Business Development Manager - Let’s start with the Basics – ROI

11/11/2010 by Stephen Law.

Whilst my main function is to generate sales leads, many clients think of me as their part-time Business Development Manager.  My clients range from business savvy entrepreneurs with a company worth £x million - to Newbie’s who have never run a business before in their life.  These “Let’s start with the Basics” topics are aimed at the Newbie’s who need some help with the basics.  So let’s start with ROI…

What is ROI?
ROI is an acronym that means “Return on Investment”.  Put simply – if you want to be successful in business, then you need to be making more money than you spend.  As a basic example, if all your outgoings for Admin, Finance, Legal, Marketing and Operations add up to £200k per annum, then your business must generate more than £200k per annum just to cover costs.

Breaking even - i.e. you spend £200k and you make £200k is ok – but if you have made no profit then you might question why you’re working 10 hours a day 6-7 days a week, instead of working for someone else.  So ROI is about making more than you spend – e.g. you spend £200k per annum but you bring in £400k = (£400k-£200k) = £200k pre-tax profit.

Marketing ROI
Now let’s look at what a good Business Development Manager would advise you regarding ROI in the context of Marketing.  Whilst it is not possible to state exactly how much you should spend on Marketing, most text books will state that approximately 20% of your annual spend will be spent on Marketing.  Continuing with the £200k spend scenario, that means 20% of your annual spend = £200k x 20% = £40k per annum on Marketing.  To ensure that you attain an ROI for your £40k spend, let’s examine this….

If you spend £40k per annum on all your marketing and you bring in £40k worth of business – then your marketing effort has reached breakeven point – i.e. £40k - £40k = 0.  So at this point the marketing effort has paid for itself but made no profit.  Moreover, if your total expenditure per annum is £200k then you are now facing problems.  Therefore, whilst your marketing has reached breakeven point, your business is still in trouble.  If your total spend is £200k per annum, then your marketing spend of £40k per annum must generate at least £200k worth of sales to breakeven. 

OK so what would a Business Development Manager advise you to do: - if your marketing spend is £40k per annum and your total spend (including marketing) is £200k then you might be happy if your marketing brings in £400k worth of sales: - £400k - £200k = a pre-tax profit of £200k.  In other words, to gain this ROI the Return on Investment for your marketing must be 10 times your spend on the marketing – 10 x £40k = £400k.

Marketing Budget – Without a marketing budget you don’t have a chance
I’ve been a business development manager for about 25 years.  I’ve helped countless business owners to turn around companies who were struggling and many more who needed to expand.  Yet it never ceases to amaze me how many budding entrepreneurs forget to include a marketing budget in their plan.  Many business owners assume “My product or service is so amazing that everyone will want it” – but they forget that if no one knows about it – no one will buy it.

There is a classic misconception among many people who have never been trained in sales and marketing – that all sales and marketing people work on commission.  Whatever you do, DO NOT FALL IN TO THIS TRAP!  I can categorically state that I have never in my entire life seen one single new-start company that has succeeded by using a commission-only sales team.  A commission only structure suits an established brand, not a new-start venture.  20 years ago, I worked for United Artists on commission only because everyone knew their brand and I made a lot of money.   DO NOT FOLLOW A BUSINESS MODEL THAT DOES NOT SUIT A NEW START BUSINESS.  If in doubt, talk to highly experienced business development manager.

A new-start business is a high-risk venture and demands investment in marketing.  A new business has no track record and it is an accepted norm by investors that they anticipate 3x more expenditure than is planned, because the business will make many mistakes at the start.  That’s why investors ask for 50% of your business at this point, because it is very risky.

Making Profit from your Marketing Efforts
Once again, let me stress that you must make more money than you spend.  I received a call from a gentleman yesterday who asked me “Which form of direct marketing would work best for me?”  This chap thought he might find a commission-based sales person to help him.  My first questions were:- a) “How much is the sale value?”
b) “How much profit per sale?”
c) “How much commission per sale?”
The answer made me fall off my chair – “Oh, the sale value is £45 but I only make £25 per sale so I would pay someone about £15 per sale”.  My father (a vicar) always taught me “Treat others as you would have them treat you”.  I was somewhat stunned and replied to the gentleman “So would you get out of bed every morning and work like stink to make £15 per sale?”  His reply was incredible – “Oh no, but I tried everyone on the People per Hour website, but they couldn’t speak proper English – so I came to you”.

The upshot of this conversation was that this chap had no budget whatsoever.  As he put the phone down he said “Oh I thought you were really good at what you do and could help”.  Like a sad 5 year old who had just been told by his Mum that he could only have the toy Ferrari for Christmas and not the real thing, he went away in a major sulk.

Please, please, please – when you decide to market your product or service, never assume that all sales people will work for peanuts just because that’s what you want.  If you wouldn’t do it yourself, please don’t assume that anyone else is daft enough to do it.

Where to find a Business Development Manager
If you are a standard SME (a small business) the you really should talk to your local Business Link.  They can provide some excellent broad-brushstroke advice that could save you a fortune.  If you are seeking a business development manager to implement the work – that’s more tricky.  A good full-time Business Development Manager could cost you anywhere between £50k and £200k per annum.  If you just need a bit of help to steer you in the right direction and get in front of new clients – I can help you for a fraction of the cost (Stephen Law 0870 042 1263 stephen@sl-freelance.co.uk )

The Best Plan for the Best ROI
Set aside a marketing budget and find someone to help you.  If winning new business is not your forte – consult a business development manager to put you on the right track.

I’m always happy to talk to potential clients.  I’ve often spent an hour or two advising people at start up stage for free.  Those who follow my advice often become customers in the future.  People generally come to me for help with Telemarketing but often walk away with a better route to market.  Call me – Stephen Law, Business Development Manager & Consultative Telemarketing Expert – 0870 042 1263 or email me Stephen@sl-freelance.co.uk .

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