Archive for the ‘Profit Improvement’ Category
You may be able to increase your price by one or two percent without losing any customers. But, if you want to increase your price 10% or 20% then it is probably worth taking actions to reduce the chances of losing customers.
You can do this by re-launching your service, product or brand in a way that takes the focus away from just the price.
If you are going to be more expensive than the competition, you need to give people a reason/s to pay the extra. This can usually be done as a package with new guarantees, safeguards, higher service standards and more benefits because when you do that you can justify a new higher price.
Let’s take the example of a roofing company.
Most construction businesses usually turn up in filthy vans and roofers are normally covered in black tar. They turn up at your house unannounced, saying they have some spare materials from another job , asking to take a look at your roof.
Let’s imagine that a typical roofing company struggles to charge more than £5,000 for a certain type of job.
Now, let’s think about a business that positions itself as a “professional” roofing constructor with guarantees. When the owner turns up he says “I know that some people in my industry have a bit of a bad reputation for going on to the roof and kicking things off and telling you that they need to be replaced. Well, we don’t operate like that, but I don’t want you to take my word. So, on our Website we have video written testimonials from people in the local area about the service we provide”.
Then he bring out a leather folder and says “here we have some of the most recent client surveys because we carry this out at the end of every job”. You can see surveys with people saying how wonderful they are.
He could then goes on and says “I guess you would like to be comfortable that we will provide exactly the same kind of service to you and that why we have a range of guarantees built in.
First, you have a guarantee that we call the turn up and clean up guarantee. If we don’t turn up when we said we would turn up and if we don’t clean up at the end of each day to your satisfaction we will deduct £50 pounds off the bill. We will do that for every single day that if we don’t turn up on time or clean up at the end of the day.
Our second guarantee is you don’t pay for the job until it is completed the way you liked it. In other words when we think we are finished we give you an opportunity to check and if you’re not completely delighted with the work we have done for you simply don’t pay us, until you are delighted.
Now, we will ask you to tell us why you are not delighted so we can put that right, but you don’t pay until you are delighted. This means you will not feel ripped off because you always get exactly what you want. You will not pay until you get exactly what you wanted.
Our third guarantee is this when we leave we guarantee that roof wont leak and if does leak within three years we will come back and fix it for free. And, we won’t hide in the meantime; we will contact you each year to ask how your roof is and after 18 months we will do a site visit to check that it is showing signs of leaking. That’s how strongly we believe in what we do”.
Those kinds of guarantees will already make you think well this roofing contractor is really different, but that’s not it.
They also set a new service standards because he goes on to explain; “as you notice we all wear this uniform” and he points to his clean overalls blue with a very stylish logo with the name of the roofing contractor firm on the chest. He tells you that “every single one of our team is wearing this because they are employees, not just some cheap contractors that we sub contracted the work out too to sell you short.
He says “we all want to feel good about the people who are working in your premises. You want to trust them. This is part of our way of showing you.” He says “we asked customers about their concerns about roofing companies and they said that they are a bit nervous about working with a contractor because you have to take their word because not many people want to go up a ladder on the rook and have a look at the damage.
So, we take a video recorder up the ladder and film the damage and show you exactly so you know we are telling you that truth. And, then when we have done the work will take the camera back up there and film it again, so you can see that we have done what you have paid for. You know you’re getting exactly what you want exactly what you are paying for and that’s not what we all did because our job finishes at the end fixing the roof”.
How do you think that compares to the other roofing contractors?
Could they charge £5,500 instead of the normal £5,000? What about £6,500 for the additional service standards and guarantees?
This is just about:
- Cleaning up
- A check up
- Wearing a clean uniform
- A video
- Developing a script
If you think about it, putting right work that is faulty is what the business needs to do anyway!
What about referrals. Do you think the customers are more or less likely to recommend this type of business?
The vast majority of people will pay a little extra if they get a lot more. That’s the point when you create guarantees, safeguards, new service standards and benefits.
When you re-launch what you currently do most people, not everybody, will say OK. They’ll pay you 10%, 20% or even 30% more.
