5 ways to survive and thrive in a recovery
An extract from my book - 56 ways to survive and thrive in a recovery - and beyond
If you think any of the ideas you read here can help you and you need any extra help in implementing them please contact me, Eamon O’Sullivan at info@OSAMcQuillan.ie to set up a consultation.
These are 5 of the best - sections of my book on helping businesses make the most of the gradually recovering economy.
Unique Service Proposition - this explains a new concept for businesses who are not supplying a unique product or service.
Sorting the wheat from the chaff - explore some methods of getting rid of the unprofitable customers.
Marketing = change = stimulus = action - this section tells you why any marketing is better than no marketing.
Fire suppliers - looking at how to review who supplies your business now as if you started from scratch.
Pricing - see how small reductions in your sales prices can result in large changes in your profit, helping you to resolve to keep prices at a profitable level.
1. Unique Service Proposition
Some business have a unique selling proposition - the best, the only, exclusive. For the vast bulk of businesses however, it is a case of doing something that some ( maybe many ) others do already. How do you stand out from the competition?
I’m suggesting that your business has to have a Unique Service Proposition - we deliver, we assemble, we take away the furniture that our furniture replaces, we text you in advance of delivery, we follow up to see if you have any problems - whatever it is, it has to be unique, and it has to be useful for the customer.
Can you think of anything right now that you can do that is unique to your business? If so then you need to promote it to your customers in every communication, on every letterhead and invoice you issue, on every email sent, perhaps even every time the phone is answered, on staff name badges, on the sides of your vans, on your envelopes - because this is your Unique Service Proposition, this is what distinguishes you from the competition.
This point is worth repeating - your USP is what makes you stand out from the crowd, and standing out from the crowd helps you boost your sales and thereby increasing profits for you.
Once you have figured out the USP of your business you need to shout it from the rooftops. The cheapest, the loudest, the nearest, the friendliest. It may not something as obvious as all those things, so you may need to do some digging to find out what it is that makes you unique to your customers.
There may be something you are delivering to your customers right now that you can capitalise on. For example, one of the clients we helped in the past had trouble getting beyond a certain level of sales. This business supplied kitchens to householders, which is a very personal business. From looking at other kitchen businesses, we concluded that the ceiling on the company’s sales was that it just took too long to get the kitchen ordered, made, delivered and fitted, and keep the customer happy throughout the process.
Now the owner was proud of the fact that nobody was ever unhappy with his kitchens, and he went to the ends of the earth to make sure someone was happy at the end of the process. He got huge word-of-mouth recommendations because of this attention to detail and effort to keep the customer happy.
We flipped the problem around - we priced the kitchen as if we had to pay someone else aside from the business owner to do the initial sales meeting, the measuring, the drawings, overlook the fitting and then go back to ensure all were happy with the outcome, and collect the final payment. When we did that we found that he should have charged quite an extra amount to pay someone the wages to do all that additional work to get the kitchen just right.
This finally convinced him to agree to a new slogan - ‘’Your kitchen - your way’’ - and also to charge something extra. Because believe it or not, on top of all the work he did to make sure everyone was happy, his kitchens were often the cheapest in the local area when we compared prices with his competitors. He actually took the time at the start of the process to explain why he charged slightly more, for the service. He explained to the customer what he did and every step that he would go through to make sure that they were happy with the kitchen before paying the final installment.
Sorting the wheat from the chaff
Lets talk about a subject which is taboo for many business people, particularly small, struggling and unprofitable businesses.
It is an accepted fact that 80% of the final effect springs from 20% of causes. An Italian economist Vilfredo Pareto, observed in 1906 that 80% of the land in Italy was owned by 20% of the population; he developed the principle by observing that 20% of the pea pods in his garden contained 80% of the peas. The effect is known as the Pareto Principle. How does this help us?
Some customers are not worth servicing. They don’t want to pay market rates, they are slow in paying their bills, they may be operating weak or inefficient businesses themselves.
Whatever the reason, these customers that are not worth servicing contribute 20% of the profits but consume 80% of the resources of the business. Therefore we should increase our profit on them or get rid of them.
How each business goes about this is different, but suffice to say that these customers are undoubtedly holding your business back because they comprise 80% of late payers, 80% of complaints, 80% of phone calls to your business, they take longer to sell to and therefore consume more selling time. I list at the end of this section some tactics to manage them out of your business, more as a set of suggestions than as hard and fast rules. Feel free to use any of them or a combination of them to manage your business more profitably.
How do you find these customers that are not worth servicing? You could ask staff, because often they are closer to the customers than you and see them every day. You can analyse the symptoms of the troublesome customer - slow payers, low margin products, high level of returns, low value of orders - and identify them that way, but is is important to root out these time-wasters.
