Small Business Profits Tune-Up

Small BusinessSmall BusinessProfits “Tune-Up”Profits “Tune-Up”

Michael McDermott 804-248-1837 [email protected] www.SmallBusinessCoachVA.com

Michael McDermottMichael McDermott

Author: “2009-2011 Recession Survival Author: “2009-2011 Recession Survival Guide – 414 Actions Businesses Can Take Guide – 414 Actions Businesses Can Take to Weather the Storm and Boost Profits”to Weather the Storm and Boost Profits”

804-248-1837804-248-1837www.SmallBusinessCoachVA.comwww.SmallBusinessCoachVA.com

YOUR HOST & SPEAKERYOUR HOST & SPEAKER


The Great Recession of 2009-The Great Recession of 2009-20112011

is OVERis OVER(technically)(technically)

But nobody will believe it But nobody will believe it until companies start hiring until companies start hiring

again, housing prices again, housing prices rebound and the global debt rebound and the global debt

crisis eases.crisis eases.


You can hold out until then by becoming the You can hold out until then by becoming the highest customer-satisfaction, lowest-cost highest customer-satisfaction, lowest-cost

competitor in your marketplace. While your competitor in your marketplace. While your competitors are cutting back and hunkering competitors are cutting back and hunkering

down, this is the time for you to capitalize on down, this is the time for you to capitalize on opportunities and focus on your strengths. opportunities and focus on your strengths.

Here are the most inexpensive, cost-effective Here are the most inexpensive, cost-effective and D.I.Y. projects and tools, the “low hanging and D.I.Y. projects and tools, the “low hanging

fruit”, for tuning up the profits and fruit”, for tuning up the profits and competitiveness of your business. competitiveness of your business.


The 7 Elements of a The 7 Elements of a Profit Tune-UpProfit Tune-Up

1.1. Cash Flow and Lowest Cost CompetitorCash Flow and Lowest Cost Competitor

2.2. Pragmatic Business PlanningPragmatic Business Planning

3.3. Branding and “Guerrilla” MarketingBranding and “Guerrilla” Marketing

4.4. The “Profit Equation”The “Profit Equation”

5.5. Create “Lifetime Customers”Create “Lifetime Customers”

6.6. Employee EngagementEmployee Engagement

7.7. Get Outside HelpGet Outside Help


Cash FlowCash Flow

AndAnd

Becoming the “Lowest Becoming the “Lowest Cost” CompetitorCost” Competitor


#1- Get Your Cash Flowing#1- Get Your Cash Flowing

Cash is the lifeblood of every Cash is the lifeblood of every business. Without reliable cash business. Without reliable cash flow, you won’t even have the flow, you won’t even have the ability to stay in business so ability to stay in business so

none of the other elements of none of the other elements of profit improvement are very profit improvement are very

important, though they all can important, though they all can contribute to improving it. contribute to improving it.


Cash Flow BasicsCash Flow Basics SHOW ME THE MONEY!SHOW ME THE MONEY! Unless you can Unless you can

track it, you can’t manage it. If you are track it, you can’t manage it. If you are not using QuickBooks or other simple not using QuickBooks or other simple accounting S/W, get it. QB-free starter accounting S/W, get it. QB-free starter package. package.

Start using a “break-even” graph. Add Start using a “break-even” graph. Add your fixed and variable expenses together, your fixed and variable expenses together, plot on an x/y graph. Calculate/estimate plot on an x/y graph. Calculate/estimate total weekly sales (with margins) needed total weekly sales (with margins) needed to make “break-even”. These are your to make “break-even”. These are your weekly sales goals…get to work on the weekly sales goals…get to work on the “Profit Equation”!“Profit Equation”!


The Elements of Cash FlowThe Elements of Cash Flow Accounts receivable (money customers owe Accounts receivable (money customers owe

you)you) Accounts payable (money you owe to others)Accounts payable (money you owe to others) Inventory (what you keep in stock to sell Inventory (what you keep in stock to sell and pay and pay

interest on money you borrowed to purchase itinterest on money you borrowed to purchase it)) Accrued wages and taxes Accrued wages and taxes Cash on-hand in the bankCash on-hand in the bank

Use cash flow management to minimize the Use cash flow management to minimize the length of time funds are "tied-up" so you can length of time funds are "tied-up" so you can reduce the amount of working capital you need reduce the amount of working capital you need for operations.for operations.


Cash Flow ManagementCash Flow ManagementThe biggest contributor to cash-flow problems The biggest contributor to cash-flow problems is late payments by customers.is late payments by customers.

Get customers to allow “direct pay” bank drafts Get customers to allow “direct pay” bank drafts or accept on-line payments from your or accept on-line payments from your customers. customers.

Use a series of “dunning letters” to improve Use a series of “dunning letters” to improve payments; avoid selling accounts to a collector.payments; avoid selling accounts to a collector.

Invoice immediately and move to a 15 day Invoice immediately and move to a 15 day billing cycle. billing cycle.

Fax or email invoices; save postage and time. Fax or email invoices; save postage and time. Always include/list your credit terms with order Always include/list your credit terms with order

confirmations and invoices. confirmations and invoices.


Cash Flow ManagementCash Flow Management Ask for longer payment terms from vendors Ask for longer payment terms from vendors

and banks: from 30 to 60 days. and banks: from 30 to 60 days. Buy stock in bulk for discounts and use JIT Buy stock in bulk for discounts and use JIT

(just-in-time) delivery. Consignment stock!(just-in-time) delivery. Consignment stock! Renegotiate your lease; ask for franchise fee Renegotiate your lease; ask for franchise fee

concessions. concessions. Accept credit cards from customers (the CC Accept credit cards from customers (the CC

company fees may be worth the cash flow company fees may be worth the cash flow improvement and increased customer improvement and increased customer volume). volume).

Move from weekly to semi-monthly payroll Move from weekly to semi-monthly payroll cycle. cycle.


