In my last article, we looked at the five key problems in Canterbury businesses in the current economy, as identified by MYOB in their latest business survey results.

I am listing these for you, along with some strategies to help you conquer these big problems. I hope you find it useful.

'Competitive Pressures' and 'Customer Acquisition' ranked as the number 1 and 2 key problems. We looked at those last time. Here is number 3:

# 3 - Price Margins and Profitability
Although this has been ranked as third, in my book this would be first. Many, many, many businesses I come across just don't look at this closely enough. I always make sure my clients understand their profits and margins including what they need to make profit... because without profit you will eventually go broke. Every business owner must know their numbers to stay in business - it is just that important.

I often see companies increase their sales, but reduce their margins to get the work. Or even worse, they loose sales and then drop margins to compete - very very dangerous if you don't know the numbers.

Make sure you know the margins on all products and services you have. Also you need to see every month if you are making a profit or loss. If you don't have monthly figures, the good news is that they won't be to hard to get. Whoever does your GST returns will have them. This will be your accountant, bookkeeping service or staff member. Ask them to show you, and go through it to find out your sales, margins, and profits. When you know sales, margins, and profits, you can look at what you need to do to improve them.

Pricing is a good place to start; even an increase of just 5-10% will have a big impact on profits - and most of your customers won't even notice.

If you are still unsure on this one, give me, or your accountant, a call.

Another problem you may be facing is:

# 4 - Customer Retention
Keeping your customers coming back time after time is really the backbone of almost every business. It is important to understand that generally, by the time you pay for costs of getting a new customer (in advertising, discounts and so on), you do not start making money from them until they become a regular customer. If you have gone to all the trouble of getting them, it is worth spending some time thinking about how to keep them. Often business owners are so busy chasing after the new customers, they forget about the old ones. Madness!

There are literally hundreds of strategies for keeping customers coming back, but there are two principles that can be applied every time:

First, give them a reason to come back. Try a loyalty card or offer them a discount off their next order.

Second, keep in touch with your precious new customer through Facebook, newsletters, regular specials, offering them different/new products, a thank you card, etc.

Remember that friend that you were so close to a few years ago; you didn't keep in touch and now they have drifted away? Well, customers are the same. There are plenty of competitors that want your customers and they are spending thousands of dollars in ads and special offers to get them. Don't let them steal your customers! Keep in touch and make sure your customers know you value their business.

And rounding out the list of top five problems businesses in Christchurch and Canterbury have in the current economy - SURPRISE! it's:

# 5 - Cashflow
No money in the bank and lots of creditors to pay = stress, stress, stress. This one can be a real killer. Enough pressure from cashflow and it takes all the fun out of business.

Cashflow problems will be caused by one or a combination of the following:

• Poor margins
• Poor profitability
• Too much stock
• Not invoicing on time
• Not collecting money when due
• Rapid growth (don't underestimate this one - this will kill you if you don't see it coming)
• Under capitalised
• Buying new equipment or assets and trying to fund it from existing cashflow

(Re-visit my June newsletter for more on this; email me for a copy if you have lost it)

Bottom line is - to fix your cashflow problems you need to understand which area or areas are at fault.

Start setting up KPI (Key Performance Indicators) in whatever area you need to improve.

Just like in sports - all the best teams measure everything they can that will help them win the game. In rugby the Crusaders measure metres gained, number of tackles, number of missed tackles, number of penalties etc. They decide which key numbers will make the most difference to their game and then work on improving them.

In business it should be exactly the same. For example in Accounts Receivable start measuring how many of your customers are overdue, their dollar value and the percentages. Decide what is acceptable and start working on getting that number or better. This will put you back on track. But don't stop there - make sure you watch this figure closely every week and month. Compare each month to see if you are getting better or worse.

So - those are the top five problems in Canterbury businesses right now and some ways to deal with them.

The big question for you now is - what you are going to do next? Do you say, that was great information and carry on as you were. Or do you pick at least one thing and take action? Only then will it help your business and increase your profits.