You will be able to grade your customers on the basis of a scorecard, assessing how profitable sales are to them, how much trouble they are to serve, how long it takes them to pay and so forth. Whatever you choose, the scorecard you assess customers on has to be logical and consistent, in other words you should get the same score for the same customer if you graded them again next week. You also have to apply the scorecard to all customers, regardless of size or how long they have been with you.
Your scorecard should include some measure of overall profitability for your business from the customer. You can do this by figuring out the mix of the products sold and the profit on each of the products. The level of profit you make from each customer will be a large percentage of the overall score account. Here is a sample of a Customer Scorecard, but you will probably have to design your own to suit your own needs.
Customer Scorecard spreadsheet
Think of it this way - you are sending some of your biggest problems to the competition, and what’s the harm in that?
There is one measure that deals with how difficult it is to deal with a customer, and to answer it properly you may well have to analyse how you spend your own day. Do that for a month and you can see who is taking up your time. Score them appropriately on the scorecard, and then decide on whether you want to keep those customers.
You don’t realise the positive energy you will release in you and your staff when you get these customers to ‘shape up or ship out’.
There is more on this in my new book ‘’56 ways to survive and thrive in a recovery - and beyond’’ on how to identify unprofitable customers in the of the book which deals with Margins. You will also see how to identify customers that take up your time currently by keeping track of your time.
Tactics to move on customers you don’t want any more:
1. Increase prices - just for them.
2. Charge a service charge for unprofitable accounts to keep the account open each year.
3. Have a minimum order level, ensuring that there is more profit per delivery to you.
4. Impose credit terms such as time limits on when a customer can pay a balance - this may take some time, and you may have to face writing off some of the balances due from under-performing customers.
5. Impose credit limits - in other words decide how much credit a particular customer is going to get, and ensure that they pay you off before getting any more credit from you.
6. Ask for customers to pay using their credit cards if you give credit to customers - that way you get the money more or less immediately and then the credit card company can do the collecting.
7. Get rid of smaller items - if you get rid of smaller items so then customers have to buy items with a higher minimum value thereby automatically increasing the average spend.
8. Get rid of low margin items, which will have the effect of increasing your overall profit because you will no longer sell those items.
Staff will also have to carry out this assessment - how do they spend their time, which customer is the most profitable to service. Sometimes they will know the answer to the question of ‘Who should we get rid of’, but often their opinion ( and maybe your own ) is coloured by emotions. The most popular customer is often the least profitable.
The reason customers are popular is often because they spend time developing a relationship with everyone they meet, and they may be the beneficiary of informal discounts because of it. On top of that they may spend their time striking up friendships, rather than doing their own job and running their own business profitability, thereby putting pressure on their suppliers, one of whom is you.
I want you to focus on where your time and the time of your staff is spent. At the very least I want you to get across to your staff that their time is precious and had to be paid for somehow. If they are customer-facing it is vital that they focus their time and effort on getting more sales for the business.
This touches on a sensitive subject for a lot is business owners - what should we tell the children - how much do the staff need to know about the business? My own opinion is that you need to tell the staff how the business is doing, so that their own progress can be measured. If you run a larger operation, many of the staff will be able to do a back-of-the-envelope calculation of how much sales the business is generating. So I come down on the side of telling the staff a lot about the business.
If you don’t agree, then you need to tell them about some of the vital signs of the business, also know as Key Performance Indicators, or KPIs for short. Professional managers will construct a ‘dashboard’ of KPIs to measure their business.
You could mix it up by using some fun indicators - one business owner I know lets the staff set their Happiness Index as often as they like and this is part of the reporting. They report on how happy they are as often as they like, scoring marks out of a hundred, and the average appears on everyone’s desktop as the Happiness Index.
The simplest KPIs are financial - sales, expenses, customer balances. You may want to have these and also have another few, depending on where you are taking the business right now. For example, average sales per year per customer, number is customers.
KPIs need to be aligned with the rest of the plan for the business. For example if you want to increase profits, you could do that in a number of ways. You could make more sales, you could increase the margin on those sales, or you could reduce expenses. If you follow the logic of what I am saying in the previous paragraphs, you may come to the conclusion that to serve less customers at a higher level of sales would automatically produce extra profits. All your costs remain the same - it takes the same time to deal with a large customer as a small customer in a lot of cases.
There may be ways you can help the customer sell more of your products. If you are an electrical wholesaler selling to retail customers, like hardware shops, you can offer training to your customer’s staff to boost sales. You can offer special price promotions for a larger volume of sales, or help the retailers display your product better with display stands.
One of our early customers in the accountancy practise objected to higher fees because it took us longer to complete his accounts and tax returns. His logic was that he couldn’t charge customers more in his hardware shop just because they took longer to sell to. I suggested to him that he should get rid of troublesome customers who take ages to sell to, but he was having none of it. His logic is that if you are talking you're selling, and with the benefit of hindsight and having watched him in action in his shop, I tend to believe him.
