Profitology

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  • Give Customers Something to Talk About

    Give Customers Something to Talk About

    As retail businesses struggle to compete with on-line stores business owners are faced with the challenge of coming up with new and innovative ways to encourage shoppers through their doors.

    The advantage that retail owners have over the internet is good old fashioned customer service. Below are the fundamentals of providing consistent customer service:

    1. Greet the customer – a warm and sincere friendly greeting goes a long way. Try to avoid the cliché “How are you”
    2. Listen to your customer to understand what they are looking for and how you can help them
    3. Promote the benefits of a product’s features – explain how it will meet your customer’s needs
    4. Up-sell by offering a product or service that compliments the product they are purchasing.
    5. Provide an unexpected service. Examples include assisting customers with taking items to their car, offering beverages, or providing a form of in-store entertainment

    Above all, remember to SMILE. A smile makes the customer feel good as they enter the store and sets the mood for their shopping experience.

  • Break-even Sales

    Break-even Sales

    Nine out of ten businesses incur expenditure simply by opening their doors to customers. Common expenses that may be incurred include rent, staff salaries, telephone line rental and insurance.

    Do you know the level of sales that you need to generate on a daily, weekly, or even a monthly basis in order to meet your fixed expenditure and hence break-even?

    The break-even point of your business is where the income generated is equal to the expenses incurred in operating the business. As such, every dollar of sales above the break-even point will contribute to net profits.

    To calculate the break even point you must determine the total expenses ie, fixed costs plus variable costs then determine the number of sales you need to generate to cover the costs of operating the business.

    A Fixed Cost is an expense which remains constant regardless of the amount of sales generated by the business. An example of a fixed cost is rent.

    A Variable Cost is an expense which increases as sales levels increase, and vice versa. An example of a variable cost is sales commissions.

    The basic formula for calculating the break-even point is:

                        Fixed Costs                 

            Gross Margin Percentage

    For example, if the fixed costs of a business are $25,000 and the gross margin percentage is 40%, the sales amount required to break-even is $62,500.

    This is demonstrated further as follows:

    Sales Revenue              $62,500

    Less: Variable Costs*   (37,500)

    Less: Fixed Costs         (25,000)

    Net Profit                        nil

    * Variable Costs are calculated as sales revenue multiplied by the variable cost percentage (100% – gross margin percentage).

  • Struggling with Cash Flow?

    Struggling with Cash Flow?

    Cash flow is one of the biggest concerns of small business owners. Managing cash flow is an important aspect of running a business. Following are some tips to assist you in improving your cash flow:

    Bill your clients regularly

    By billing more regularly, the cash in-flows are more consistent. Customers see the value of your product or service at the time it is delivered. As time goes by, the perceived value of a product or service is diminished. Customers are more willing to pay for the product or service at the time they have a need for it, and hence are often more willing to accept a higher price.

    Implement systems to follow up debtors regularly

    Although probably one of the most dreaded tasks of running a business, chasing outstanding debts is one of the most important aspects of maintaining positive cash flow. Procedures should be developed to minimise the number of days debtors remain outstanding. You could offer a discount for early payment, send friendly reminder letters when debts are overdue and follow up with a phone call at a later date.

    Make it simple for a customer to pay

    By offering alternative methods of payment, such as EFTPOS & Credit Card facilities, accepting direct deposits, as well as cheques and cash, customers are not faced with the difficulties of having to go elsewhere to obtain the funds needed to pay your bill. Further, if a customer offers payment, and you know how much your fee will be, do not turn the offer down. The customer is clearly willing to pay you there and then. If you turn down the payment and ask them to pay at a later date, you are risking the possibility of a delayed payment, or no payment at all.

    Seek upfront deposits/retainers

    Before commencing large contracts or ongoing service arrangements, seek an upfront deposit. This will assist with your cash flow at the start of the project and also ensure your customer is committed to your product or service.

    As the assignment progresses, ensure you invoice progress claims. By invoicing in regular smaller amounts, it is easier for your customer to find the funds to pay your bill, hence improving the cash flow for both you and your customer.

    Adopt regular payment arrangements for re-occurring expenses

    It is much easier to find $200 a month than $2,400 in a lump sum amount when it comes time to pay for your annual fees. Many suppliers offer “pay by the month” alternatives.  It helps their cash flow as well as yours.

    Expenses you could consider paying on a monthly basis are:

    • Insurance
    • Licences & subscription fees
    • Professional fees – accounting, legal & other consulting fees
    • Superannuation
    • Inventory Control

    Monitor stock levels carefully. Stock which sits on the shelf for long periods of time is costing you money. This is because you’ve made the cash outlay on the purchase and are waiting for the cash inflow from the sale. Implement an inventory control system where stock items are purchased on an as needed basis to try and minimise the length of time stock is gathering dust on the shelf.

    Undertake credit checks

    For large sales, seek references from your customers of other suppliers they use to ring and confirm they have a good payment history. If the feedback received is negative, consider asking for payment upfront, or even turning the sale down. A sale with no payment, effectively means no sale at all, and only costs you time and money in chasing the outstanding debt.

    Communicate

    Ensure you communicate your payment terms with customers at the time of sale. This way, customers are aware of your expectations for payment.

    Also, if you are having difficulties in meeting your supplier payments, speak to them in advance. This will help maintain good supplier relations. Remember, communication is key.

    Prepare a cash flow budget

    A cash flow budget is vital for monitoring the cash flow of your business. Prepare an estimate of the monthly cash inflows and outflows, and compare the budgeted figures with the actual flow of funds.
    A cash flow budget should be prepared on an annual basis, and adjustments should be made according to changes in anticipated cash receipts and payments as they arise throughout the year.

    Remember when preparing your budget, a sale doesn’t necessarily equal a cash inflow. You need to allow for the time difference in making the sale and receiving payment. Also, don’t forget to allow for seasonal fluctuations, and the effect of holiday periods such as Christmas.

    Without positive cash flow, even the most successful of businesses can fail.

  • Key Point of Difference

    Key Point of Difference

    As a small business owner you may know your product or service inside out. But do you know how that product or service differs from your competitors?

    In order to run a successful small business you need to be able to identify that aspect of your business which helps you stand out from the crowd. Consumers are faced with a wide range of choices and you need to give them a reason to come to you as opposed to your competitors. This problem is amplified with consumers having access to the internet to source information and goods from anywhere in the world.

    Understanding and promoting your Key Point of Difference is an important part of generating sales and encouraging repeat sales.

    Factors to consider when promoting your point of difference are:

    1. The needs and wants of your customers. Are you providing a solution for a problem, or fulfilling an emotional desire?
    2. What are the strengths of your business in providing the product or service? For example, offering free delivery, providing the product or service on time, greeting customers by name.
    3. Review what your competitors are doing. Take into consideration what the market leaders are doing in your industry and think about how you may be able to adopt or improve on their strategies. Ensure you take into account the needs of your customers.
    4. Identify the weaknesses of your business and determine ways to overcome or limit the impact of these weaknesses.

    Remember, you must deliver what you promise, so ensure your key point of difference is achievable and sustainable.