All Expenses Are Not the Same

A few months ago, I was quite surprised after I finished my lunch at a restaurant that I regularly frequent. In anticipation of paying the bill, I dug in my purse for what the waitresses there called my “punch” card. Noticing my actions, the waitress intervened. “Don’t bother with your punch card,” she said. “We don’t take them anymore.”

Shocked, I exclaimed, “You don’t! Why not?|”

“Our new owners thought that they were too expensive. Instead, we are giving away two free meals each day in a drawing of the names of those customers who ate here on that day.”

“Wrong move,” I replied to the waitress.

The new owners had looked at the punch card and seen only the expense of the free meals which were given away after twelve punches. They had not considered the revenue gained from those twelve meals. They had not noticed how the punch cards prompted customers to stop by more frequently and, quite possibly, to opt for that restaurant instead of a competitor. They had not realized how these punch cards developed their customers.

The effectiveness of the card was quite evident on normally slow days for lunch at restaurants, Monday and Tuesday. Those days were double-punch days, and business was always brisk.

During the ensuing months, the business at that restaurant dropped. On Mondays and Tuesdays, I often saw few customers. Yes, that was partly due to outside economic pressures. However, when the economy gets tough, a business relies more than ever on its return customers. This restaurant had just dropped its incentive for customers to return. By doing so, some customers may have been upset, and most customers lost their prompt to have lunch there.

Deliberately turning away customers is not profitable. Doing so in troubled economic times is a double whammy; the business lost revenue which it could have had except for its own actions. Unfortunately, this is a typical reaction of businesspeople. When times are tough, they look to cut expenses. From a cost-cutting standpoint, this makes sense. From a revenue-generating standpoint, however, certain expenses are directly related to revenue.

Often, businesspeople don't stop to think about this relationship. They feel comfortable defining expenses while they find revenue to be more elusive. They know what their expenses will be, but they hope for their revenue goal. To achieve that hope, they market their business. At least, let’s assume that they do.

If you consider all the activities of a business, those that fall under the umbrella of marketing, including advertising and selling, are the revenue-generating ones. The rest, while quite necessary for the operation of the business, are expenses. In order to generate more revenue, you must focus on the revenue-generating activities of marketing. That means you must view the money spent on marketing differently.

This reminds me of a story that Robert Kiyosaki, author of Rich Dad Poor Dad, tells. He attended race card driving school, and one of the most difficult lessons that he found to learn was to accelerate out of problem rather than to apply the brakes. He learned to take just the opposite action that he would have done driving on the street. The same thinking applies to spending on marketing. To generate more revenue, accelerate your marketing activities; don’t decrease them.