Last month I attended a business advisers meeting and MYOB presented their latest business survey results. In this they highlighted the top five key problems Christchurch and Canterbury businesses are facing in the current economy. 

As most of my clients are in Canterbury, I thought it would be useful to list each problem and give you some strategies for how to go about fixing them.

I have listed the problems in the same order as the survey results. This may not necessarily be the same order for your business, but I know that at least one of these is most likely one of your biggest challenges. The first is...

# 1 - Competitive Pressures
The pressures you are facing from other competitors in your market place. If you are in retail for example, a real competitive pressure is most likely the internet and the growing level of purchases online of similar or even the same products as what you are selling.

Every business needs to at least be aware of what these competitive pressures are for them, and how they are affecting business. I am not saying that you should spend all your time worrying about this, but it is important to pay attention.

A great place to start is by asking yourself these questions:

• How are you rating compared to your competition and how are they affecting your business?
  
• How are your competition getting customers?
  
• What am I better at than my competition?

The last question is the most important one, for if you know what you are really good at, and play to your strengths, you will win the game here. Let me illustrate:

I stand a towering 5 foot 3, so I don't often get called a giant (except maybe by my kids). I used to play rugby in North Canterbury and would always be playing against much bigger and physically stronger players than myself. But I also had strengths - I was a little quicker than the others, I had a lower centre of gravity, and I was fitter, all of which meant I could still compete. For example when tackling players who were on average 1.5 to 2 times my own body weight, by going low around their legs, they could not fend me off, so my success rate in this part of the game was very good. However if I tried going high they would push me off and I would be the one kissing the dirt.

Nice story I hear you say, but how does that relate to me. Well, start by asking what your strengths are - it could be that your business has the best products, superior service, location, best staff, largest product range...

Now start promoting these to your customers, leads and prospects, and you are now standing out from the others. Do this well, and customers who value these strengths you offer will start flocking to your business. Play to your strengths, and make sure your customers know what you are really good at.

Going back to our retail shop, advantages they have over their online competitor could be better back up service, knowledge, expertise, less "risky" to deal with etc. That personal service still has value, and you can guide your customer in making the best choice product for them. Online in most cases cannnot provide this kind of one on one service. 

Let's look at the next big problem that many businesses face.
 
# 2 - Customer Acquisition
Getting (acquiring) new customers. Every business needs a good healthy stream of new customers. You will always be losing some customers no matter how good you are. Sometimes they shift to another town, they are earthquake affected (we all fully appreciate this one), they no longer need your product or service, they are at a different stage of life, or...  It is important to have a good robust short and long term marketing plan. Why short and long term? Because you need to be attracting the type of customers that give you a long term future for the business not just a short term boost without repeat sales.

The 50% off ad in the local paper, or Grab One? Sure it will give you a boost for a week - with one-time customers that take the deal and disappear off looking for the next bargain never to be seen again. This is great to help you be busy, but it won't necessarily create you a business. Better to first work out who your best type of customers are, and target them specifically. Grab One or 50% off may still fit, but you are now seeing the bigger picture.

A client of mine is a stock feed supplier. We discovered that a very profitable customer for him was farmers with lots of working dogs. They regularly buy biscuits and other products from him every month without fail. They were easily to find and they were regular steady income. They also had good profits and margins.

So work out the ideal customer groups for your business, and then work on attracting them. Remember we can't be all things to all people, but we can become very good, almost unbeatable, at servicing a certain type of customer.
 
So we have looked at the first two of five key problems in Canterbury businesses. Look out for the next exciting article and we'll look at the remaining three problems.
 
In the meantime, think about what edge you have over your competition. And how to attract new long term customers.

The problems you are facing in your business will always be the result of something else causing it further upstream. Let's take a look at a familiar picture I come across often.

