save in good times, spend in bad
by pagesetup
Orginally posted December 9, 2009

During the good times many companies often make the mistake of drastically increasing spending. It seems like a good idea: expand marketing efforts, hire more people, get new office space or locations, and likely spend more than they would in normal times for furnishings. However, think about what happened to Enron. Any stockholder that walked into the Enron office building in the late 90’s to lavish furnishings, fine art, and an abundance of plasmas TVs (at a time when they were much more expensive than today) should have immediately realized that something was wrong with this company and sold off all investments. The executive management spending habits were out of control and they disregarded the investor’s bottom line. Enron’s failure is now infamous well beyond their spending habits.

moneyWhen the economy is on the upswing, businesses often pay a premium for goods and vendors. The job market is often fierce with high demands from employee’s further driving costs upward. While technology generally increases a business’s productivity and the costs typically go down over time, in a good economy new innovative technology is often sold at what the market can bare, i.e., at a premium (again, plasmas TVs are a good example in the 90’s).

Also, human nature tends to drive spending habits. When times are good and we have excess, we spend it. On the other hand, when things slow down, human nature makes us want to hoard and spend nothing.

This is actually the opposite of what should be done. We should save in the good times and spend in the bad times. Although counterintuitive, the rational fiscal reasons are clear.

In general, we can save far more when times are good than we would try to save when times are bad because the surplus is high when times are good and the margins are slim when times are bad. On the flipside, when things slow down, the costs of everything is generally a lot cheaper than during the good times, so you spend less than you would during the good times. So, a business has more to save in the good times than in the bad and because everything is on sale in the bad times there is an extra savings benefit.

Pricing opportunities have virtually never been better for print media. Newspapers and magazine space is on sale, billboard space is on sale, and print costs are down. Further contributing to lower prices is the job market—businesses are able to get more skilled and more productive workers at a lower price. Technology costs are also much lower today. The small business now has access to technology once only reserved for large enterprises and at a fraction of the cost.

So we learn that it is more fiscally responsible to save in good times and spend in bad. As a last example, although it’s important to have your marketing materials in line, fewer resources need dedicated to marketing in good times. It is when times are slow that a business needs to start spending a lot on marketing—and it’s on sale.

Connnect with ps today to learn more about marketing your business in stagnant economic times.

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