Effective marketing and costsaving strategies for new businesses

From: alexhormozi

This article explores various strategies for new businesses to save costs and implement effective marketing, drawing insights from the frozen yogurt industry. These principles are applicable across different business types.

Frozen Yogurt Business Model: A Case Study

Frozen yogurt stores can serve as a valuable case study for understanding business dynamics, particularly in a commoditized market. On average, frozen yogurt stores make between $750,000and$800,000 a year in revenue [00:00:41]. An average store doing over $2,000adaycanyieldapproximately$328 a day in owner pay [00:00:53]. Profit margins typically range from 10% to 15% [00:00:56], with an average Menchie’s owner taking home around $93,000 annually [00:01:01].

Despite seemingly high revenue, challenges include perishable goods (strawberries going bad), machine maintenance, and high costs for prominent retail leases with good signage, foot traffic, and parking [00:01:04].

Franchise Considerations

Franchises often take around 6% of top-line revenue [00:01:23], which can represent 60% of an operator’s 10% margin [00:01:28]. Franchises structure fees to ensure franchisees make just enough to continue operating, possibly opening more locations, but not enough to get rich [00:01:37]. Their goal is to significantly beat the stock market’s return on capital, aiming for 20-25% when the stock market yields 10% [00:01:48].

While franchises offer potential savings on bulk purchasing due to their large scale (e.g., for yogurt, fruit, spoons, cups, machines) [00:02:05], they might upcharge on initial setup costs and supplies to generate their own profit [00:02:17].

Market Competition and Opportunity

The frozen yogurt market is largely commoditized, with little perceived difference between major brands like Menchie’s, Yogurtland, and Golden Spoon [00:04:11]. This indicates a poorly competed market, primarily driven by franchisors focused on selling locations rather than building strong brands [00:04:17]. There is no dominant “Chick-fil-A” of the yogurt world [00:04:25], suggesting significant opportunity for a business to outperform competitors through superior operations and customer experience [00:04:37]. Many existing stores exhibit poor operational standards, such as sticky floors, messy areas, and disengaged staff [00:04:40].

Cost-Saving Strategies for New Businesses

When starting a new business, especially if it’s not entirely novel, there’s often an opportunity to acquire assets from failed businesses.

• Buying Foreclosed Assets: Utilize business foreclosure sites like Rasmus.com to purchase equipment for a fraction of its original cost [00:02:26]. For example, gym equipment was purchased for $13,000fromsuchasite<aclass="yt-timestamp"data-t="00:02:30">[00:02:30]</a>,andfrozenyogurtstorecontentshavebeenfoundforaslowas$20,000 [00:02:54]. This can dramatically decrease startup costs [00:10:14].
• Avoiding Franchise Upcharges: Franchises often prevent owners from buying equipment independently, as they make money by upcharging on initial setup [00:02:41].
• Strategic Product Costing: For frozen yogurt, toppings are more expensive (10-40 cents per ounce) than yogurt (8 cents per ounce) [00:03:26]. Stores make profit primarily from yogurt, charging 50-60 cents per ounce [00:03:40]. Understanding the margin differences between product components is crucial for maximizing profits.

Pricing and Sales Psychology

Psychological principles can be leveraged to encourage higher spending and improve customer perception. These principles contribute to entrepreneurial success.

1. Pricing by Usage/Weight: Allow customers to control how much they spend by pricing based on usage or weight (e.g., frozen yogurt by the ounce instead of by cup size) [00:05:07]. This shifts accountability for overspending to the customer, making them less likely to blame the business [00:05:28].
2. Power of the Default Option: Remove smaller options to encourage customers to choose larger quantities [00:06:16]. For example, frozen yogurt stores often only offer medium and large cups, leading people to fill more, as a small amount in a bucket-sized cup looks odd [00:06:20].
3. Presenting Items in Reverse Order of Cost: Arrange self-serve items so the highest-margin items are presented first, and the lowest-margin/highest-cost items are last [00:06:37]. This is similar to buffets placing salad first and seafood last to encourage filling up on cheaper items [00:06:43]. For yogurt, the highest margin yogurt comes first, then dry toppings, then fresh fruit [00:06:55].
4. Offer More Selection: The more options provided for sampling or selection, the more customers will ultimately buy and consume [00:09:54].

Effective Marketing and Customer Acquisition Strategies

For businesses with low average ticket values and slim margins, traditional paid advertising can be unprofitable [00:07:38].

• Word-of-Mouth and Referrals: These are the most profitable customer acquisition strategies for low-cost products [00:10:50].
  • Encourage Sharing: Actively ask customers for reviews and to share the product or service [00:11:01]. Simply asking can significantly increase engagement [00:11:07].
  • Affiliate Partnerships: Collaborate with other businesses to send referrals [00:07:47].
• Operational Excellence: Corporate analysis found that the highest-performing stores had better service, cleaner environments, and more selection [00:07:25]. These factors contribute significantly to word-of-mouth.
• Community Engagement & Promotions:
  • Targeted Outreach: Go to places with large groups of people (e.g., universities, companies) [00:08:58].
  • Competitions and Incentives: Run competitions (e.g., between fraternities/sororities) to drive demand and offer swag or prizes [00:08:41]. This is a cheap form of advertising [00:08:55] and a key component of advertising and sales growth.
• Lead Capture & Lifetime Value: Offer strong incentives (e.g., 50% off) to get customer contact information (like a text number) to build a lead list [00:09:06]. This allows for ongoing communication and reminders, maximizing lifetime value for a low acquisition cost [00:09:09]. This is part of key business strategies for growth and increasing business value.

Summary of Strategies

• Cost-Saving: Acquire used assets from foreclosures to cut startup costs.
• Pricing Psychology: Use usage-based pricing, leverage default options, and arrange product presentation for higher margins.
• Marketing: Prioritize word-of-mouth, provide excellent service, engage communities with promotions, and capture leads for long-term customer value.
• These approaches are crucial for business growth and improvement and fast business growth strategies, especially for new businesses.