It was a bright summer's day in January and our friend Bob the builder made a new year's resolution to start his own business. He worked for XYZ Builders but knew if he worked for himself, he would get more money and be able to work when he wanted to - he could be his own boss. Bob knew how to build and was damn good at it, he could put up a house quicker than most, his work was top notch and customers were very happy.

A few months later Bob took the plunge and went out on his own. To get started he undercut other competitors in the market. There wasn't much profit in it, but it was work, and it felt good to be busy and on the tools. A couple of years went by and he had grown from a one man operation to a team of eight, but the market was tight so he found that to get jobs he often had to reduce the price to be competitive.

The days were long, so by the time Bob got home he was too tired to do the paperwork, like invoicing, paying the accounts, checking the bank accounts, etc. He just didn't enjoy this part of the job, so it was often left to the last minute or sometimes was just not done at all.

Although cash was a little tight and some bills were a couple of months behind, he had plenty of jobs and lots of money to collect - things would work themselves out - nothing to worry about, or so he thought.

Things were lean for a few months, but the newspapers were saying the economy would pick up soon, so he just had to hang in there a bit longer. Suppliers were getting a bit tougher with overdue amounts and told Bob he had to pay them up to date before he could get more supplies. He decided to chase a few outstanding invoices himself, to discover that some of his customers had gone belly up, resulting in $189,000 in bad debts - money he was never going to see again.

To make matters worse, his accountant showed him that although he had plenty of sales, there were a few jobs he had lost money on and that he was looking at a loss for the year of $259,000 (that's without the bad debts he was scared to tell his accountant about). Now he was running out of money fast and needed a loan from the bank just to keep going. The bank said NO, as he had no security left. Bob's dream was starting to crumble in a pile of debt.

Bob was a great tradesman, but not so great at business. Let's look upstream and see some of the areas that first started to go wrong.

• Bob had not learned how to get better prices for his work. He did a better job than his competitors, but was not getting paid what he needed or what he was worth.
   
• Bob didn't know how to attract better customers who would pay top dollar and also pay him on time.
   
• Bob didn't know when he was making money or losing it. So each month he was not sure if he was ahead or behind. A dangerous place to be.
   
• Bod didn't understand margins or know if they were high enough. He was competing on price without knowing what he needed to charge to make a good profit. If your margins are too low, it is almost impossible to make money.
   
• Bob wasn't invoicing on time, so the money wasn't coming in on time either. (I have seen some businesses not bill jobs for 12 months - a crime against business.)
   
• No one was checking to make sure customers were paying on time and chasing them up. (You did the work, so you are entitled to get paid).
   
• Bob was not paying his suppliers on time. (Important because, as Bob found out, without the materials, you can't complete the job.)
   
• Bob probably didn't keep in contact with his bank manager, so the bank assumed the worst.

A few adjustments upstream can make all the difference.

A customer database is the most valuable part of your business, and here is why:

A database is simply a list with contact details of the customers and prospects you have dealt with over the lifetime of your business. Most companies have one in some form or other, but very few use it. They are so busy looking for new customers they have forgotten about the customers they already have.

So why is a customer database so valuable? Lets imagine that you started a business from scratch, no customers, not a single one. So you start an expensive advertising campaign to get new customers. While you build sales, every month you lose money on overheads and expenses while you work hard to win customers one at a time.

It is not unusual (without clever sales and marketing strategies), for a start-up business to take at least 12-18 months to consistently have enough customers buying your goods or services to break even (where income coming into the business will cover all purchases and expenses).

So as you can see, customers are your business – without them you just have a black hole where your money disappears never to be found again. In simplistic terms your existing customers could also be called the "goodwill" of the business.
 
When you have a customer database, what can you do with it?

Ah here is where the magic starts. Most companies spend a lot of money looking for new customers through expensive advertising and marketing. In a previous article I mentioned that an existing customer is 5-6 times more likely to buy from an offer you make than someone you approach who does not already know your business. The more often you are in contact with your customers the more times they are likely to buy from you. So lets look at some of the things you can do to get those old customers coming back, or your current customers coming back more often.

