The purpose of sharing these lessons is to help you be more acutely aware of the common points of difficulty in small business. I have made many of these mistakes, so you don't have to.  

1.       There is more than one way to grow your business!

 

Yes!  In my defence this is a common mistake made by start-ups who feel the only option is to put the prices up.  There are other strategies such as:

 

·         Increasing the number of customers of the sort you want

·         Increasing the number of times they do business  with you

·         Increasing  your own effectiveness at doing the work you do

 

 

Increasing the number of customers

Let’s take an imaginary business with say 100 customers who spend- to keep the number simple! – £100 a year. This makes the annual turnover £10,000.  Keeping things very simple, let’s assume that the costs of sale directly related to the product such as storage, materials etc are £6,000 and the overheads a further £3,000. This would mean that the business makes a net profit of £1,000 or ten percent of its turnover.

What would happen if you could (keep positive!) increase the number of customers by 10%?  Again to keep things simple let’s say you don’t need to incur any additional overheads to serve a 10% increase in the number of customers. You will however incur a proportionate increase in your cost of sales.

 

Existing scenario

 

Number of customers = 100

Number of times they do business = 1

Average Sale = £100

Volume of sales = 10,000

Cost of sales = £6,000

Gross profit = £4,000

Overheads = £3000

Net profit = £1,000

 

After increasing customers by 10%

 

Number of customers= 110

Number of times they do business = 1

Average sale £100

Volume of sales = 11,000

Proportionate increase in cost of sales =£6,600

Gross profit = £4,400

Overheads = £3000

Net profit = £1,400

 

The smart ones of you would have noticed that after an increase of 10% in the customer base, the net profit has grown by 40%! Tempting?

 

Takeaway

It is really important to try and find new ways of attracting more customers, whether you are an online or offline business.  It is easy to assume that an increase of 10% would only add a corresponding 10% to your profits and therefore not gone any further, but as shown in this example it has added a whole lot more! Not bad eh! Bear in mind that most businesses are valued on the basis of their net profit and we have added 40% to the value here. 

How could this work for your business?

 

Increase the number of times your customers do business with your business

 

This was a revelation to me in my first start up. So let’s run with another example and see what impact you might be able to make if you could invite your customers to buy from you more than once a year.

Let’s use the first example, sticking to the KISS principle. How about if just 5% of your customers decide to buy from you just one more time a year? Again let’s be easy on ourselves and assume that this small increase will not mean increasing you overheads (hey it’s just an example ok1!)

 

After increasing customer numbers

 

Current number of customers= 110

Number of times they do business = 1

Average sale =1

Average sale =£100

Value of sales = 11,000

Cost of sales = £6,600

Gross profit = £4,400

Overheads= 3,000

Net profit =£1,400

 

 

5% of customers buy an additional time

 

Number of customers -110

Number of times they do business = 1.05

Average sale = £100

Value of sales= 11,500

Cost of sales= £6930 (£6600 *1.05)

Gross profit = £4620

Overheads = £3000

Net profit = £1620

 

What this little example shows is that you can add an additional £220 to your profits which is a further 22% on your original profit, thereby raising your profit by a staggering 62%.

 

Takeaway

Find ways to get your customers to buy from you more often than they are presently doing. A good tip is to sell related/ complementary products that add value.

 

Put the price up

 

My favourite method!

 

Try putting the price up by 10% again for the sake of simplicity. Or go higher if you feel your products justify the difference.  Again in this example, increasing the price will not affect our overheads so we won’t increase them over £3000.

 

Let’s see what happens

 

After increasing the number of times our customers buy from us /previous example

 

Number of customers= 110

Number of times they do business = 1

Average sale = £100

Value of sales = 11,500

Cost of sales = £6930

Gross profit = £4620

Overheads= £3,000

Net profit = £1620

 

 

After the price increase of 10%

 

Number of customers = 110

Number of times they do business = 1.05

Average sale = £110

Value of sales = £12,705

Cost of sales = £6,930

Gross profit = £5,775

Overheads = £3,000

Net profit = £2,775

 

 

 

Takeaway

           There is no rocket science involved- you can increase your profit- triple it with these strategies. An application of all these strategies helped to transform my start up and I highly recommend evaluating the benefits to your own business.  Some of the small businesses I am privileged enough to mentor balk at the idea of raising their prices by 10%- particularly in a recession. The fear is that their customers may go elsewhere. This may be so, however if you have established yourself as an authority in your niche, if you have nurtured and cared for your client base, this is unlikely. Furthermore, if your gross profit is as much as 40% you would have to lose a significant percentage of your customers before you go back to your previous level of profits.

 

 

Increase the effectiveness of how you do business

 

How can you do your business faster, better, and at less expense?  In my view one of the best ways of growing a business is to learn from other businesses. Watch to see what they are doing and how they are doing it, then set out to do it better than them.