Be the Low-Cost CompetitorBe the Low-Cost Competitor Use the “80/20 Rule” (Pareto Principle). Use the “80/20 Rule” (Pareto Principle).

Chances are that 20% of your expenses Chances are that 20% of your expenses are responsible for 80% of your cost. Make are responsible for 80% of your cost. Make a detailed list of ALL expenses and break a detailed list of ALL expenses and break larger budget items down into the smallest larger budget items down into the smallest line items possible. For example, break line items possible. For example, break “office supplies” and “transportation” and “office supplies” and “transportation” and “shipping” down into their smallest “shipping” down into their smallest components. Sort them from largest $ at components. Sort them from largest $ at the top to smallest $ on the bottom and the top to smallest $ on the bottom and work on reducing the top 20%.work on reducing the top 20%.


Be the Low-Cost CompetitorBe the Low-Cost Competitor Sell idle assets, inventory, machinery, displays, etc. Sell idle assets, inventory, machinery, displays, etc.

Get over it: the value of anything is what someone Get over it: the value of anything is what someone will pay for it TODAY; not how much you paid for it will pay for it TODAY; not how much you paid for it six months ago or how much you sold it for two six months ago or how much you sold it for two weeks ago. Remember that you’re paying interest weeks ago. Remember that you’re paying interest every month on the money you borrowed to buy the every month on the money you borrowed to buy the materials and keep it in inventory. Use materials and keep it in inventory. Use craigslist.com, auctions.yahoo.com and ebay.com craigslist.com, auctions.yahoo.com and ebay.com and to buy inexpensively. Government surplus and to buy inexpensively. Government surplus auctions: auctions: www.govdeals.comwww.govdeals.com

Printer ink and copier toner cartridges. Save 50% to Printer ink and copier toner cartridges. Save 50% to 75% off the price of brand new cartridges by using 75% off the price of brand new cartridges by using re-filled ink cartridges available online and a local re-filled ink cartridges available online and a local company will pick-up & deliver refilled: company will pick-up & deliver refilled: [email protected]@rapidrefillink.net

Turn off lights when not in use. Install a timer Turn off lights when not in use. Install a timer thermostat and stop/reduce heating/AC at night.thermostat and stop/reduce heating/AC at night.


Be the Low-Cost CompetitorBe the Low-Cost Competitor Look at total “cost to serve” individual customers or Look at total “cost to serve” individual customers or

customer segments. The downturn may have caused customer segments. The downturn may have caused some customer segments to become simultaneously some customer segments to become simultaneously smaller and more costly to service. Read the book: smaller and more costly to service. Read the book:

Killer Customers: Killer Customers: Tell the Good from the Bad and Crush Your CompetitorsTell the Good from the Bad and Crush Your Competitors

Authors Larry Selden and Geoffrey Colvin estimate Authors Larry Selden and Geoffrey Colvin estimate that the top 20 percent of customers (by profitability) that the top 20 percent of customers (by profitability) typically generate almost all of the organization’s typically generate almost all of the organization’s profits. By comparison, the bottom 20 percent of profits. By comparison, the bottom 20 percent of customers typically generate almost all of the losses. customers typically generate almost all of the losses. Working to keep the top 20% of customers and Working to keep the top 20% of customers and improving the bottom 20% will significantly improve improving the bottom 20% will significantly improve the bottom line of any organization. the bottom line of any organization.


Be the Low-Cost CompetitorBe the Low-Cost Competitor Work with an Work with an independentindependent insurance agent (rather insurance agent (rather

than a captive agent) who will work with many than a captive agent) who will work with many insurance companies and get you the best rates. insurance companies and get you the best rates. Ask them to evaluate your coverage and reduce Ask them to evaluate your coverage and reduce costs. Stop insurance on unused vehicles or costs. Stop insurance on unused vehicles or equipment.equipment.

Check the accuracy of your Worker’s Compensation Check the accuracy of your Worker’s Compensation experience modification and worker classifications. experience modification and worker classifications. Exclude owner’s salary from taxable base. Exclude owner’s salary from taxable base.

Shipping: the U.S. Postal Service offers flat-rate Shipping: the U.S. Postal Service offers flat-rate shipping to everywhere in the domestic U.S. if you shipping to everywhere in the domestic U.S. if you use their flat-rate envelopes or flat-rate boxes. As use their flat-rate envelopes or flat-rate boxes. As long as your items fit inside, you pay one price for long as your items fit inside, you pay one price for shipping whether it's going across the state or shipping whether it's going across the state or across the country--plus you get the boxes and across the country--plus you get the boxes and envelopes free. This can be especially valuable for envelopes free. This can be especially valuable for shipping small but heavy items.shipping small but heavy items.


Be the Low-Cost Competitor Be the Low-Cost Competitor ““Mistake-Proof” your business and reduce costly errors or Mistake-Proof” your business and reduce costly errors or

scrapscrap Engineering (gas tank, dryer lint screen, spell check) Engineering (gas tank, dryer lint screen, spell check) Decision trees Decision trees Checklists Checklists Failure Mode Effect Analysis (FMEA). Works great for service Failure Mode Effect Analysis (FMEA). Works great for service

businesses.businesses. 5S and Visual Systems 5S and Visual Systems

Process Flow Analysis: define your “core processes” and use Process Flow Analysis: define your “core processes” and use flow analysis to remove unnecessary steps, approvals, time, flow analysis to remove unnecessary steps, approvals, time, bottlenecks, customer annoyances, etc. VERY EASY!bottlenecks, customer annoyances, etc. VERY EASY!

Recycle – can you sell your scraps, rejects or trash?Recycle – can you sell your scraps, rejects or trash? Barter – have idle time or excess product? 50% of Barter – have idle time or excess product? 50% of

something is better than 100% of nothing. Sign up with local something is better than 100% of nothing. Sign up with local barter organizations. Two barter networks in Richmond. barter organizations. Two barter networks in Richmond.

