How to "smarten up" your business

At some stage in your youth your parents may well have admonished you "Smarten up, you must work harder and spend less".  And it is quite possible your bank manager is finding other words to say the same thing, managing the relationship in these troubled times.  After all, when times are tough, businesses need to be a little sharper.

So let's look at some of the positive steps you can take to smarten up over the next few months.

Increase sales - as the previous blog discussed, make sure that your promotional efforts are clearly focussed on your target market.  If they are not your promotions will not be making effective use of scarce funds.  Remember that existing customers are the most likely to buy from you.  And because they know and trust you they are more likely to buy more often and in larger amounts than a customer with whom you are yet to develop a relationship.

Protect and improve your gross profit margins - cutting prices is not the only way to get sales, and it can severely damage your bottom line.  If the only reason people buy from you is price then you have done little to differentiate your product or service from the competition.  A better alternative to discounts is to put together bonus offers, adding value to the basic offer.

If you know and understand your key customers you will be more likely to be able to develop a value package that suits those customers.  A trick I have found useful is to write a couple of paragraphs about your ideal customer, a profile of their likes and dislikes, buying patterns, preferences, demographics, education, entertainment requirements etc.  You'll soon identify points you on which can build value for them.

Reduce Cost of Sales - in times such as these look to negotiate better terms with your suppliers.  They may be willing to offer discounts to win sales (even though you will be protecting your gross margin) or offer prompt settlement discounts.

It may also be time to give your business to a few key suppliers only.  That will both give you the opportunity to negotiate better deals, and reduce your administrative costs.

If your business involves labour which you charge out either directly for services, repairs and maintenance, or manufacturing, look for better ways of doing things such as reducing cycle time or process improvement.

Reduce Overheads- Reducing overheads is often the first thing businesses turn to when they seek to reduce costs.  It can also be less effective than the suggestions above, but that does not mean it should not be examined.  Be careful you don't end up cutting the very things you should be concentrating on, such as marketing.

Turn the Working Capital Wheel - better management of the working capital wheel will reduce the amount of cash you need to run the business.   Three ‘cogs' in the wheel can tie up precious cash; stock (inventory), Work in Progress (WIP), and debtors.

Improving your stock turn will enable you to achieve the same sales with less money tied up in stock.  Funds tied up in WIP can be reduced by better scheduling, improved processes, and progress payments.  Debtors can be reduced by encouraging customers to use their own credit, shortening your terms of trade, and actively managing your debtor list.

I'm sure your bank manager, or other advisor, is finding better ways of saying to you that you need to smarten up in these times.  If she does, you'll be able to tell her that your are already taking some positive steps.

If you need further assistance or guidance, contact the This e-mail address is being protected from spambots. You need JavaScript enabled to view it .This e-mail address is being protected from spam bots, you need JavaScript enabled to view it <!-- document.write( '</' ); document.write( 'span>' ); //-->

Have you really thought through your target market?

When times look like becoming tougher you don't want to be wasting your scarce promotional time and money without have a laser like focus on your target market, a market most likely to respond to your marketing efforts.

This applies to all your promotional material, whether it be print or electronic advertisements, Yellow Pages, brochures, direct mail or web site.  Unless you have very deep pockets, and most small businesses don't, you will want your promotional efforts to produce sales, otherwise why spend the money.

Some people will be more likely to buy than others, and that is your target market.

Let's take web sites as an example. Recently I was reviewing a client's web site to find out more about them.  While I don't know what the web site cost, the problem I found was that the site didn't really tell me who their target market was, or what problems they solved.  In fact the web site told me very little about the company except how to contact them.

All well and good you might say, but why would I want to contact them if they don't give me any reason to think they could help me.  Wasted time and money.

And that is a problem I find in many web sites, and indeed many marketing efforts.  They have not clearly articulated who they service.  It's the old problem of trying to be something for everyone and being nothing to anyone.   Now is not the time for ineffective marketing.

In this day and age people expect to see a website to find out more about a business.  It is part of the business's credibility.  But if the packaging AND content of the site is not right the site itself will do nothing for the business's credibility.

