How a Great Launch Destroyed a Business

Before I succumb to the Thanksgiving and Christmas season, I’ve got one final scary Halloween story for you.

You’d think that if you were an info-marketer attracting nearly 100 people to your $997.00 per seat seminars, selling out two 18-person $10,000.00 per person coaching groups, that your money problems would be over. Well, that’s a trap and you’d be wrong. Truth is this scenario led to a bankruptcy for an info-marketer I know.

If you are new to the info-marketing business, what I am about to share is extremely advanced information. The kind of stuff few people know about and NO ONE talks about. Conventional wisdom says that if we share the real information with people, they’ll realize info-marketing is a real business with real business problems and will head for the exits. We tend to keep it a secret, but the info-marketing business is like a squirrel. It looks really cuddly and cute, but when you get close, it wants to bite you.

Still, the info-marketing business has several advantages to other businesses; here are a few:
•    No storefront, you can be open 24 hours a day without having the cost and time commitment of manning an actual store
•    Low start-up capital: the cost of launching an info-marketing business is far lower than most businesses; you can get started for a few thousand or even a few hundred dollars
•    High margins: while most retailers are happy making 50 percent of the sales price for their product, an info-marketer can generate 90 percent or more of the sales price as gross profit

So, with all these advantages, how on earth could someone have a problem? Think of it this way: Even if you are driving a Volvo, a car built like a tank with lots of safety features, if you are a careless driver and get into a bad accident, you can still get hurt.

The case I mentioned above is tragic because that info-marketer thought everything was going right. He had been selling coaching programs and products for a couple of years and decided to put on his first event. His friends had hosted events, they’d sold thousands of dollars in seats and had put dozens of people into coaching programs, so this info-marketer thought it was time to give it a try himself. His first event was a success, with more than 100 people in the room, 97 of them paid. Plus, he launched two new coaching mastermind groups and sold them out, 36 people for $360,000.00 a year in revenue. This was the most he’d ever sold in one day, and he was really excited. It was an achievement to be proud of!

Want to know what happened? Not surprisingly, the story is a little complicated, with several elements coming together. You’ll have to bear with me as I share some numbers.

First revenues:
Event sales                 97 seats at $997.00                $ 91,724.00
Coaching sales          36 people at $10,000.00    $360,000.00
Total revenue                                                                       $451,724.00

This info-marketer was thinking he was doing well.  He sold an additional $450,000+ for his business.  But, his first oversight was that he sold his coaching program exclusively in 12 monthly payments of $833.33. He didn’t even give his members the option of paying in advance. And what’s worse, since he held his event in late October, he chose to have the payments begin with the start of the new year. While this may have made sense from a sales perspective, it didn’t work as a business decision. In the end, he never collected that coaching revenue.

The info-marketer had invested a reasonable amount in marketing for the event, and he was lucky to have three of his friends joint venture with him. He appropriately recognized the importance of the task and hired a copywriter to create several direct mail letters, a script for a webinar and a website complete with videos. His investment was $54,000.00 for the copywriter, web development, printing and postage to promote his seminar.

But that was no big deal because he generated $91,724.00 in sales! Yes, except he had agreed to give his joint venture partners 50 percent of his sales. Of the 92 seats, 87 of them were sold through his JV partners, so he had to pay $43,369.50 in commissions to them.

If you were an attendee, you’d think this guy was generating close to $100,000.00 if you looked at the number of people in the room and the $997.00 registration fee. Here’s what the real numbers looked like:
Event sales                  92 seats at $997.00      $ 91,724.00
Marketing costs                                                       – 54,000.00
Affiliate commissions                                            – 43,369.50
Net sales after marketing costs                        ($ 5,645.00)

Let me be clear: There is nothing inherently wrong with this. It’s perfectly reasonable to invest $5,645.00 to fill a room with almost 100 great prospective customers. You might even consider it a bargain. The problem was that while this info-marketer knew he had spent money to fill the room, in his mind his total money out of pocket was only about $50,000.00 to $75,000.00. He didn’t realize the real costs of filling the room. And that was just the beginning. His bigger problems started once the event began.