Call your industry professional association for cost saving Call your industry professional association for cost saving research ideas. research ideas.


Pragmatic Pragmatic

StrategicStrategic

PlanningPlanning


#2-Tune-Up Your “Value #2-Tune-Up Your “Value Proposition”Proposition”

““Measure Twice, Cut Once”Measure Twice, Cut Once”

Always start with your plan, your business model. Tune-up Always start with your plan, your business model. Tune-up your business strategy FIRST; it saves a lot of time and your business strategy FIRST; it saves a lot of time and expense later. Small/medium businesses can “strategically expense later. Small/medium businesses can “strategically plan” like the major companies because much of the value of plan” like the major companies because much of the value of strategic planning is embodied in creating your “Value strategic planning is embodied in creating your “Value Proposition”. Proposition”.

A value proposition is a short paragraph defining your A value proposition is a short paragraph defining your customers, how you differentiate your business from your customers, how you differentiate your business from your competitors, how you leverage in your organization’s unique competitors, how you leverage in your organization’s unique strengths and how you plan to make a profit. It is your strengths and how you plan to make a profit. It is your argument why customers should buy from you rather than argument why customers should buy from you rather than from your competitors.from your competitors.

Spend time to get this right and get help if necessary. Spend time to get this right and get help if necessary. Preparing a value proposition begins with:Preparing a value proposition begins with:


Get intimate with your customers – be fanatical Get intimate with your customers – be fanatical and obsessive. Determine the 20% of your and obsessive. Determine the 20% of your customers who are responsible for the 80% of customers who are responsible for the 80% of your profits and visit them with a questionnaire or your profits and visit them with a questionnaire or conduct your own “focus group”. What do your conduct your own “focus group”. What do your clients/customers clients/customers reallyreally want? What services, want? What services, features, benefits or products are you offering features, benefits or products are you offering that they that they don’tdon’t care about? What do they like care about? What do they like and dislike about your current product or and dislike about your current product or services? Do you make it easy or hard for services? Do you make it easy or hard for customers to buy from you or use your services? customers to buy from you or use your services? Really listen to customer/client requests; these Really listen to customer/client requests; these are often the leading edge of product/service are often the leading edge of product/service improvements. Contact the best customers of improvements. Contact the best customers of your competitors; what do your customers like your competitors; what do your customers like about them? about them?


Get some CRM (customer relationship Get some CRM (customer relationship management software) to capture your management software) to capture your customer data and make it easy to customer data and make it easy to manipulate. There is FREE or inexpensive manipulate. There is FREE or inexpensive software.software.

CompetitorsCompetitors – mystery-shop them, talk to – mystery-shop them, talk to common suppliers and vendors, research common suppliers and vendors, research their web sites. Reverse-engineer their their web sites. Reverse-engineer their services and products. If you have many services and products. If you have many competitors, start with the largest or most competitors, start with the largest or most successful; they got that way for a reason. successful; they got that way for a reason. Find out what they are doing wrong and Find out what they are doing wrong and exploit that in your strategy and marketing.exploit that in your strategy and marketing.


Identify your industry’s and your businesses “Key Identify your industry’s and your businesses “Key Success Factors”; the “basics” of your business. Success Factors”; the “basics” of your business. Retail: inventory turns, shrinkage. Professional Retail: inventory turns, shrinkage. Professional services: client retention. Manufacturing: services: client retention. Manufacturing: throughput time, rejects/rework. throughput time, rejects/rework.

DifferentiationDifferentiation – If there is nothing different about – If there is nothing different about your business, people will only buy from you your business, people will only buy from you because of convenience or price, nothing more. because of convenience or price, nothing more. Competing on price (even in this economy) is a Competing on price (even in this economy) is a race to the market-price bottom and you race to the market-price bottom and you cannotcannot compete with Wal-Mart. EVERY business can be compete with Wal-Mart. EVERY business can be differentiated through unique services, features, differentiated through unique services, features, quality, branding, guarantees, etc. You quality, branding, guarantees, etc. You successfully differentiate only when you successfully differentiate only when you THOROUGHLY understand both your customers THOROUGHLY understand both your customers and competitors. and competitors.


Think creatively about new business Think creatively about new business strategies: strategies: Position your business through branding Position your business through branding

or features as the “high-end” option in or features as the “high-end” option in your market or position in a demographic: your market or position in a demographic: ethnic, age, gender, etc. “Total ethnic, age, gender, etc. “Total customization”?customization”?

Cirque du Soleil created a brand new Cirque du Soleil created a brand new market with no competition by combining market with no competition by combining the best features of related entertainment the best features of related entertainment industries: the circus and live theater. industries: the circus and live theater. What can you do in What can you do in youryour industry? industry?


Think creatively about new business strategies: Think creatively about new business strategies: ReallyReally understand your core strengths and understand your core strengths and

differentiations. You may have a skill or knowledge differentiations. You may have a skill or knowledge base or other business asset that you can turn into a base or other business asset that you can turn into a new service or product for current or potential new service or product for current or potential customers. Best Buy created the Geek Squadcustomers. Best Buy created the Geek Squad

The best growth ideas and the most successful new The best growth ideas and the most successful new adjacent business strategies come from customers. adjacent business strategies come from customers. Capitalize on micro-segments of your business for Capitalize on micro-segments of your business for development and growth (those small, off-shoot development and growth (those small, off-shoot lines of business) before competitors catch on.lines of business) before competitors catch on.

In-N-Out Burger: Make it simple but clearly better In-N-Out Burger: Make it simple but clearly better than any other competitor. 232 restaurants offering than any other competitor. 232 restaurants offering ONLY burgers, fries and beverages.ONLY burgers, fries and beverages.