·      Letting your customers know about new products you have that would interest them.
·      Keeping them up to date on developments in your industry.
·      Information on how to use your products better and in new ways.
·      Specials and promotions you are running.
·      Invitation to come back to your business with a special offer.

Note: Keep in mind that what you send needs to be relevant and of interest to your customer.

Simply by contacting your customers more regularly – you will do more business!!

Assembling your database:

As mentioned earlier a database is simply a list of customers and their contact details. This can be in a number of different forms:

·       Customers in your accounts software
·       A full CRM system

Or you might only have:

·      Invoices with customer details on them
·      Pile of business cards
·      Customer details on competition forms
·      Also quotes given to potential customers

To be useable your list needs to be on computer and with enough information to be able to contact your customer directly. This could be by post, fax, email, text or a phone call. Email is obviously the most cost effective as there is little to no cost.

If you don't currently have a database or it’s not on computer, no problem, just start collecting customer details. A very easy way start or increase your database is to run an in-store competition and ask customers to complete a simple form to be in to win. This can be entered onto an Excel Spreadsheet and BAM YOU HAVE YOUR DATABASE. If you do not have the time or are not a computer person, pay a good typist or secretarial service to enter your customer details. It won’t cost much and will pay you handsomely in extra sales in a very short time!!
 
I find most companies are in one of three situations:

1.    Don’t have any customer database –

Action: Don’t waste another week, start collecting customer details now!

2.    Have a database, but not using it -

Action: Start putting together something to send your database with your latest promotions and see what happens!

3.    Regularly sending customers something, but not really getting the full benefits in sales -

Action: Start putting yourself in your customers shoes and give them content that will be relevant to their needs and situation, or some “killer offers” which they can’t resist!

Often businesses are looking that “one big thing” that will turn their business around or take it to the next level.  But it is those small increases repeated consistently every day that will make the biggest difference.

Let’s have a look at how the small numbers can add up.

I have listed below nine key parts to your sales process:  

Let’s set the objective of improving each of these by a very small increase of just 5% and see what happens:

1)       + 5% increase in leads   

A lead = identifying and approaching a person or business that has an interest in your product or service and the authority to purchase it. 

There are literally tons of ways to get 5% more leads and sales appointments, including advertising, signage, directly targeting a specific group with letters or emails, website, cold calling, etc. Just improving existing strategies or adding new sources will quickly improve your numbers.

2)       + 5% increase in conversions

Improve your conversion of inquiries to sales. The best way to do this is to improve the abilities of you and your sales staff. This could mean completing sales courses, gaining a better understanding of the features and benefits of your products/services, and better understanding your best customers and why they use you (ask them - you will be surprised what some of them say).

Becoming armed with more skills and a better understanding of your customers will definitely increase your conversions by at least 5%.

3)       + 5%  increase in average dollar sale                        
            
Obviously, if you can sell more on average to each customer, sales increase automatically. It may be as simple as offering them something extra. Make sure you always bring out the dessert menu!

You can do much in this area to bump up your sales - including increasing prices, up selling, and cross selling, just to name a few.

4)       + 5% increase in customer visits

Getting customers to buy more often is a very easy way to increase business. Of course it depends on what you are selling as to how many more times you can get your customer to buy.

If on average a customer buys from you 4 times per year – think of ways to get that average up to 4.2 times per year.

Even if you are selling big ticket items, think long term. If you are selling houses, remember that on average a home owner will buy 5-6 in their lifetime. Stay in touch, and your customer will think of you next time they want to buy.

5)       + 5% increase in products and services sold        

Options to get your 5% increase here are endless and include selling more items, larger quantities, adding other products or services to your range, targeting products not previously brought by that customer, and many others.

6)       + 5% increase in client retention

Client retention is about keeping your customers for longer. It does not matter what business you are in, there are plenty of competition doing everything they can to take your customers. In some cases they will be successful. 