Marketing = change = stimulus = action
A lot of small businesses have no marketing plan at all, so if you do any marketing - congratulations you are way ahead of the competition you face in the small to medium sized enterprises markets.
If you don’t want to increase the profitability of your business, read no further. And with any luck, your competitors won’t have made it this far either.
Now - customers respond to stimulus. Almost any stimulus. That’s what marketing people will not tell you, because for small businesses, it really is that easy. At the end of this section I set out a few tactics you can use for your business immediately, and I can guarantee if you use some of these tactics, you will increase your sales.
The basic message is a little extra work now in promoting your business can produce a higher income stream.
Marketing tactics for small businesses:
1. Get printed paper pads ( yellow Post-its ) with something relevant to your business. If you are an architect maybe one edge of the paper could have a ruler, and if you are an electrician then you could put wiring ratings on your pad. The more use the pads are the likely that customers will keep them and use them. Give them out to customers. This can be done quite cheaply using internet printers.
2. Give out other promotional items to your customers - pens, diaries and so forth.
3. Get a website and make it interesting and useful for your customers - for an accountant, put tax rates, get a tax calculator and put it on your website. If you have a car sales business, put the car tax rates on the website so people will use your website as a reference.
5. Use texting to advise customers of free offers, new products, launches that are coming up. While not everyone will use the new service, or buy the new product, these contacts will remind the customers that you are there and will increase sales over time.
6. Have a look at other free gizmos you can give customers - shopping bags, coin holders for their shopping trolley coins, mobile phone ‘jewellery’ to hang from a mobile phone - the list is endless, and just depends on your budget.
Don’t be put off by the impression that you need to have a Masters in Business to do any marketing. Just use your common sense to figure out what’s appropriate to your business.
If other people in your industry don’t market, or you can’t think of any good ideas on how to market your business, then why not look overseas to successful businesses in your industry to see what they do. You can then adapt some of their good ideas and use them in your business.
For some businesses, simply repeating your message to the audience is enough to get you noticed. It’s called branding by the larger companies, but suffice to say that when you are high enough in someone’s mind so that your name pops into their mind when they think of your product or service, then you have good branding in that person’s mind.
Service businesses will tell us that it can take up to 6 contacts with the customer before they will buy from that provider. So for example, a recruitment company will need to contact a customer many times before expecting to get some business from that customer.
If you are in a business that rarely contact customers, say an emergency call out plumber, then it is vital that you keep your name in the customers mind. So why not ask the customer for their mobile number, and take the time sometime to text some information about your business. At the worst you’ll get some replies asking you to never text them again, but at best you will get some callouts because everybody keeps their mobile with them all the time now, and if the customer wants to pass your number on to their friends and neighbours they have your number on their mobiles with your name and a reminder of what you do.
Every business should review it’s suppliers. Can you get extra margins from negotiating better deals with your suppliers? When was the last time you even looked at who supplies what and how much you pay?
I am not talking here about the suppliers of electricity or other small ticket items. I want you to review the suppliers of large-ticket items, the main source of expense in your business.
Everything you buy should be reviewed and get quotes where you haven’t got a quote recently. Look at whether you should get volume discounts. Look at what prices you should get if you went to your existing suppliers as a new customer, and demand those prices from your suppliers without switching.
Look overseas to see if you can import what you previously sourced on the home market. Use the internet to research new sources of products and services you could use in your business to substitute for what you use already. If you are in business for more than a few years, then the internet has probably changed the landscape you are operating in. If you haven’t researched your prices using the internet as a source of information, you are probably missing out on many opportunities to increase your profits.
The biggest expense in a lot of businesses is the wage bill - and more about getting better value from this source in my book ‘’56 ways to survive and thrive in a recovery - and beyond’’. But for now lets focus on suppliers of goods to your business.
Firstly I want to focus on the smaller items that may have escaped your attention, but where large savings ( in terms of percentage ) can be made. I am talking about the items such as postage, telephone, couriers, printing and all the small overheads that you can dribble away the hard -earned profits of your business.
There are a hundred and one things in your expenses right now that someone has spent money on for their own reasons and you have to find it and eliminate this expense.
Now to get on to the important stuff - the larger suppliers. If you are in a trading business, what I am talking about here are the large-ticket lines. If you run a restaurant we are talking about the food that appears on the plate, if you run a vegetable shop, then we are talking about the vegetables you sell.
You need to get the best deal that is out there for your business. Can you review other businesses in the same industry as your own to get the inside track on what they pay for their supplies? You can do this by getting information on what percentage of sales is paid out again. The difference between Sales and Supplies is called Gross Margin - that is take away Supplies away from Sales, and what is left is what you have to pay all other expenses.