BrandingBrandingandand

Guerrilla MarketingGuerrilla Marketing


# 3 – Have You “Branded” # 3 – Have You “Branded” Yet?Yet?

Branding is one of the best things you can do to improve your Branding is one of the best things you can do to improve your marketing message. Properly done, it helps to focus your marketing message. Properly done, it helps to focus your message and to multiply the positive affects of your various message and to multiply the positive affects of your various marketing methods. Because it is based around your target marketing methods. Because it is based around your target audience, differentiation, market positioning and your “value audience, differentiation, market positioning and your “value proposition” it helps create a feeling of trust, familiarity and proposition” it helps create a feeling of trust, familiarity and consistency with current and potential clients. When potential consistency with current and potential clients. When potential customers are looking to select a supplier/service provider and customers are looking to select a supplier/service provider and there are no facts to base the decision upon (except for your there are no facts to base the decision upon (except for your testimonials!) most people will go with the most “familiar” option. testimonials!) most people will go with the most “familiar” option.

Most buying decisions are based upon emotion rather than logic; a Most buying decisions are based upon emotion rather than logic; a “feeling” rather than a “fact”. Your business needs to make an “feeling” rather than a “fact”. Your business needs to make an emotional connection with your client or customer. Branding and emotional connection with your client or customer. Branding and a variety of marketing mediums help make that connection. a variety of marketing mediums help make that connection.

When you sell your business, your “Brand”, by itself, can have When you sell your business, your “Brand”, by itself, can have considerable cash value.considerable cash value.


Basic branding includes just a few elements:Basic branding includes just a few elements:

Market PositioningMarket Positioning – this will be the toughest part because it requires – this will be the toughest part because it requires identifying a target market, differentiation, etc. but it is at the heart identifying a target market, differentiation, etc. but it is at the heart of branding.of branding.

Business NameBusiness Name – picking a company name is NOT the time to be – picking a company name is NOT the time to be clever. Choose carefully one that reflects what your company does clever. Choose carefully one that reflects what your company does and stands for. If it is too late to change your company name, there and stands for. If it is too late to change your company name, there is still a great deal you can do to update the is still a great deal you can do to update the appearanceappearance of your of your company name with eye-catching, complimentary colors and graphic company name with eye-catching, complimentary colors and graphic fonts. You can also play with effective Internet URL/names different fonts. You can also play with effective Internet URL/names different from your company name. from your company name.

Logo/Photo/Drawing/ImageLogo/Photo/Drawing/Image – Customers today are engaged more by – Customers today are engaged more by the visual image than by the written word. Try to connect a design to the visual image than by the written word. Try to connect a design to your type of business and make it unique. your type of business and make it unique.

Slogan or Tag lineSlogan or Tag line – a unique, memorable statement that identifies – a unique, memorable statement that identifies the “heart” of the primary selling point of your business. SERVPRO the “heart” of the primary selling point of your business. SERVPRO (a disaster recovery company) has the best tag line ever: (a disaster recovery company) has the best tag line ever:

““Like It Never Even Happened”Like It Never Even Happened”


Your brand must be consistent and must go everywhere, on Your brand must be consistent and must go everywhere, on business cards, stationary, promotional items, clothing, business cards, stationary, promotional items, clothing, vehicles, etc. vehicles, etc.

If you are creative, you can try branding yourself. Or, for If you are creative, you can try branding yourself. Or, for surprisingly little money, you can have a professional create surprisingly little money, you can have a professional create your branding. Some printers will create a colorful logo for your branding. Some printers will create a colorful logo for free or a small fee. Approach one of the local business free or a small fee. Approach one of the local business schools and see if there is a marketing or graphic design schools and see if there is a marketing or graphic design class or student that would like to take your company on as class or student that would like to take your company on as a branding assignment. DIY your own logo at a branding assignment. DIY your own logo at www.logoyes.com . Better, contact a local ad/ marketing . Better, contact a local ad/ marketing agency to create for you. The fees can be very reasonable agency to create for you. The fees can be very reasonable considering the long term value! considering the long term value!

Be careful though, branding is a two-way street. A good Be careful though, branding is a two-way street. A good brand can take you places but a poor one will set you back! brand can take you places but a poor one will set you back! This is one of those situations where it is better to shell out This is one of those situations where it is better to shell out a little cash to have it done right.a little cash to have it done right.


Guerrilla MarketingGuerrilla Marketing You may have the best concept, service, or product ever, but if You may have the best concept, service, or product ever, but if nobody knows about it and you can’t sell it, nothing else matters! nobody knows about it and you can’t sell it, nothing else matters! Several studies have shown that companies that maintain or Several studies have shown that companies that maintain or increase marketing in economic downturns averaged higher sales increase marketing in economic downturns averaged higher sales and growth both during the downturn and after. The most and growth both during the downturn and after. The most important aspect of guerilla marketing is important aspect of guerilla marketing is measuring results and measuring results and testing different marketing methods.testing different marketing methods.

The place to start is to simply The place to start is to simply askask every lead or customer you get: every lead or customer you get: “How did you hear about us?”. Keep a check sheet next to your “How did you hear about us?”. Keep a check sheet next to your primary telephone and keep a day-by-day record, especially right primary telephone and keep a day-by-day record, especially right after a marketing campaign. Test different marketing methods. after a marketing campaign. Test different marketing methods. Direct marketing may work well in one geographic area but not in Direct marketing may work well in one geographic area but not in another, for example. Over a period of time, you will begin to see another, for example. Over a period of time, you will begin to see which of your marketing programs works best and which are a which of your marketing programs works best and which are a waste of money. waste of money.

Start a historical “Marketing” binder with document protectors to Start a historical “Marketing” binder with document protectors to maintain examples of ALL of your marketing methods and results. maintain examples of ALL of your marketing methods and results.