To stop customer attrition, you might consider putting in place a loyalty program for your business. “Buy 10 coffees, get the 11th free” may seem dull but it works. Yet very few businesses actually do use this simple way to keep customers coming back.

7)       + 5% increase in follow up

Follow up old quotes and customers on your database that didn’t buy. Engage their interest - get your prospect to look further into your product or service. Think of innovative ways to stay in touch with them such as sending further information, free samples, newsletters, or a phone call to talk with your prospect about their needs.

Remember not everyone is ready to buy now, some will just be researching or it is not quite the right time. Some will buy later on – so make sure they buy from you by continuing to remind them that you are the best choice.

8)       + 5% increase in referrals            

Most businesses rely on word of mouth as a way to attain a portion of new customers. However word of mouth is quite unreliable and hard to predict as the circumstances often need to be just right for a referral to result. 

You can get more referrals by actively encouraging your customers to give referrals with the right system and incentives.

9)       + 5% increase in reactivation of previous customers

Every company has a list of customers who previously brought but for whatever reason are no longer buying from you. Re-approaching these old customers can be a goldmine for new business.

So we have covered nine areas of your sales process and looked at simple ways of optimising each area by 5%.

So let’s have a look at the numbers:

Sales                                                   $1,000,000

9 improvements x 5% each          45%                       

Increase in sales                             $450,000

Total sales $1,450,000 – a whopping 45% more sales.

So you see, small numbers can make a big difference to your sales. With a little focus and consistency in each of these areas you can make a massive difference to your sales and profits.

Time is limited and it is important to do each one well to get the best results. Pick one strategy per month to work on. In nine months you will have a minimum of 45% more sales than you had before. Not bad for a few small changes.

By the way, you will find that at least one of these strategies will give a lot more than 5% increase. It is quite possible that one of these could give you 30%, 40% or even 50% increase. So go for it now and get your business flying.

One more thing, to get the real benefit from these strategies it is important to make each one into a system that everyone follows. Make sure you clue your staff in and make it a team effort!

This process is simple – but most do not follow through. A year later they are no further ahead. Don’t be one of those - start now and take some action – there is no better time than now.

Always remember, business is a lot like fishing. The more lines you have in the water, the more fish you are going to catch.

Suppose you have ten fishing lines in ten different locations – chances are you will catch more fish. All the bases are covered. And of course when you find where the best fish are biting, you will make sure you put most of your efforts there.

So how many fishing lines do you have right now for your business?... website, advertising, referrals, customer loyalty program, signage, effective quote conversion, in store promotions, social media...

When marketing your business, you should have a minimum of ten different marketing strategies for increasing customers and sales in your business. Also make sure you check those lines for bites, and record where the fish are being caught. The biggest mistake many businesses make is that they don’t measure the results!

That promotion from six months ago - can you remember how successful it was; would you use it again? The only way you can decide that is by looking at the results. (If you are unsure how to measure this, email me for a free form and instructions.) -

How many customers came from it?

What was the cost of the promotion?

How much profit did you make?

All very important questions.

Here are a few ideas to get you started:

·         Advertising

Done well this should produce a steady stream of customers to your business – however make sure you are getting back more than you are spending. If not, then you need to change your approach until you do.

·         Centres of Influence

There will be key people or companies you are associated with that could be a great source of business and referrals for you. This could be a key customer who is already giving you referrals or even a supplier. Talk to them about how you could systemise referring each other customers.

·         Joint Ventures

This is a company who has similar customers to you but does not directly compete with you. A hair salon and a cafe both have customers who would use both services, so you would make an arrangement where you refer business to each other with existing customers. Done well this is a very cost effective way of getting a lot of customers quickly to your business.

·         Networking

Attend networking events in your local area such as events held by your local Chamber of Commerce, BNZ who hold regular networking events every month for anyone in business, BNI, or trade shows. These will all have businesses that could be potential buyers for your products and services.

·         Add-On Sales

There are always opportunities to increase sales to your existing customers. If you are selling men’s clothing, the perfect time to sell a tie to this customer is when they are buying a suit. This needs to be a focus for all staff and a deliberate strategy to increase sale value.

