What’s Your Real ROI? – By John Stiernberg

October 28, 2012 by John Stiernberg

MEASURING AND OPTIMIZING YOUR INVESTMENTS OF TIME AND MONEY

Last time we talked about your operations and infrastructure plan. More tactical than a three-year strategic plan, the operating plan looks one year ahead and answers the “how” questions. Now let’s go deeper into making decisions about how to spend your precious creative time and money. Where do I get the most bang for the buck?

If I have limited time for business development, how can I prevent squandering it on the wrong initiatives? How do I measure the ROI (return on investment)? This article addresses these issues and recommends three action tips for success.

NON-DISCRETIONARY VS. DISCRETIONARY TIME AND MONEY

Financial expenses can be classified as either non-discretionary or discretionary. Examples of non-discretionary expenses include van payments, payroll, rent, taxes, and agent commissions. Examples of discretionary expenses include promotion, travel and entertainment (except getting to the gig), equipment upgrades, new software, and additional support staff.

Here’s a recommended twist. Think of your time in the same way. Non-discretionary time examples include performances and rehearsals, doing your paperwork (like proposals, contracts, and bill paying), planning, and staying healthy (eat, sleep, exercise). Discretionary time examples include learning new creative, business, and technical chops, schmoozing and promoting your company, attending competitors’ shows, and recreational activities.

Too many mobile entertainers think only about the cash and not about the time that it takes to earn the cash. You’ve heard the expression “Time is money.” What it means is this. Any time that you are not spending on purposeful activity is squandered, just like money that is spent on the wrong things. A bad time investment is just as costly as a bad cash investment—maybe even more so.

REVENUE GENERATORS VS. CASH BURNERS

So how do I avoid wasting my precious discretionary time and money? Here’s a simple guideline. Determine if the investment generates revenue or simply burns cash (extending the time is money metaphor).

Revenue generators are activities that lead to future income. Even if you don’t get paid directly, the purpose of a revenue generating activity is to identify and communicate with prospective clients in a way that drives sales. Here are some examples:

Showcase gigs, like hosting a show for event planners.

E-mail blasts to prospective clients.

Outsourcing business and technical services so you can focus on performing or selling.

The following are potential money drains:

Advertising in media outlets that do not reach your target audience (even though they might be perceived as cheap and affordable).

Replacing serviceable stage gear or vehicles just to get the hot new model.

Attending a QuickBooks Pro seminar when you could have had a bookkeeper do the work in a fraction of the time (and save real costs as well as your time).

What’s the point? Before you make business decisions, it is critically important to understand how much things cost and how long things take to accomplish. This is called “full cost attribution” and is part of the planning and budgeting process. It pays off big time.

GET READY TO MEASURE RETURN ON INVESTMENT (ROI)

Measuring return on investment—both time and money—is essential for long-term success of your mobile entertainment business. Here are three suggestions for how to get ready to measure ROI.

Action Tip 1. Create a short list of key metrics (elements of your business to track). Essential financial metrics include 1) revenue, 2) expenses, and 3) profit. Essential non-financial metrics include 1) number of gigs, 2) number of staff people, and 3) how much time you and your staff work. Set objectives for each key metric on a monthly, quarterly, and annual basis. Set up a tracking system (spreadsheet or database—not scraps of paper or notes on your smartphone).

Action Tip 2. Establish a value for your time and that of everyone on your team. This will help you determine the full cost of “free” activities like showcase gigs or handling business tasks that can be outsourced.

Action Tip 3. Compare actual results vs. your objectives (the budget) each month. In addition to comparing revenue and expenses to your budget, do the same for the non-financial metrics. Example: You sent a promotional e-mail to 500 past and prospective clients with the goal of getting 30 new leads for possible gigs. It took three hours of your time to send. If you do get at least 30 responses and they lead to three bookings (assuming a 10% close rate), it’s a better time ROI than if you only get 10 responses and one booking.

HERE’S THE POINT…

What gets measured gets done. The converse is also (unfortunately) true: what does not get measured does not get done. It’s human nature. Beware of running your mobile entertainment business without objectives or without a way to measure ROI for both time and money.

Be sure to implement the Action Tips in sequence: 1) create a list of key metrics and set trackable objectives, 2) establish a cash value for everyone’s time spent, and 3) measure the resulting ROI monthly.

Next time we’ll present ideas for low cost promotional tools with big ROI potential. In the meantime, best wishes for success in mobile entertainment in 2012!

John Stiernberg is founder of Stiernberg Consulting (www.stiernberg.com). His book Succeeding In Music: Business Chops for Performers and Songwriters is published by Hal Leonard Books. Contact John via e-mail at john@stiernberg.com. You can find John on LinkedIn, Plaxo, and Facebook and follow him on Twitter.

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John Stiernberg John Stiernberg (16 Posts)

John Stiernberg is the founder of Stiernberg Consulting (www.stiernberg.com), the premier business development consultancy serving the entertainment technology and music products industry. With over 25 years experience in these fields, he currently works with audio and music companies on strategic planning and market development. His book Succeeding In Music: Business Chops for Performers and Songwriters is published by Hal Leonard Books. Contact John via e-mail at john@stiernberg.com, find him on LinkedIn and Facebook, and follow him at http://twitter.com/JohnStiernberg.


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