Do you know what it costs to “buy” each of your customers by Do you know what it costs to “buy” each of your customers by the type of marketing? Calculate your customer acquisition the type of marketing? Calculate your customer acquisition cost for cost for eacheach marketing method: marketing method:

$ marketing cost ÷ # of prospects = cost per lead$ marketing cost ÷ # of prospects = cost per leadConversion rate % of prospects into customersConversion rate % of prospects into customers

$2500 ÷ 80 prospects = cost per prospect of $32$2500 ÷ 80 prospects = cost per prospect of $32 = Customer = Customer Acquisition Cost Acquisition Cost

40% conversion (.40) $80.00 per 40% conversion (.40) $80.00 per customercustomer

Is the profit you make from each customer more than your Is the profit you make from each customer more than your acquisition cost? When you understand that marketing is acquisition cost? When you understand that marketing is about “buying” customers you get a better appreciation of about “buying” customers you get a better appreciation of why it is so important to create “customers for life”; once you why it is so important to create “customers for life”; once you have a customer you never have to spend money to buy them have a customer you never have to spend money to buy them again!again!

Customer Acquisition Customer Acquisition CostCost


Testimonials from satisfied customers Testimonials from satisfied customers ReferralsReferrals Press ReleasesPress Releases Free Offer – something that that costs you little Free Offer – something that that costs you little

such as information sent over the Internet or a such as information sent over the Internet or a workshop.workshop.

Direct Mail with Direct Mail with youryour customer address list. customer address list. Phone follow-up increases results by 300%. Phone follow-up increases results by 300%.

Internet web page. (grade the marketing Internet web page. (grade the marketing effectiveness of your website for free at effectiveness of your website for free at www.hubspot.com and get a free Internet and get a free Internet marketing kit whitepaper). Email marketing: marketing kit whitepaper). Email marketing: www.constantcontact.com (free trial period) (free trial period)

Cost Effective Marketing ToolsCost Effective Marketing Tools


Social media: Social media: www.linkedin.com, , www.facebook.com, blogs, bulletin boards. , blogs, bulletin boards.

Frame your marketing message in terms of Frame your marketing message in terms of how your service or product will satisfy a how your service or product will satisfy a customer’s needs; write it from customer’s needs; write it from theirtheir perspective.perspective.

Building and car signage, window displaysBuilding and car signage, window displays Stickers and tags Stickers and tags Strategic alliances (restaurant & bakery, banks Strategic alliances (restaurant & bakery, banks

& CPA & attorneys)& CPA & attorneys)

What counts is what works for your business but What counts is what works for your business but you won’t know unless you keep track!you won’t know unless you keep track!

Cost Effective Marketing ToolsCost Effective Marketing Tools


The The ProfitProfit

EquationEquation


# 4 – Understand the Profit # 4 – Understand the Profit

EquationEquation While products and services differ, some things are While products and services differ, some things are common to all businesses and these common common to all businesses and these common elements are the basis of the “Profit Equation”.elements are the basis of the “Profit Equation”.

# of Prospects# of Prospects – the number of potential – the number of potential clients/customers who you get from EACH source clients/customers who you get from EACH source of marketing. Do you calculate your “cost per of marketing. Do you calculate your “cost per prospect”? Divide the cost of your marketing by prospect”? Divide the cost of your marketing by the number of prospects created (for each the number of prospects created (for each different marketing method).different marketing method).

Conversion RateConversion Rate – the percentage of prospects – the percentage of prospects

that, through that, through sellingselling, you turn into paying , you turn into paying clients/customers. Calculate by dividing the clients/customers. Calculate by dividing the number of customers into the number of prospects number of customers into the number of prospects for each marketing campaign. for each marketing campaign.


# 4 – Understand the Profit # 4 – Understand the Profit

EquationEquation Number of Transactions with Each CustomerNumber of Transactions with Each Customer - This - This

is the is the averageaverage number of times an individual number of times an individual customer/client will buy or use you over a period of customer/client will buy or use you over a period of time (month, year). time (month, year).

Average Dollar SaleAverage Dollar Sale - This is total sales from all - This is total sales from all customers or a customer segment divided by the customers or a customer segment divided by the number of customers or customers in a segment.number of customers or customers in a segment.

MarginsMargins - This is the percentage of money in each - This is the percentage of money in each sale that is left over after you subtract all of your sale that is left over after you subtract all of your costs.costs.

Once you understand the parts to the equation, Once you understand the parts to the equation, you can start to manipulate and improve them. you can start to manipulate and improve them.


Profit Equation

Profit Elements Base +10% +25%

# Prospects 200 220 250

X x X x

Conversion Rate 20% 22% 25%

װ װ װ װ

# of Customers 40 48 62

X X X X

# of Transactions per customer 1 2 3

X X X X

Average Dollar Sale per customer $100 $110 $125

װ װ װ װ

Total Turnover (av $ value of a customer)

$4000 $10,560 $23,250

X X X X

Margin 25% 27.5% 30%

װ װ װ װ

Profit $1,000 $2,904 $6,975


Practical “Take-Away” Practical “Take-Away”

Tips and ToolsTips and Tools

to to

Improve Each of the Improve Each of the

Profit Equation Elements Profit Equation Elements

and Boost Your Profitsand Boost Your Profits


How to Increase the # of How to Increase the # of ProspectsProspects

A lot depends upon the type of business you’re in; A lot depends upon the type of business you’re in; B2C or B2B, industry, etc. Of course, you must B2C or B2B, industry, etc. Of course, you must target your marketing to where your primary target your marketing to where your primary customer base is looking. customer base is looking.

Guerilla Marketing – keep track of your marketing Guerilla Marketing – keep track of your marketing results and use the methods that work.results and use the methods that work.

Past Customers – call, email or send them a Past Customers – call, email or send them a personal letter. Notify about a sale or personal letter. Notify about a sale or complimentary products.complimentary products.