Remember, you maybe able to afford to lose 20%, 30% or more clients and still make more money.
To answer the question, let’s look at an example of a business is making sales of £1,000,000 with net profit of £200,000.
Let’s say we cut our prices by 10%.
If we cut prices by 10%, and nothing else changes, sales will go down by £100,000. This will come straight to the bottom line and reduce profit in half to £100,000.
But, you may argue that the business will get more customers because it is cheaper.
The question is how many more you need to get to make more money of the cut of price you needed before?
Well let’s do the numbers based on the business having 2,000 customers. The profit per customer would be is £50, so to make £200,000 they will need 4,000 customers which us 100% more!
Would cutting your prices by 10% double your customer base?
Now lets’ do the reverse.
Let’s say that instead of cutting our prices we look at an increase in our prices by 10%. You’d probably say that you will lose too many customers to make it pay.
Let’s see how many customers you can actually afford to lose?
Well, with a 10% price increase the profit per customer is £150 so we only need 1,333 to make £200,000. So, as long we don’t lose more than a third of our customers where making more money than before.
Let’s say we lose 20% of our customers leave, this would leave us with have 1,600 people paying £550 with a cost of £400 giving us a total profit £240,000. We are £40,000 better off.
Not only do we make more money but because we have fewer customers we sell less which means we need less money to fund our business.
We need to borrow less from the bank because we have got rid of some high hassle, low margin customers. Life is easier because we got less work to do, less stress and less risk.
Now, these numbers won’t be exactly accurate for your business. But, you can do this type of financial modeling or sit down with you and work the numbers for your business.
Now, in the next few posts I will share some ideas on how to increase your prices and cut the losses to a minimum and even increase customer numbers!
This article focuses on researching your existing customers.
The first thing to consider is which customers do you speak to? The answer is the most enjoyable and profitable because you want more of them.
If your business is like most businesses then you will have a mix, some will be better than others. The 80:20 principle suggests that there will be an un-even split. Perhaps 80% of your profit comes from 20% of your customers?
Once you have identified your best customers you need to contact them and ask for their help. You could say you have created a customer focus group and want their input.
You can explain that on 20% of customers are being invested and there will be a prize draw as a thank you.
Design and complete a questionnaire yourself. Do not send them out to clients for them to complete because you will not get many back and you will not have the opportunity to probe. The phone call you make to complete the questionnaire is a valuable use of your time.
Before calling the client complete as many answers as possible to these questions:
1. How did you first hear about us?
2. How long have you been a customer?
3. What products/services have you bought?
4. Why did you buy in the first place?
5. Is there anything we offer that in your opinion is unique compared to the competition?
6. What is it we do that makes us stand out from the competition?
7. What are your three biggest fears/frustrations when dealing with us and people in our industry?
8. What three things could we improve upon?
9. If you were my business adviser, what one thing would you tell us to do?
10. What publications do you read?
11. If you were looking to buy our product/service from another supplier where would you go to source them?
12. How often would you like to be contacted with new information, or be contacted by the salesperson or company service person?
13. Do you prefer being contacted by phone, mail or e-mail?
Once you have completed the survey you need to analyse the results.
Look out for keywords and phrases because one of the main reasons for conducting this research is to help you discover WHY these customers bought from you, what was appealing about the business which made them buy in the first place.
These are their emotional hot buttons and they should be used in all of your marketing collateral.
Also keep an ear out for things that concern the buyer – their fears, concerns, frustrations, and objections.
In all cases you are looking for irrational emotional reasons because there are the most powerful. People do not drive a sports care because it is fast, they buy it because they feel good when other people look at them at the traffic lights.
You are also looking to identify your “Uniqueness”. Knowing what makes you different is one of the most powerful elements of your marketing.
Many business owners who do this discover customers view the business completely differently than you! But remember who cares what you think? What customers think is what matters.
When you are finished you should have a very good picture of how customers view the business.