It's small business sites I'm talking about here. Not professional sites but those so often put together for small, local businesses.  The owners don't know much about marketing and turn to a designer who can produce ‘eye candy' but can do nothing to get a "they're talking about me" reaction.

An effective web site will produce just that reaction from the target market, and it will go on to give the viewer good reasons to consider the business, remove possible objections to buying from their mind and lead to action.

How does your web site fare? If the viewer is not your target market they are likely to pass over anyway, so you don't have to make your message general to try to appeal to all viewers.  In this context ‘general' and ‘meaningless' run together.

You want the potential customer to contact you, and to do so knowing that you are just the person for them.  Tough times are just the times to ramp up your marketing to improve your competitive advantage, but you don't want to waste your money through ineffective efforts that don't address your target market.

But is it a reliable plan for the future?

With the Melbourne Cup now run the end of the year is fast approaching.  There will be those who are starting to think about how they are going to handle the year to come, to develop some guidelines for the next year.

At this stage the new year appears to have a greater look of uncertainty than many we have faced for a quite a while.

One thing is sure; you can't drift through this economy and hope you'll make it somehow. You need a plan, more likely several plans, and you've got to go at it with determination and energy.

Procrastination may be the key to flexibility, as Oscar Wilde said, but it is no way to handle uncertainty.

There are a whole lot of people out there who are concerned about what the present economic climate will mean to their businesses.  But uncertainty is no reason not to plan.  Indeed it is all the more reason to start to think about how you might handle various scenarios that might unfold for your business.

In fact it worth not only developing Plan A, but as things don't always unfold the way we expect, it is worth having Plan B ready as well.

Now my economics is not good enough to make predictions about the market but I do know enough about economic history to know that whether the market is contracting or growing there are always opportunities for the astute to grab.

And the astute will have done a bit more work, analysis and planning than the average business, and they will be in a position to seize the opportunity when it presents itself.

They will be determining who their key customers are, how they can keep looking after them, and how they can find more customers just like them.

Plan A should be about building on those 20% of customers who provide 80% of your profits.  Plan B should be looking at bringing more customers into that core 20% group.

Both plans should be about protecting and increasing your income stream, not hunkering down and hoping you'll get through somehow.

Good luck happens to those who get in front of it.  And procrastination gets you nowhere.

Will you be "rooned, before the year is out?"

Some of you will remember the old Australian poem which had that ‘astute' observer, Hanrahan predicting doom from every possible seasonal event "We'll all be rooned, said, Hanrahan, before the year is out". Whether the season was good or bad, out rang Hanrahan's refrain on doom.  And just to prove tough times have been seen before there's a line in the poem about the banks.

"For never since the banks went broke
Has seasons been so bad."

And we are not at that stage, not by a long way, as the Australian politicians keep reminding us.  A good thing too, from what I'm hearing of some of the reactions overseas where credit is being cut off, not because businesses aren't creditworthy, but seemingly because of fear itself.

It was Franklin D. Roosevelt who said "the only thing we have to fear is fear itself" and that was at his inaugural address as President in 1933 at the height of the Great Depression.

I bring this up not to spread gloom and doom but in fact to suggest otherwise. What's your first reaction to the gloom we hear?  Is it to batten down the hatches, to cut back on everything you can, to retreat rather than attack?  For some reason when we fear we seem to lose all ability to think, to reason and act.

When businesses cut back, for some reason one of the first thing they cut back on is marketing.

If times are likely to be tougher than they have been in recent times then as a business owner or manager you should be trying to increase cash flow, not decrease it.

And you increase cash flow by winning more customers and encouraging those you have to stay longer and spend more.  In other words it is precisely at this time you should be increasing your marketing efforts, not decreasing them.

Now that doesn't mean just to go out and spend a fortune on advertising.  It means clever, targeted marketing, marketing from which you can measure the return on investment from your marketing efforts, and not just shotgun spending.