Yellow Pages – 35% of people look here when they Yellow Pages – 35% of people look here when they are ready to buy. $$$are ready to buy. $$$

Internet – people use this to research your Internet – people use this to research your product/service. This is a “Pass/Fail” test, make product/service. This is a “Pass/Fail” test, make sure it looks professional!sure it looks professional!


How to Increase the # of How to Increase the # of ProspectsProspects

LocalLocal newspaper – use the proper section, right newspaper – use the proper section, right hand page, repetition!hand page, repetition!

Use partners and affiliates with related Use partners and affiliates with related businesses.businesses.

Word-of-Mouth – offer an unusual/remarkable Word-of-Mouth – offer an unusual/remarkable service; “freebies” to the social leaders in your service; “freebies” to the social leaders in your target markets. target markets.

Radio – use the right station and negotiate rates. Radio – use the right station and negotiate rates. Best in combination with other media. Repetition! Best in combination with other media. Repetition!

Networking – people buy from people they know Networking – people buy from people they know and trust.and trust.

Seminars – free information and position yourself Seminars – free information and position yourself as an “expert”.as an “expert”.


How to Convert Prospects into How to Convert Prospects into

CustomersCustomers Written Guarantee – determine what customers are Written Guarantee – determine what customers are

most afraid of and guarantee that won’t happen. $ most afraid of and guarantee that won’t happen. $ back vs satisfaction.back vs satisfaction.

Testimonials – display them prominently on your Testimonials – display them prominently on your website and in advertising.website and in advertising.

Be Persistent – many sales don’t take place until after Be Persistent – many sales don’t take place until after the third or fourth contact. Get their contact the third or fourth contact. Get their contact information. Ask for referrals. information. Ask for referrals.

Use Sales Scripts. For example, don’t ask for a sale with Use Sales Scripts. For example, don’t ask for a sale with a question that can be answered with a “No” answer. a question that can be answered with a “No” answer. Assume they want to buy and ask a detail question: Assume they want to buy and ask a detail question: “What day would you like to start?” or “Would you like “What day would you like to start?” or “Would you like me to bill you or do you want to use a credit card?”me to bill you or do you want to use a credit card?”

Build Trust & Rapport – “How can I help solve your Build Trust & Rapport – “How can I help solve your problem?” rather than selling them something. Find out problem?” rather than selling them something. Find out what they need and address how you can fill that need. what they need and address how you can fill that need.


How to Convert Prospects into How to Convert Prospects into

CustomersCustomers Educate on value, not price – people want a Educate on value, not price – people want a

good dealgood deal, not necessarily the lowest price. , not necessarily the lowest price. Demonstrations. They make $ for COSTCO. Demonstrations. They make $ for COSTCO. Throw in an inexpensive, “value-added”, Throw in an inexpensive, “value-added”,

offeroffer Buy One Get One (BOGO) freeBuy One Get One (BOGO) free Display/promote your professional Display/promote your professional

certifications and awardscertifications and awards Appeal to convenience: home delivery, Appeal to convenience: home delivery,

several payment options/financing.several payment options/financing. Urgency – give them a deadline to buy Urgency – give them a deadline to buy

before supplies run out or a sale ends.before supplies run out or a sale ends. Accept trade-insAccept trade-ins


How to Increase the Number of How to Increase the Number of Transactions per CustomerTransactions per Customer

Create and maintain a customer database: name, Create and maintain a customer database: name, contact information including e-mail, address/ZIP contact information including e-mail, address/ZIP code, sales history, day/month of birth, etc.code, sales history, day/month of birth, etc.

Underpromise & Overdeliver – promise to deliver Underpromise & Overdeliver – promise to deliver on Friday and get it there on Thursday. Be on Friday and get it there on Thursday. Be consistent and reliable.consistent and reliable.

Contact customers quarterly with information Contact customers quarterly with information about product or services, B-Day card, special about product or services, B-Day card, special offers, newsletter, reminder of next service, press offers, newsletter, reminder of next service, press articles/reviews, etc. Calendarize or use a articles/reviews, etc. Calendarize or use a contact management system.contact management system.

Offer a service contract which requires more Offer a service contract which requires more products or services.products or services.


How to Increase the Number of How to Increase the Number of Transactions per CustomerTransactions per Customer

Offer first time buyer incentive – low cost Offer first time buyer incentive – low cost but high perceived value and limited time. but high perceived value and limited time.

Ask them to come back before they leave: Ask them to come back before they leave: “May I make your next appointment?”“May I make your next appointment?”

Frequent Buyer or VIP programFrequent Buyer or VIP program Offer on Next Purchase – 10% off next Offer on Next Purchase – 10% off next

purchase.purchase. Customer Satisfaction Check – call Customer Satisfaction Check – call

customers to gauge their satisfaction. customers to gauge their satisfaction. Reminds them about you and you can ask Reminds them about you and you can ask them if they need something more. them if they need something more.


How to Increase the Average Dollar How to Increase the Average Dollar

SaleSale Up Sell – create different levels of product or service Up Sell – create different levels of product or service

and sell up. and sell up. Add-On Sales – “Do you want fries with that?” Add-On Sales – “Do you want fries with that?” Sell a service agreement/contract, warranty, insurance.Sell a service agreement/contract, warranty, insurance. Offer payment terms or financing in exchange for Offer payment terms or financing in exchange for

larger orders.larger orders. Create Package deals by linking complimentary Create Package deals by linking complimentary

products and services.products and services. Bulk Buy Deals – reduced price for a higher minimum Bulk Buy Deals – reduced price for a higher minimum

purchase. purchase. Train your sales team and use sales scriptsTrain your sales team and use sales scripts ““Four-for-the-Price-of-Three” offersFour-for-the-Price-of-Three” offers Shopping List – give them a list of things they will also Shopping List – give them a list of things they will also

need if they buy something. “If you buy X, you will need if they buy something. “If you buy X, you will also need Y and Z.”also need Y and Z.”