This info-marketer had been to a lot of other people’s seminars. He wanted to do several things differently to improve the seminar’s environment and make it more fun for his customers. The audio-visual crew to run the microphones and video record an event can easily cost $25,000.00 or more for a two- or three-day seminar. His costs were higher because he brought in a bunch of backdrops, extra lights and a DJ to play fun tunes and entertain people during breaks.

He wanted to host his event at a fancier than usual hotel to put everyone into the wealth mindset. Because his event was at an off-season time, he was able to get a $149.00 room rate at a Ritz Carlton. It was a great deal. The one detail he didn’t notice was what the Ritz Carlton charged for food and beverage, a full $85.00 for one gallon of coffee! Plus, because he aspired to put every else’s events to shame, he bought a lot more food and beverage than he budgeted for. What’s worse is his contract required him to sell a certain number of guest rooms at the hotel. Many of his attendees chose to share a room, and he missed his minimum room pickup, so the hotel charged him for the hotel rooms that weren’t filled by attendees.

Still, the whole time he was thinking, “I generated almost $100,000.00 in registration fees, and I’m selling $360,000.00 in coaching while I’m here. So what if it costs me $125,000.00 to put on this event?”

Here’s the key lesson from this info-marketer’s experience: The bills for the event showed up in October and November. The AV was more than $31,000.00, and the hotel’s master bill was more than $65,000.00. And the spending didn’t end there.

By the time the first coaching payments were due in January, the bills from the event were already 60 days late. This info-marketer had been spending a lot of money before he got the idea to put on his event, and so he already had large balances on his personal credit cards.

He was distraught. What he thought had been an amazing success turned out to be his undoing. Because of what he’d done financially in his personal life, he decided bankruptcy was his best option.

I get sick when I think about this guy’s experience because it didn’t have to end the way it did. He could have easily put on his event for $30,000.00 or less. This would have been paid by the first month of coaching payments. And if he had offered his new coaching members a small discount for paying for the entire year in one installment, he’d have had the money to pay the hotel and put some money in his pocket for the rest of the year. This info-marketing business could still be helping people and generating a profit for the info-marketer today.

Not enough info-marketers understand the difference between revenues, profit and cash flows. While they may stay in business, they feel the pinch when they have to pay their bills with their credit cards for a while. A few simple worksheets can solve these types of problems forever.

But the gurus don’t want to talk about these issues for fear they’ll scare people away from info-marketing, and info-marketers don’t want to admit they have problems because they fear it’ll make them look weak.

Info-marketing is a real business. It has a lot of benefits over other businesses, but it still requires business-minded discipline. And just like there’s no shame in hiring a copywriter to get sales letters, webinar scripts and website copy written quickly, there’s no shame in hiring a financial expert to help you maximize the money you earn after you work so hard to create your business.

I’m about helping people who want to create real businesses. I want to help you build a business that unlocks your dreams and provides you and your family with real financial freedom.

While this is Halloween and scary story season, we are also entering key planning season for next year. If you have an ambitious yet reasonable plan outlining the cash and profits you expect to generate from your business in 2016, you’ll be in a good position to achieve those goals.

If you’d like some help putting together your plan, give me a call. I can break down your financials into an easy to understand chart to show you where all your money is going. What gets measured gets improved. You’ll instantly discover how to keep more of what you are earning.

What do you think? Do you disagree or have a comment? Scroll down to the bottom of the page to leave me a comment. I read every comment and reply when appropriate.

Best wishes,

About Robert Skrob

The problem with subscription membership programs is that members quit, I fix that problem. For more than 20-years I have specialized in direct response marketing for member recruitment, retention and ascension in diverse subscription members environments including non-profit associations, for-profit publishers/coaching, subscriptions and SAAS companies. For an evaluation of your current churn rate and how I can improve it, contact me here. I discover there are often two or three quick wins you can implement within a week to lower churn immediately, let’s talk about your quick wins.
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