Rising expenses & fuel costs? How much should I cut my marketing budget?

If you are a process server or private investigator, your profitability is directly impacted by rising costs, especially the sharp increases in fuels including gasoline and diesel.

While some private investigators who avoid travel and surveillance might minimize the pinch, most process servers are seeing huge increases in costs, as service of process by its very nature requires many miles of driving. Process servers, particularly in rural areas, where business is traditionally slower, are even hard hit.

The dilemma is what to do.

First, you can raise prices, but with attorneys and other clients also being pinched by the economy, pushing the whole cost increase to the customer is very hard to do. So the simple fact is you are simply going to make less per job.

That means it is time to start cost cutting... You need to trim the fat wherever you can, and make your operation as lean a possible to maximize profits. For most businesses this means cutting discretionary spending where ever they can.

And your advertising / marketing budget is no exception. You need to be sure you are paying for a strategy that works to bring in business. But you shouldn't cut back.

In fact, expanded advertising for new business is one strategy to increase overall net revenue when expenses start eating into your bottom line.

Say what?

The winning strategy in this instance is to increase your business volume. Let's use this example:

You charge $75.00 for a service, and in 2006, you spent on average $10.00 on fuel and energy to accomplish the service. Your total non labor expenses were $35.00 ($25.00 over fuel cost). So you would be left with $40.00 to pay the help, and the remainder would be pretax profit.

Fast forward to June, 2008, and you are now spending $20.00 on fuel and energy for the same service, and your total non labor expenses have increased to $50.00 ($30.00 over fuel cost). You are now losing $15.00 more for expenses, but have been able to raise your prices to $85.00 per service. So you are making $5.00 less per service....

If you cut back on advertising now, and you get a few less jobs, you will lose the $35.00 pre tax profits on those jobs.. but you will save on advertising...

Not necessarily a good idea..... Your gross receipts fall, making any savings on expenses unlikely to increase profitability.

On the other hand, if you can increase business, that is the number of services performed, you can make $35.00 pre labor profit for each new job. So increasing advertising, and capturing more business can actually increase your gross profits.

The point of this exercise is to show that the only way to make the same profit, or more, in the face of increasing fuel costs and expenses, is to increase business volume. You may be making less on each job, but it is less on more total volume.

So as expense and fuel cost rise, avoid cutting marketing, and consider actually expanding your efforts....