How to Improve MarginsHow to Improve Margins Calculate margins for ALL your products/services and Calculate margins for ALL your products/services and

stop wasting time on those with low margins.stop wasting time on those with low margins. Stop Discounting – after awhile, customers EXPECT a Stop Discounting – after awhile, customers EXPECT a

discount and it loses its affect. Reinforce features discount and it loses its affect. Reinforce features and benefits.and benefits.

Increase Prices – check your competition. Most Increase Prices – check your competition. Most customers won’t notice 10%. Offer a little extra customers won’t notice 10%. Offer a little extra service. Increase the price only on selected service. Increase the price only on selected products/services.products/services.

““Grade” your customers – 80% of your profits come Grade” your customers – 80% of your profits come from 20% of customers. Take better care of your best from 20% of customers. Take better care of your best and fire those with low-margin/high maintenance.and fire those with low-margin/high maintenance.

Reduce costs and improve productivityReduce costs and improve productivity


How to Improve MarginsHow to Improve Margins Private Label – create a “brand” with special Private Label – create a “brand” with special

features that you can sell at a higher price. Buy in features that you can sell at a higher price. Buy in bulk and repackage in smaller quantities for bulk and repackage in smaller quantities for convenience but at a higher margin. Repackage convenience but at a higher margin. Repackage with a complimentary item for convenience or with a complimentary item for convenience or utility at a higher margin. utility at a higher margin.

Sell over the Internet – no salaries or benefits.Sell over the Internet – no salaries or benefits. Take stock on consignmentTake stock on consignment ““Just-in-Time” restocking – buy in bulk and pay/get Just-in-Time” restocking – buy in bulk and pay/get

deliveries only when you need the stock. deliveries only when you need the stock. Pay by credit card – pick one with long, interest-free Pay by credit card – pick one with long, interest-free

pay period and points. There is an internet site pay period and points. There is an internet site that compares business card rates and features.that compares business card rates and features.


Create Create LifetimeLifetime

CustomersCustomers


# 5 – Create “Lifetime # 5 – Create “Lifetime Customers”Customers”

It is five to six times more expensive to attract new It is five to six times more expensive to attract new customers than it is to retain existing ones. customers than it is to retain existing ones.

The profitability of a five year customer/client is The profitability of a five year customer/client is more than three times that of a first year customer. more than three times that of a first year customer.

A very satisfied customer will tell five others about A very satisfied customer will tell five others about you. you.

The quickest and least expensive way to increase The quickest and least expensive way to increase sales is to sell more to current clients or customers. sales is to sell more to current clients or customers.

When you sell your business, your long-term When you sell your business, your long-term customer list will be one of your most valuable customer list will be one of your most valuable cash assets.cash assets.


How to Create “Lifetime How to Create “Lifetime Customers”Customers”

Create and Maintain a Detailed Create and Maintain a Detailed Customer/Client DatabaseCustomer/Client Database – This is one of the – This is one of the least expensive and most productive things least expensive and most productive things you can do to improve long term business you can do to improve long term business success. You cannot create lifetime customers success. You cannot create lifetime customers unless you know who your customers are. unless you know who your customers are.

Offer a GuaranteeOffer a Guarantee – publicize it in all – publicize it in all marketing. marketing.

Quality Work/Service/ProductsQuality Work/Service/Products - if the quality - if the quality of your basic product or service is poor, no of your basic product or service is poor, no amount of “spin” or price differentiation will amount of “spin” or price differentiation will compensate. compensate.


How to Create “Lifetime How to Create “Lifetime Customers”Customers”

Frequent AttentionFrequent Attention – You need to “touch” your – You need to “touch” your best customers at least quarterly either through best customers at least quarterly either through phone calls, direct mail, e-mail, etc. with phone calls, direct mail, e-mail, etc. with information, special offers, coupons, loyalty information, special offers, coupons, loyalty programs, to ask for feedback, etc. programs, to ask for feedback, etc.

Value AddedValue Added - There are many low-cost (to you) - There are many low-cost (to you) but value-added services for customers that you but value-added services for customers that you can consider. CONVENIENCE is a very important can consider. CONVENIENCE is a very important feature to customers today. It will not be the BIG feature to customers today. It will not be the BIG things that customers remember (like quality things that customers remember (like quality work or good service) because they EXPECT that work or good service) because they EXPECT that as a minimum; it will be little unexpected things as a minimum; it will be little unexpected things that you do that they will remember. And these that you do that they will remember. And these thoughtful things can be low or no cost. thoughtful things can be low or no cost.

Loyalty ProgramsLoyalty Programs


Lifetime Customer Lifetime Customer Problem Recovery ProgramProblem Recovery Program

In addition to In addition to retainingretaining your most valuable customers, you need to your most valuable customers, you need to religiously avoid creating religiously avoid creating dissatisfieddissatisfied customers. customers.

Only 1/3 of unhappy customers will ever complain. Only 1/3 of unhappy customers will ever complain. A very unhappy customer will tell 11 others about their problem A very unhappy customer will tell 11 others about their problem

with you.with you. The net profitability of a lifetime customer is worth several times The net profitability of a lifetime customer is worth several times

the dollar cost of resolving their complaint. the dollar cost of resolving their complaint.

Why Customers LeaveWhy Customers Leave 9% leave because they are enticed away by a competitor.9% leave because they are enticed away by a competitor. 9% move away.9% move away. 14% leave because their complaints are not answered.14% leave because their complaints are not answered. 68% never return because they are treated with INDIFFERENCE: 68% never return because they are treated with INDIFFERENCE:

They have to wait too long to be servicedThey have to wait too long to be serviced They have to return repeatedly with the same problemThey have to return repeatedly with the same problem


How to Prevent Customer IndifferenceHow to Prevent Customer Indifference

Make a great “first impression” (curb appeal, Make a great “first impression” (curb appeal, employee appeal, initial greeting when they walk employee appeal, initial greeting when they walk in, when answering the phone or on the answering in, when answering the phone or on the answering machine). machine).

