Sue Chapter 29: Thinking at work

This entry is part 29 of 21 in the series Sue

My day at work went well. I was especially happy and two of my colleagues noticed it.

All I said was that I seemed to have made a new girlfriend and both were quite happy for me!

Fortunately, that day, I didn’t any outside appointments. I work from my own office downtown but on books supplied by my clients. Oh, don’t think they are actually books.

They are ledgers, expenses reports, binders of invoices, paychecks summaries, etc…

I then compile all of that into a complete overview of their company along with trying to make projections (something an actuary should be doing, they are much better at it) and propose investments and cuts to be made to increase profitability.

The biggest problem most of my clients have is between balancing their fixed costs and their variable costs, because, ironically, the variable costs are fixed and it’s the fixed ones which vary!

Let me explain.

Let’s say that a company has a cost of half a million dollars per year between the rent, the utilities and the biggest of all, the salaries.

Then. for every widget they sell, the cost for that widget, its packaging, its shipping to the distributor is $10.

I say widget, because, well, it’s a placeholder word.

So, at the end of the year, their costs will be $500,000 plus $10 times the number of widgets made.

Their revenues will be the selling price of the widget times the number of widget sold, which might be lower than the number made and sometimes, higher (if they had inventory left over).

But here is the problem. If they sell 500,000 widgets, their cost per widget will be $11: $10 variable cost plus $500,000 fixed cost divided between the widgets. However, if they sell only 50,000 of them, their cost per widget will be $15!

That’s why I say that the fixed costs are variable: the more units you sell, the less per unit it will cost you in fixed costs.

Well, your variables costs might actually change too as your volume changes: you might get a rebate on a higher volume and need to import from further away at a possibly higher cost at even higher volume but most of the time, it’s not a huge issue.

What is a huge issue is how much to spend in advertising and for that, you need accurate projections!

The more you sell, the less per unit your fixed costs will end up being and as such, the more you can put in advertising, but you need to have an idea of what your return on investment your advertising will bring you.

If you spend $10,000 in adverts to generate $15,000 in sales, that might feel like a good return until you realize that you only made 25% of the raw profit on those $15,000!

Ideally, you want your advertising to be a lever, something to drive your business to a new level, not just as a way to increase sales.

This is where I shine. I know, I am not an advertising major like Sue is, but I get to determine how much they should spend.

Sue might end up the perfect girlfriend for that reason: her knowledge of the advertising industry and my knowledge of the business sector might make us one hell of a power couple!

Let’s just take an example. One thing I always tell my client is “Don’t advertise your brand, advertise your products”

They always seem confused by that…

In short, don’t try to get your name known: try to get your services or products known.

People usually only have brand loyalty when that brand offers products they can use.

Do you put Folgers in your cup? If so, it’s either because their ad worked or more likely because you like the taste and price, it’s not out of loyalty to the company.

Now, that’s actually a bad example because, in the case of Folgers, the company and the product are pretty much synonymous.

But for most of the companies, they have other products to offer and as such, should spend (in my humble opinion) their budget on these products and not on their brand.

A few years ago, Apple made a well-known ad inspired by the novel 1984 which criticized the market dominance of the PC but what did we learn from their product? What’s special about their solutions?

Sure, Apple is more or less well known, but is it the case for your company?

I can’t wait to further my knowledge of the marketing world by talking with Sue. That woman inspires me.

You might think I have huge Alpha male fantasies and dream of dating two women at the same time and perhaps even three! But sitting at my desk, crunching sales numbers for a factory I help manage, I was trying to divide my experiences of the weekend into three piles:

1 ) Experiences that I introduced by myself, such as teaching Annie to play the bass. I seriously doubt the subject would have come out without me playing the sax at the supper.

2 ) Experiences brought by Sue and/or Annie alone, like the idea of sleeping with both of them, making them lunch. Sure, I would have invited them, but not that fast. Sue really put pressure on that point.

3 ) Experiences brought by our interactions, like the fact they remain nude in my apartment. That wasn’t 100% from Sue, she did linger longer without clothes and Annie did seem to enjoy being nude. I did push for more nudity from them, but I wouldn’t have if they hadn’t put it on the table in the first place.

In my analysis, I felt like I had been almost passive in defining the relationship, I simply pushed a little further…

The simple casual nudity after sex became a rule. Being a sexual partner for Annie turned into her being my second girlfriend but in reality, I simply turned up the dial to 11 in both cases.

Did I have things I wanted to bring to the relationship that came directly from me?

Now, that was a pretty big question…

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