The $100 MBA Show: MBA2381 Q&A Wednesday - Should I Give My Team a Raise or Invest in Marketing?

Release Date: October 25, 2023
Host: Omar Zenhom

Introduction

In Episode MBA2381 of "The $100 MBA Show," host Omar Zenhom addresses a pressing dilemma faced by many business owners: Should I give my team a raise or invest in marketing? Drawing from over two decades of entrepreneurial experience, Omar provides actionable insights to help entrepreneurs navigate this critical decision.

Listener Question

Timestamp [01:41]:
Emery, a listener, reaches out with the following question:

"I made a bit of profit in my business and I'm looking to reinvest. Should I give a raise to my team members or should I spend the money on marketing? It's a bit of a tough one because marketing will help grow my business, but investing in my team and holding onto my great players will allow me to create a better experience for my customers. Would love your advice."

Analyzing the Dilemma

Omar begins by congratulating Emery on achieving profitability and being in a position to reinvest in the business. He acknowledges the common crossroads entrepreneurs face when deciding how to allocate limited funds for growth.

Timestamp [02:20]:
"First of all, Emery, congrats on making some profit and being in the position where you have a good problem to solve, where you have some money, where you want to reinvest in your business."

Marketing vs. Team Investment: Understanding the Differences

Omar delves into the fundamental differences between investing in marketing versus investing in the team:

1. Financial Commitment:

   • Marketing: Often variable and can be scaled up or down based on current needs. For example, running a $1,000 Facebook ad campaign today doesn't obligate you to continue spending the same amount indefinitely.
   • Team Raises: Constitutes a recurring financial commitment. A $100 raise per month per employee means a consistent financial obligation that persists as long as the raise is in effect.

   Timestamp [03:15]:
   "Once you give your team members a raise, you're going to have to pay that money for the rest of their employment... Marketing, on the other hand, you might run a campaign. It'll get you some customers, but once the campaign is over, you're not spending over and over."

2. Impact on Business Operations:

   • Marketing: Directly influences customer acquisition and revenue growth. However, its effectiveness can wane if investments cease.
   • Team Investment: Enhances employee satisfaction, retention, and productivity, indirectly benefiting customer experience and long-term business sustainability.

   Timestamp [04:00]:
   "Marketing is one of those things that when you spend, you make, but when you don't spend, you don't make... You can make money, and then once you have it, if you don't continue to spend money on marketing, you won't continue to make that money every single month."

Striking a Balance: Combining Both Investments

Omar emphasizes that the decision doesn't have to be strictly binary. Entrepreneurs can allocate funds in a manner that supports both growth and team welfare.

Timestamp [05:30]:
"You have to do the math and see how much it's going to cost you. See how you can break it down, how you can distribute these funds. How much can you spend on marketing versus these types of rewards for your team, financial rewards so that you know where you stand financially."

He suggests creating a budget that allows for both marketing initiatives and rewarding high-performing team members, ensuring that the business can grow while maintaining a motivated and committed workforce.

Performance-Based Raises: Maximizing Value

Omar advocates for performance-based raises rather than uniform increments for all team members. This approach ensures that raises are meaningful and tied to individual contributions.

Timestamp [06:45]:
"Raises really don't have value and they don't actually serve you if everybody gets the same raise. In my opinion, raises increments should be based on performance. The better they do, the more they hit their KPIs... The better they deliver on their promise as an employee, the more they should be compensated."

By linking compensation to performance, businesses can reward top performers, fostering a culture of excellence and accountability.

Practical Budgeting Strategies

Omar offers practical advice on how to allocate profits effectively:

1. Allocate a Portion to Marketing:

   • Ensure that marketing remains a consistent line item in the budget to sustain growth efforts.
   • Consider both paid and organic marketing strategies, such as SEO and email marketing.

   Timestamp [09:50]:
   "If you're not spending any money on marketing right now, you're asking for trouble... You have to invest in some form of marketing, whether it's hiring an expert to help you with SEO or with your email growth or with sponsorships or whatever it might be."

2. Rewarding the Team:

   • Allocate around 30% of the budget to reward high-performing team members through bonuses or raises.
   • Even if full raises aren't feasible, one-off bonuses can effectively recognize and motivate employees.

   Timestamp [07:50]:
   "If you have some money left over, let's say 30% of that budget look to reward even with one-off bonuses to people that are doing well in your team."

3. Communication is Key:

   • Engage with team members to express appreciation and communicate intentions behind financial rewards.
   • Transparent communication can enhance team morale and loyalty.

   Timestamp [08:30]:
   "One of the things I would advise is to actually talk to your team members and say, hey, we made a bit of profit. I'd like to reward those who are doing well."

Final Recommendations

Omar concludes by reiterating the importance of reinvesting profits to sustain and grow the business. He advises entrepreneurs to:

• Prioritize Marketing: Ensure consistent investment to maintain and grow customer acquisition.
• Invest in the Team: Reward and retain top performers to enhance overall business performance.
• Balance Allocations: Use strategic budgeting to support both marketing efforts and team investments without sacrificing either.

Timestamp [07:00]:
"Reinvesting in your business is essential if you want to continue to grow or even just stay competitive and stay alive. Pocketing all the profits might seem like a good option, you know at the start, but you got to feed the goose that lays the golden eggs so it can continue to to feed you and your family."

Conclusion

Episode MBA2381 offers valuable guidance for entrepreneurs grappling with the decision to invest in marketing or their team. Omar Zenhom underscores that both investments are crucial for sustained business success and provides a roadmap for balancing these priorities through thoughtful budgeting and strategic planning.

For more insights and practical business lessons, visit The $100 MBA Show. If you have a question you'd like addressed in future episodes, email Omar at over@omar100mba.net.