You will know:
- What you need to improve or change
- What you do well
- Where to promote your business
- What emotional words and phrases to use
As always, remember, Sackmans are Accountants for North London for small businesses so if you know anyone looking for free business advice suggest they sign up to our newsletter.
To grow your business you need to sometimes think and act counter intuitively and this begins with choosing your target market.
Rather than trying to be all things to all people (which is impossible) you need to first narrow your focus and niche. This is a very powerful marketing strategy which most business owners fail to understand and use.
They fear that cutting their market out will mean they will make less sales. However, they are jumping the gun; the first thing you need to do is get an opportunity to sell. And, if you are trying to be all things to all people you will be seen as a generalist and less interesting than the specialists.
Even if you get an opportunity to sell you will find you experience more price pressure because you are not perceived as an expert.
By focussing on a niche you make your business a perfect fit for a specific segment of the market and the expense of turning you back on the rest of the market.
But, keep in mind that when you have one segment of the market under your belt you can easily widen your target market. So, rather than be a small fish in a big pond you start as the only fish in a very small pond and grow the size of the pond.
For example, if you wanted to launch an Estate Agency in your area how would you stand a chance against the existing providers? Well, if you specialised in family homes with four plus bedrooms you would be able to identity where your target market is and develop a proposition which they would find better than the competition.
In terms of doing what we say, Sackmans specialises in small owner managed business. This means we develop our knowledge to help these clients. I am no longer attending Inheritance Tax planning training. If a client needs this help I will bring in a specialist and work with them. They client will end up paying less and get a faster result.
The research you do before choosing your niche is probably the most important part of developing your business. If you have not done this then I strongly recommend you take one step back before looking at ways of moving forward.
The research will cost some time but not a lot of money and will give you information you can build into your marketing. The time you spend on research will be the best investment you will ever make.
You need to research:
1. Existing Customers (if you are already in business)
2. Potential Customers
3. The competitors
The next article we will consider how best to research existing customers.
Remember, Sackmans are Accountants for North London for small businesses so if you know anyone looking for free business advice suggest they sign up to our newsletter.
There are broadly two types of marketing; Image Marketing (branding) and Direct Response Marketing.
The goal of Image Marketing (branding) is to remind customers and prospects about your company and the products and/or services you offer.
The idea is that the more times the market hears from you the more likely people are to have your company’s name at the top of their mind when they go to make a purchasing decision. The majority of advertising falls into this category, especially from national and international brands.
There’s no doubt that Image Marketing is effective, however it takes a lot of money and time. It requires you to saturate various types of advertising media e.g. TV, print, radio, Internet on a very regular basis and over an extended period of time. At the time of writing this post a good example is “ee” who have been advertising on the TV with Kevin Bacon.
The money and time involved are not a problem for big businesses as they have massive budgets. However, a problem arises when smaller businesses try to imitate big brands.
They tend to run very small campaigns which have no chance of working because they do not have have enough money to get into the mind of their target market. Keep in mind the same target market are being bombarded with thousands of marketing messages each day from national and international brands.
The common feeling amongst small businesses is that “marketing doesn’t work”.
It’s not that small businesses don’t have a good brand, image or weak adverts…it’s just they do not have enough money to run their adverts enough times to make them stick.
Unless you have millions of pounds (or more likely tens of millions) in your marketing budget, you have a very high probability of failure with Image Based marketing. This is why we recommend all small/medium sized businesses should only be using Direct Response Marketing.
Direct Response Marketing is an approach to marketing based on getting an immediate response from prospects. It can be online, offline or a mix of the two.
The response can be to buy the product, requesting more information or signing up to a mailing list. The types of response include picking up the phone, completing a coupon, returning a form in a pre-paid envelope or completing a form on a web page.
This form of marketing is different from other marketing for a number of reasons. I will be covering the various elements in future posts but the first is that responses can be measured and attributed to specific adverts or promotion.
This allows the business to assess and improve marketing with ongoing testing. Again, this suits small/medium sized businesses because is is lower risk.