Acknowledge customers immediately and service Acknowledge customers immediately and service them promptly.them promptly.

Always Always fulfill special requests from customers when fulfill special requests from customers when they ask.they ask.

Go “above and beyond” what the customer would Go “above and beyond” what the customer would normally expect. Underpromise and overdeliver.normally expect. Underpromise and overdeliver.

Listen and respond to customer ideas. Listen and respond to customer ideas. Offer a “100% Offer a “100% SatisfactionSatisfaction Guarantee”. Guarantee”.


The Three Best Practices for a The Three Best Practices for a Problem Recovery ProgramProblem Recovery Program

QuickQuick - Take care of unsatisfied customers - Take care of unsatisfied customers BEFORE the end of the transaction. Make sure BEFORE the end of the transaction. Make sure that you ask exiting customers if they were that you ask exiting customers if they were satisfied with the service. Look for negative satisfied with the service. Look for negative attitudes, facial expressions, body language as attitudes, facial expressions, body language as well as what they SAY. Where you sense well as what they SAY. Where you sense dissatisfaction, apologize and try to resolve the dissatisfaction, apologize and try to resolve the problem on the spot. The more quickly you problem on the spot. The more quickly you resolve the issue, the less someone will expect resolve the issue, the less someone will expect the value of the fix to be. The longer that the value of the fix to be. The longer that someone has to wait or the more effort they have someone has to wait or the more effort they have to invest to have their problem resolved, the to invest to have their problem resolved, the greater the value of fix they will expect. greater the value of fix they will expect.


The Three Best Practices for a The Three Best Practices for a Problem Recovery ProgramProblem Recovery Program

PersonalPersonal - Telephone or send a post card or e-mail - Telephone or send a post card or e-mail to your customers within a week of the transaction to your customers within a week of the transaction to gage their satisfaction. Where you discover a to gage their satisfaction. Where you discover a problem, call them or send them a personalized, problem, call them or send them a personalized, hand written, quality card (not a form letter) with hand written, quality card (not a form letter) with an apology along with a small gift. an apology along with a small gift.

CustomizedCustomized - customize the resolution to the - customize the resolution to the problem based upon the customer and the issue. problem based upon the customer and the issue. The more you know about your customer/client and The more you know about your customer/client and what they like and need, the more customized (and what they like and need, the more customized (and effective) your resolution can be. effective) your resolution can be.


EmployeeEmployee

EngagementEngagement


# 6 – Employee # 6 – Employee EngagementEngagement

Nobody ever washes a rented car. Involvement Nobody ever washes a rented car. Involvement and the feeling of ownership are the quickest and and the feeling of ownership are the quickest and least expensive methods to increase profits least expensive methods to increase profits through improved productivity and cost savings. through improved productivity and cost savings. Employees admit to working at only about 70% of Employees admit to working at only about 70% of capacity. When money is the only reason you capacity. When money is the only reason you give people to come to work, don’t be surprised give people to come to work, don’t be surprised when they are always asking for a raise or work when they are always asking for a raise or work half as hard to achieve “balance”? Engaging half as hard to achieve “balance”? Engaging hearts and minds costs virtually nothing because hearts and minds costs virtually nothing because it involves mostly just increased communication it involves mostly just increased communication and employee time. and employee time.


Teach them about your business model, Teach them about your business model, about the key success factors of your about the key success factors of your business and about profit/loss as it applies to business and about profit/loss as it applies to your business.your business.

Ask them for ways to help save money.Ask them for ways to help save money. Create measurements (metrics) for every Create measurements (metrics) for every

important process and performance indicator important process and performance indicator and communicate these to all employees. and communicate these to all employees. People pay attention to what they get People pay attention to what they get measured on. Simply measured on. Simply measuringmeasuring performance will improve it. performance will improve it.

Involve employees in your customer and Involve employees in your customer and competitor profiling, “mystery shopping”. competitor profiling, “mystery shopping”. Engage non-sales employees one-on-one Engage non-sales employees one-on-one with customers.with customers.

Ask employees for their opinions and ideas.Ask employees for their opinions and ideas.


Get Get Outside Outside

HelpHelp


# 7 - Get Outside Help# 7 - Get Outside Help One networking guru states that in order to get the most out One networking guru states that in order to get the most out

of networking you should join three organizations:of networking you should join three organizations: Your local Chamber of Commerce. GRCC (Greater Richmond Your local Chamber of Commerce. GRCC (Greater Richmond

Chamber of Commerce is large and active and has a good Chamber of Commerce is large and active and has a good business library).business library).

A local major business/social organization such as Rotary or A local major business/social organization such as Rotary or KiwanisKiwanis

A networking group such as BNI or PRO (Professionals Referral A networking group such as BNI or PRO (Professionals Referral Org.)Org.)

Another valuable resource: a local peer advisory group such Another valuable resource: a local peer advisory group such as the Virginia Council of CEO’s, if you are eligible. as the Virginia Council of CEO’s, if you are eligible.

Subscribe to free Internet newsletters on marketing, Subscribe to free Internet newsletters on marketing, technology, purchasing, strategy, etc. technology, purchasing, strategy, etc.

Join your industry association and participate actively.Join your industry association and participate actively. Consider engaging a business coach or consultant. They can Consider engaging a business coach or consultant. They can

be a true investment. A business coach functions like a be a true investment. A business coach functions like a physical trainer taking you out of your comfort zone to physical trainer taking you out of your comfort zone to improve your performance. improve your performance.


Every business can be improved cost-effectively. Like tuning up your car, a few simple changes can dramatically improve your

bottom line performance.

If you would like more details about the information contained in this presentation or a free “tune-up” consultation call us:

Mike McDermott804-248-1837

[email protected]

Small Business Profits Tune-Up

Business

Transcript of Small Business Profits Tune-Up