If you don’t know the margins the rest of the industry pays, you should find out. If you haven’t found this out recently, re-perform your research. You could be surprised. If your margins are too high you may be too expensive in the market and find it hard to win new business. If your margins are too low, then you are leaving money on the table which your customers would gladly pay you.
Eventually you are going to go back to your suppliers to get better prices from them. To do this you need to know the market, and need to know what your competitors are paying. You will need to use all your guile to find this out, as it is sensitive information.
Can you tap into the knowledge of former employees of your competition? Perhaps you can hire someone that previously worked for one of your competitors? Maybe the information is publicly available, you just have to know where to look.
As with many of the items already discussed, your accountant is well-place to find out this information. He may have another business in your industry and he can share the margins with you to let you know how you are doing. Alternatively he may other accountants that are prepared to share that information from their customers. Either way this is a service your accountant should provide, and without further charge to you.
Another fruitful source of information is the data that is available from quoted companies which is easily accessible and available to ordinary business people. If you are lucky there will be a quoted company in the same industry as your own where there will be a direct comparison, and its only when you look that you will know the answer. The reason I say that is that there are thousand of quoted companies, and they are obliged to divulge a lot of information which no ordinary private company would let out into the public, and you can benefit from this information and use it to run your business better.
Most people will say if you want to increase your sales and therefore your profits, you need to offer discounts to your customers. They are generally right, but you need to understand the figures involved and the increase in sales you need to experience to make it worth reducing your prices. Briefly, unless you have massive margins, then reducing prices to get new business in doesn’t make any sense, unless there is a huge increase in sales.
You need to manage your prices, and because of margins you can end up giving away all your profit by giving amounts off everyone’s bill. Here is an illustrated example.
Lets say you sell chairs to your customers. Your chairs cost you €55 and you sell them for €100 each. Therefore your profit per chair is €45. You sell 1,000 chairs in a particular month giving you Sales of €100,000, and your Overheads ( rent, utilities, administration and so forth ) are €30,000 per month. Your profits are €15,000 per month. ( €100,000 less Cost of Chairs €45,000 less Overheads €30,000 )
Now you want to increase your sales, and you decide to do this by cutting your price by 10%, hoping to have at least a 10% increase in sales. After you cut your price, you sell 1,100 chairs for €90 each, giving you sales of €99,000. Your costs are €60,500 for the chairs - 1,100 chairs at €55 each- and Overheads are €30,000. Therefore your profit is €8,500. ( €99,000 less Cost of Chairs €60,500 less Overheads €30,000 ).
Read that last sentence again - you have reduced your prices by 10% and increased sales by 10%, but your profit after it is €8,500. This is €6,500 lower than when you started. In fact, you will need to have a 30% increase in sales to make up for a 10% drop in prices.
Try this model on your own business if you are not convinced that lower prices without massive increases in sales volumes make no sense.
The temptation is for most small businesses to reduce their prices, as the competition in ‘me-too’ businesses is often fierce, and it seems to be the commonest strategy used. ‘You can follow the herd, but there is a price to be paid’ Warren Buffett tells us. This is the herdiest strategy of all
I urge you to follow through on the exercise of reducing your prices, and by way of illustration let me relate a story of a car dealer. This young man started his business just in time for a severe recession, and car sales had taken a nosedive.
Banks were not lending, and without finance most people will not change their car. Our protagonist had been a car salesman for most of his brief career, and was a good one.
He launched his car sales business, buying and selling cars, and prospered so that by the end of the third year, he had sales of over €1 million. However he was working 60 hours a week, and hadn’t taken a holiday with his family in 2 years.
We prepared his accounts for his year end and the news was not great. He had lost money, even though he had taken close to the minimum wage out of the business.
By way of background, when he worked for someone else he had a sales manager to act as backstop. The sales manager had 3 prices for each car - the sticker price which was there for show, the ex trade in discount which the salesman could charge if there was no trade-in, and the no-commission price, which the salesman could sell a car to friends or family for, but without commission for himself.
Our problem as I saw it was the the business owner kept discounting his prices, chasing sales growth. He had sold approximately 100 cars in the year we were talking about. I asked him if he added an average of €100 to each car, would that be possible. He thought about it for 30 seconds and said that would be possible.
I asked him what he would do if I could put €10,000 into his pocket. After another pause, he replied that he would go on holidays for 4 weeks, to make up for the last 2 years missed holidays.
The answer was obvious - increase prices on every car from the low level he had set for himself, even by just €100 per car and he could have enough for a family holiday at the end of the year.
If you think any of the ideas you read here can help you and you need any extra help in implementing them please contact me, Eamon O’Sullivan at info@OSAMcQuillan.ie to set up a consultation.