As Accountants for North London we use Direct Response Marketing so sign-up for our newsletter and discover how your business can increase sales, improve profit margins and boost cashflow.
Here is a checklist you can use to improve every piece of marketing collateral you have.
- Are you using Direct Response Marketing?
- Is there a well defined market?
- Is there an irresistible offer?
- Is there a compelling headline
- Does the opening sentance pull you in?
- Have you included your Unique Perceived Value?
- have you focussed on benefits rather than features?
- Is there a guarantee?
- Have you explianed why you are making the offer?
- Have you out a deadline on the response?
- Have you included Social Proof?
- Do you have at least one call to action?
- Do you have a response devise?
- Have you used sub-headlines?
- Have you used high quality images?
In future posts I will write about each element of the checklist.
Sackmans are Chartered Accountants North London.
A few days ago the Crown Prosecution Service (CPS) announced that it will dramatically ramp up the number of tax evasion cases it takes on.
Cases will rise from 200 in 2010 to 1,500 in 2014/15. With a conviction rate of 86% many more people will be facing serious consequences to tax planning. This can include tax consultants as well as their clients.
I have always felt it right to advise my clients how to pay the least amount of tax legally. Some strategies are very simple and low cost, like profit extraction from a Limited Company. Others are more complex but they are all legal.
The difference between legal and illegal is avoidance and evasion respectively. I only help clients avoid tax where they can arrange their affairs in a way to pay less tax.
However, it is getting to a point where if you want more cash in your pocket it maybe more risky trying to save tax than growing your business. So, from now on I will ensure all clients have access to tax planning but also business growth advice.
To do this in an affordable way I will use my Website to deliver advice videos. I call this Ontrack Online and it is based my extensive research as well as knowing what works for me and my clients.
If this is something you’d like to know more about then call me and I’ll set you up a free account.
Most businesses fail and most new products fail to sell or make a profit.
When it comes to small businesses the main reason for the failure is a lack of understanding of EXACTLY what the customer wants and how much they are prepared to pay.
The key cause of this lack of understanding is the mindset of the business owner. They maintain the employee mentality of if they put the time and effort in they will get paid.
The typical approach is to launch a business or product that the business owner wants, or believes is good for the target market. They may be right but that approach doesn’t guarantee the market will find the offer interesting, let alone compelling.
But, it doesn’t need to be that way; you can test before you bet the business. And, the fastest way to test is to talk with prospective customers. Nothing will get you up to speed as quick as talking to real people who have real needs.
The truth is that most of us sit in our Ivory Towers behind our computers and telephones thinking. However, as it turns out our prospective customers will tell us for free what they want and how much they are willing to pay.
The key is asking questions like:
- What is your biggest fear or frustration?
- What effect is that having on the business and you?
- What is your dream result?
- What would you be prepared to pay to get the result you want?
The key is to listen carefully and make lots of notes. The words used by the market are the words you should use to market.
The problem is this requires two things:
First, we need to acceptance that we do not have all the answers, our customers do.
Second, we need to face our internal fears of rejection and shyness.
Everyone of us has deep seated fears and apprehensions. We have fear of confrontation and do not want to annoy or upset anyone. We think it is best to sit on our own and figure things out ourselves because we are not brought up to go and ask people these types of questions.
That may be good social behaviour but that is not going to get anyone motivated enough to pay you money.
So, the first thing to do is to get over our internal issues and we can do this by reading books, listening to audio programmes and attending networking events. We need to be comfortable outside our comfort zone.
The trick is to understand that our long-term success depends on this. And, understand that doing this now is much easier than waiting because the fear will grow.
We absolutely must understand exactly what is driving our customers and what they want. When we know this “word for word” our marketing will be very powerful.
The answers we get from the questions we ask may not be what we expect and are likely to be irrational. But, you will start to see things more clearly.
For example, a lawyer can say “I help people with divorce” or they can say “I help women who are going through a divorce get their husband back and save their marriage”.
I do not say “I help people with their accounts”, instead I say that “I help business owners gain financial independence”.