Have you worked out who are your most profitable customers, and your best potential prospects, what they need, what problem can you solve for them.  Have you worked out who your less profitable customers are, and what they are not buying that your most profitable customers are?

Have you worked out how you can most effectively reach those customers? It may be through advertising, or it may be through more specific, direct methods such as personalised sales letters or e-mails, setting up meetings, or putting on small functions.

How long since you have analysed your sales message, and its applicability and effectiveness?

The last thing you can do is to fall back on the sign above your business, just open the doors and wait, because you will be waiting a long time for some decent cash flow.  And you will be rooned, before the year is out.

You don't want to be different from your competition, do you?

Maybe you are quite happy with the level of sales you are winning. You have no worries about where tomorrow's sales are coming from, or even next year's sales.  Life is a certainty after all. 

But maybe you're not. Maybe the world is not as certain a place as you had thought it to be.  Just maybe you need to look at whether you could be missing out on sales which are otherwise there for the taking.

Maybe you are missing out on those sales because you are into ‘me too' marketing.

Not sure that you are? Here's how to check.  The easiest way to do this is set up a table in your computer, but you can use Paper Mark 1.  Take your list of all your competitors (you do keep a list don't you), then make a list of the marketing material they are using, and the message they are putting out.

So this list will include any Yellow Pages ads, newspaper ads, radio and TV, website, flyers or whatever.  Identify the message.  What are they claiming to be able to do?  Does their promo material identify their target markets?  Do they claim a point of difference and, if so, what is it?

Then do the same exercise for your own business.  What promotional materials are you using, and what is your message?   What are you claiming to be able to do?  And what point of difference are your promoting?

Now that's the issue. Is there any difference between what you are doing to promote your business, and what your competitors are doing?  Do you copy what ALL the other competitors are doing and model your ads and promotions after theirs.  WHY?

Do you assume that if your competitors are investing that money in their promotions every month or every year - it MUST be working ... right?  WHY?

Why don't you want to be different? Don't want to be seen as different from your peers?

If your promotions, and your products or services are apparently no different from the competition, then the sales you are getting are random and you have only one thing left to compete with, and that is price.  If you are reduced to competing on price, then the first thing you can say goodbye to is profits,

But if you want to stand out, be the ‘go to' person in your market niche, you certainly won't achieve it by being the same as everyone else - "me too".  You need to stand out from the crowd.  Dare to be different - and your marketing methods and materials are the leading edge of that approach.

Some businesses offer specials to make a sale.  Good businesses offer specials to gain a customer.

Have you ever stopped to ask yourself what a new customer is worth to you? Too often, when we ask business owners what a new customer is worth, they don't know.  It's all rather sad, isn't it?

There is a corollary to the question of course, and that is, "over what period of time?"

It is often said a first time customer actually costs you money. Think of the specials you offer, promotional efforts you make, the advertisements you may place such as Yellow Pages, sponsorships, brochures and all the other marketing collateral.
Sure, such collateral has a role to remind existing customers that you are still around, but their primary role is to attract new leads, and give you the opportunity to convert those leads into sales.  So you measure the cost of that promotion against the new customers you win.

If you just leave it there, the net gain from a new customer is very little, if anything.  But keep that customer, and then it's a different story.

Once you have that customer and keep them, then all sorts of profit improvers kick in.  When a customer decides they trust you they keep on coming back for more.  So there is frequency of sales.  And if they trust you they are likely to increase the value of their purchases over time, not to mention the referrals they may make.

Unless you are an abject discounter you will only use discounts as a one-off special to win new customers, another reason why new customers can cost you money.  So repeat customers will largely pay ‘normal' prices, thus further improving your profits, all of which adds to the value keeping customers.

Now you can start to answer the question, and knowing you will have answered it I'll ask another.  "What is it worth paying to acquire a repeat customer?

Once you are thinking longer term about your business and have a figure in mind as to the value of that customer you can start to evaluate the return on investment ((ROI) of any particular promotional strategy or means you may be considering to acquire that customer.

That would be a pretty useful thing to do, would it not?  Just let me know if you need a hand.