·         Making the Sale (Conversions)

How good are you at converting walk-ins, enquiries or quotes? A case study I often use shows how a driveway company originally getting 1 customer for every 10 enquiries, is now getting 5 new customers from every 10 enquiries, just by improving their quotation process.

·         After Sale and Repeat Sales

This is about getting your customers back more often. If a customer visits your business 3 times a year, by increasing their visits to 4 times per year, assuming they buy the same value as before, will increase business by 33%.

·         Referrals

This is encouraging your existing customers to refer others to your business. You might give some discount or reward to your existing customers for referring you more business.

·         Website

Is your website bringing customers and enquiries to your business? A good website will be bringing paying customers to you in the form of either direct sales or enquiries you can then convert to sales. Check to see how much business you are getting from your website - how many visits, and how many enquiries or sales. If conversion is poor, then you need to change your website and then increase the number of visitors to your site.

·         Database

Most businesses spend a lot of time looking for new customers, and ignore customers they have already dealt with. Did you know that if you send your previous customers an offer, they are six times more likely to buy than someone who is a stranger to your products or services.

A database is simply a list of your customers and leads. It does not need to be complicated, and can be entered on a simple Excel spreadsheet if you do not have database software. This one is essential and every company without exception should have a database and be regularly contacting customers/potential customers with offers and information they will find useful.

By just working on one of these strategies every month, in 10 months you will have 10 streams of customers – what would that do for your business?!

Also be aware that not everything you try will always work first time, in fact if you are new to this, a lot of things you try will notwork. Keep at it because once you find the best fishing spot your bucket will be very full; it just takes time.

The fast track of course, is to get an expert fisherman who knows the tides, best locations, weather patterns, and the right bait for different fish. Even then he still needs to adjust to changing conditions – however compared to the inexperienced fisherman, odds are he will find more fish more quickly day in and day out.

You have probably noticed that there are a number of “Daily Deal” companies like Treat Me, Grab One, etc. They all heavily discount products or services (usually 50%+) available for a 12 or 24 hour period.

All of these websites have a significant number of email subscribers so it is an easy way to gain access to a large number of potential customers quickly, and can be a tempting way to increase business.

An article I recently came across "The Parable of the Cobbler" sums up the pitfalls very well.

Here are a few things the cobbler and yourself should consider before trying this type of selling.

1.       Do you still have a margin?

After giving a 50% discount off your product and then a further commission to the website (up to 20%), can you still make profit off the sale?

Calculation:

Retail Value of your product                    $100

Less 50% discount                                         $50

                                                                              $50
Less 20% commission                                   $10

Sale Value =                                                      $40

Margins have to be very good to still make a profit after this type of discounting. There are some businesses this model will fit, like cafes, hairdressers, mechanics etc, where margins are high and there is also the opportunity to introduce “add on sales” to the customer after the original purchase.

2.       Can you turn them into a lifetime customer?

When marketing to new customers, by the time you take into account acquisition costs including advertising, marketing, discounting etc, it is usually not until the second sale that you start to make money off this new customer. The difficulty is that most of these coupon buyers are bargain hunters and will be looking for a new bargain tomorrow - most are not likely to be a long term customer. (Note: There are always things you can do to ensure that a percentage of these become raving fans of your business and will stay, but that is more than we have time to cover in this article).

3.       If you discount, will you still be able to get the full price again?

Discounting is a strategy that you do not want to over-use. The danger is that if used too often or regularly you are training your customers not to buy off you until you have a sale. There are many companies that fall into that trap. Retailers like Kathmandu and Briscoes - because they have such large and regular sales, many now perceive their normal price to be too expensive, and will just wait until the next sale. Once customers are thinking this way, it is almost impossible to change it.

So in summary, make sure it fits with your pricing and marketing strategy in the longer term. Make sure it will attract the right customers and at the right price for you!