Keep in mind that our negative feelings of asking questions are because we have been taught it is rude. That is great in the sense you are playing the role of a good member of society but you are robbing yourself of the knowledge you need to help people.
If people think they will get what they want they will answer questions and be very open. However, they won’t talk about their biggest fears and frustrations if they don’t think talking with you will get them closer to what they want.
People will do anything to get what they really want. They will be glad to answer your questions. They will be pleased that someone is listening to them.
So, talk to at least one person a day, preferably three.
Successful businesses proactively monitor cashflow and liquidity.
Most business owners understand what cashflow is but are less sure about the best way to manage it and do not understand the concept of Working Capital/Liquidity.
Working Capital/Liquidity is basically what cash you have to work with on a day-to-day basis. On the positive side you have:
- Work In Progress (WIP)
- Money in the bank
- People who owe you money
Other the negative side you have:
- People you owe money to
- VAT and tax
To manage cashflow you really need an accounting package. To manage your Liquidity you need regular management accounts.
The accounting system we recommend in Xero because this has a Dashboard which gives you a very good snapshot. And, because Xero is online I can easily get access to the data I need to manage your VAT and work out and tax you need to allow for on profits.
So many people make the mistake of taking too much money from their business or making the wrong funding decision on buying things for their business because they forget to allow for tax.
To get a feel for the short-term cash availability/liquidity you can use two ratios called the a) Current Ratio and b) Quick Ratio. These are fairly straight forward ratios, easy to calculate, but they can tell an important story.
The Current Ratio is the total of your “Current Assets” divided by your “Current Liabilities”. These are found on the top half of your Balance Sheet. If you’ve got a number of more than 1 it means that your current assets are greater than your current liabilities. That’s good.
It makes sense to track this regularly and create a graph because if you’ve got a downward trend in your Current Ratio then that suggests that you’ve got a potential problem. Specifically it means that at some point you are not going to service all of the short-term debt.
The Quick Ratio excludes Stock and Work In Progress. This is because it takes time to turn stock and Work-in-progress into cash. This will give you the worst case short-term cash position.
Another useful ratio to monitor if you sell on credit is called Debtor Days. Debtors are people who owe you money and to work out the ratio divide your debtors today by gross sales and multiply the answer by 365.
Once again, track and graph the results because small changes can make a big difference to the cash in your bank.
We all know that education pays but business education pays much bigger.
Want to raise your income 68%? A degree will do that according to research from the Office for National Statistics. That is worth over £500,000 over your working life.
But, it may surprise you to learn that you a professional degree will raise your income by over 250%? This is a degree that’s focused on a profession like a doctor or lawyer.
The study reported on different estimated lifetime incomes of various education levels. They projected that someone with only a high school diploma will earn about £750,000 over their entire careers. A degree ups that lifetime income to about a £1 million but someone with a professional degree a whapping estimated £2.7 million.
- Education pays
- Business education pays much bigger
But, how much business education did you get?
Is it such a mystery that so many business owners don’t get out of their business what they want. The majority end up bust within the first five years and those that survive never really grow; 96% of UK businesses employ less than five people.
The bottom line is that your level of education about business predicts your level of success with business. So, if you want to be out of control with money and wealth then stay uneducated about business.
If you want money, wealth and financial independence then get business education. Education pays. Business education pays much bigger.
So what is a business education and where can you get it? And, most importantly where can you get education that you don’t need to invest years and years and hundreds of thousands of pounds in but they can still make a big difference in bottom line in your business and life?
Well, you could do what I’ve done; spend years becoming a qualified accountant then learning from other accountants and clients, reading and studying books about things like strategic planning, pricing and management and all other areas of business and attending all kinds of seminars and trainings on these topics.
But, I think I have a much better idea for you. And, that idea is to sign up for my newsletter and I’ll send you articles and videos.
Over the weeks and months this will be an in-depth education about business; how to change your thinking, perspectives, skills and behaviors so that you enjoy success in terms of higher profits, healthier cashflow and enhanced capital value.
Here is an example of a video about how to approach marketing click here.