How much should you pay for any business related service? Well it depends on what that service is worth … to you.
What’s a reasonable cost for a logo? Is this a fair rate for a narrator? Is that a good deal for a promo video? Am I paying too much for SEO?
We tend to think there are fixed answers to these business expenses questions. Yet we instinctively know it’s silly to ask a question like “What’s a reasonable price for a watch?” without further information about the buyer’s circumstances and needs.
The question you need to ask instead
“What’s it worth to MY business?”
In other words: “what’s this logo/promo video/SEO etc. worth to me?”
Spending $500k to produce a 60 second video might be a good investment for Nike, but it’s a different equation for Bob the local plumber. There’s nothing unfair about the $500k price-tag, it’s just not a good investment for Bob.
Both Nike and Bob want the same thing (and it’s the same thing you want), a return on their investment. You’re looking to spend $X on something that will earn you $X+ in return.
Know your numbers
So how do you make a good investment decision? Well, you need to be across your numbers.
For instance, want to know if you’re paying too much for SEO? Well forget about page 1 of Google and keyword rankings – the service either makes you money or it doesn’t. To make you money, SEO has to bring you enough traffic to earn your fees back. So if you’re paying $500 per month you need to know exactly how much traffic earns you $500.
At a minimum, you need to know two numbers:
- Your monthly traffic; and
- The monthly profit earned by your website.
Once you know the average dollar value of a visitor, then you can measure the traffic (and therefore dollars) your SEO company is delivering.
Become an investor
Once you’ve done this calculation a couple of times you’ll start to see everything differently. When you figure out that each visitor to your site is worth $1 (or 20c or $5) you’ll be able to start acting like an investor – you can assess the profitability of your SEO service, and you’ll know how much to pay for each click on Adwords, or for a 1000 click Facebook campaign.
What about that logo?
Services that aren’t aimed at getting you traffic should be aimed at increasing your conversions – in other words, getting more sales.
So if you know your website brings in $500 per month, you need to estimate the increase in sales the logo (or sales video, or web redesign, or copywriting, or better photographs) will bring. If you guess 10% then that’s a $50/month, or a $600 return over the next 12 months.
So now you have some basis for deciding how much to spend, and also a way of assessing where you should spend your next dollar.
Have you ever looked at business expenses like the above as investments? Or simply necessary costs of flying solo?
