less professional, the tides have changed.
People are running entirely legitimate businesses remotely, registering with a virtual office to maintain efficiency, security, and privacy while saving huge amounts of money.
If you are renting a storefront or office space with the hopes that it will boost your public image, you’re probably simply racking up most costs without boosting your business optimization.
If this all sounds familiar, you may need to re-evaluate how your business is spending money. These methods are not very likely to provide returns.
Cutting them out can free up money that you can use to grow much more effectively.
Spending Isn’t Always the Enemy
While saving on the aforementioned expenses is critical to optimizing your business, spending money isn’t always a bad thing.
There are numerous ways to enjoy fantastic returns by spending money on the right things.
When Marketing Contributes to Business Optimization
While ineffective marketing is a huge drain on your business optimization plans, effective marketing is one of the best things you can do to optimize your business.
Effective marketing needs to do a few things.
Reach the Right Audience
Marketing that reaches the wrong audience is a huge waste of time and resources.
Before you launch any marketing campaign, you need to make sure that you’re targeting the right people. This means understanding your target market and knowing where to find them.
Once you’ve identified your target audience, you can start developing a marketing strategy that will reach them where they are.
When they do hit the target, your marketing materials have the chance to connect, spark interest, build a loyal following, and ultimately raise your profits.
Your marketing efforts will be for nothing if no one bothers to pay attention to your message.
To get attention, your marketing needs to be creative and eye-catching. This doesn’t mean outlandish, it just needs to stand out against the backdrop of mundane competitors all spouting the same content and messaging.
You also need to make sure that your message is relevant to your target audience. If you can do these things, you’ll be well on your way to getting the attention of potential customers.
Once you have someone’s attention, you need to generate interest in what you’re selling.
The best way to do this is to highlight the benefits of your product or service. What can your product or service do for your customers? Why should they care about what you’re offering? If you can answer these questions, you’ll be able to generate interest in your products or services.
The next step is to create the desire for what you’re selling.
Speak directly to the pain points your product or company solves for your target audience. Show them what their life could be like with your product or service. Be specific and use language that resonates with them. This is where your understanding of their needs and wants comes in handy.
Convert into Sales
You’ll know your marketing is a worthwhile investment if you see that leads are visiting your stores and making purchases after interacting with your ads.
Remember those digital marketing tools that provide insights into ineffective marketing? Those same tools will let you know when your marketing is worth the money.
If you see that your marketing materials are reaching the right demographic, getting high rates of interaction, and boosting sales, you know you’ve found an effective marketing channel.
When this happens, try to funnel as much money as you can into these channels. Then, monitor the results.
The goal is to spend as much as you can on your marketing until you hit the point of diminishing returns.
You’ll know you’ve achieved this goal when the ratio of dollars spent on marketing to dollars made in sales starts to dip.
At that point, scale back to where that ratio was highest and turn your attention towards new campaigns. Rinse and repeat.
Invest in the Right Talent
Spending money on truly skilled labor when you need it is one of the best things you can do to optimize your business.
While it may be tempting to skimp on labor costs, this often ends up reducing your business’ net profits.
Remember, you get what you pay for.
If you need a website designed, a marketing campaign managed, or new content, minimizing your business spending will only result in lackluster deliverables.
If instead you seek out the most qualified, highly skilled contractors or employees and pay them what they require to do the job right, they will provide you with exceptional results.
This in turn will boost growth by making your business appear extremely professional – with the added benefit of dialing in your marketing and operations.
The key here is to focus not on price but on skill. Just because someone is “expensive” doesn’t always mean they are the best.
If you’re hiring a traditional employee, focus on their experience and their soft skills. A person who is highly curious and driven is worth spending a bit more on, as they will likely help your business grow.
If you’re hiring a contractor, take the time to browse their portfolio. Find someone whose work is truly exceptional, and you’ll know that the money you spend will more than make itself back.
Build the Best Infrastructure
Finally, consider the products and services you can implement into your business to streamline your operations.
Opportunity cost is a very real thing. Trying to save money by doing everything the hard way might look good on paper, but it can end up taking away time you could put to better use.
For instance, getting tax software to help you file your business’s taxes might look like a simple business expense, but it can save you time you can then use to develop new products or marketing materials.
Likewise, answering your own phones might save you money up-front, but adding a virtual receptionist to your business can give you hours more each week to build and expand while providing you with a consistent, friendly, and knowledgeable representative who is always ready to take the call.
The net result of building solid infrastructure is efficiency in the output — ultimately optimizing your business by helping you grow faster and achieve more within the same amount of time.
Final Thoughts on Business Optimization
The difference between a thriving business and a business that just exists often comes down to efficient spending optimization.
Business optimization is not a game of extremes. It requires nuance and strategy.
Pulling back when your spending isn’t working will allow you to reinvest into more effective growth strategies.
Likewise, investing as much as possible into the things that actually raise profits will fuel growth while laying the foundation for financial stability well into the future.
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Are you looking for a cost-effective way to grow your business?
A virtual office from Alliance Virtual Offices can save you hundreds of dollars a month.
That money can be channeled into effective marketing strategies, helping you reach more people and make more sales.
Best of all, you won’t have to sacrifice your privacy. You can work remotely without making your home address public knowledge.
Sign up for a virtual office today! Start optimizing your business for success.