TIP: You do not have to copy people in your own business. If you introduce something new to your business that you have seen in a different sector, it is very likely that you will be the first to it in your own!

 

 

2.       If you can measure it you can manage it

We had a fairly facile adage- “If it moves, measures it!” I don’t believe this to be the case and measuring everything can be counterproductive.

 

Takeaway: 

The key thing is to identify whether your business is growing or not. The most obvious element to consider is the number of customers, but it is important to look at other ways you can measure whether your business is going in the right direction.

These are your Key Performance Indicators. They are the things you measure on a regular basis to see how well or badly your business is doing- their first purpose- and also they enable you to manage your business better.

My suggestion is to develop a simple template on which you can record the statistics which drive your business. Examples include

 

Sales related

Sales in money

Sales in numbers of sales

Average sale

Price of goods sold

New customers

 

Other

Number of subscribers

Number of downloads

Customer complaints and the percentage resolved

 

 

 

3.       Advertise to get a  specific response

 

Advertising without pre-determined goals is a waste of your money! So set your goals.

 

Takeaway

 

How effective is the advertising you are doing?

How do you know?

Is there any other form of advertising you could do?

 

 

 

 

4.       Identify your unique core differentiators, focus on them and articulate them all the time

 

One of my earliest  wake-up calls was to  focus on why my target customers had any interest in  my competitors and I set out to really understand  this by asking  them! What is it that your business does particularly well?   What do other businesses in your niche do less well?

 

Takeaway

Study your competitors. Their websites, their processes, their offerings, their online activities. Work on presenting the significant differences between your business and theirs and get your message out there!

 

 

 

5.           Look for Joint Ventures

Are there complementary businesses you can link up to?  

 

Takeaway

I benefited significantly from linking up with a local printing company that offered reduced price printing of flyers to my clients.  This resulted in a better overall value offering to my own clients and more clients from him.

Online, how about hooking up with someone who has complementary add ons? For example you may know someone who has developed amazing templates as a freebie. In this scenario he could offer them as a freebie to your own list if they subscribe to him.  A good example of Win-win!

 

 

 

6.          Listen to your customers!

 

A common mistake made by very new businesses is to focus on the features of their products (yes I’ve been there too). This is a no-no. Most people are looking for answers, they want solutions.  So sell the benefits of your product or services to them. Not the features.  We called it the WIIFM- what’s in it for me’ factor.

 

Takeaway

Any advertisement, menu, newsletter etc must identify the WIIFM element and really work it to the max!

 

 

7          Beware of   price cutting

              

  Vouchers and discounts are all well and good but in my experience cutting the price is too     easy an option- there is usually a better way.

 

Takeaway

Think about ways of increasing the value of what you give –eg through ‘price bundles’ rather than reducing the price.

 

 

 

8            Promote your business!

                

                This sounds sooo obvious, doesn’t it?  You will be surprised by the number of businesses          simply sit back and wait for customers to come knocking on the door or clicking on the site.

              This will not work. The great and the good will tell you this too- you must go to where your customers are.

 

            Takeaway

            Find out where your customers hang out and go there yourself. Identify their challenges,             

            Concerns, wants and needs and be the one to solve it!

 

 

 

9.        Identify any barriers you may be presenting your customers to doing business with you

 

            This is a less obvious one, but an important consideration.   Barriers can be physical.  A barrier could be location. One of my clients was situated in a quiet cul-de- sac – a location   did little to help her traffic. She had to work twice as hard to get seen and heard but the steps    she took- from the obvious attractive signage directing customers to her to the less obvious-   writing columns for local magazines- have paid off.

 

           Takeaway

          If you are new business that feels your lack of money prevents you from getting traffic – eg through advertising, please do not think this is a barrier. Organic SEO does not have to cost you any   money; indeed I know several businesses optimised to the max that are on the front page of Google without having to pay a penny on advertising and the like. A barrier might be the design and navigation of your website, or the lack of SEO on your site.

 

 

 

10.            Eliminate perceived risks in the eyes of your customers

               

                  One of the lessons that I learned later rather than sooner was the need to identify the perceived risks of my customers in doing business with me, and then eliminating these risks.

The best way to do this is by offering guarantees to put the customer at ease.

Guarantees are often overlooked or misunderstood. Imagine saying to your customer “If you are not happy with the served we have provided you are not under any obligation to pay”. What would their reaction be? I have been swayed into buying precisely on the basis of the guarantees offered, the free trials offered – so why not do the same?  Most of the businesses that have offered me a free trial for a limited period are businesses that I am still with.

 

Takeaway

If you provide your customer with a lousy service, they can refuse to pay. So why not give a guarantee? Your business will stand out and guarantees cost very little to implement.  I have spoken to several very successful businesses who offer cast iron guarantees and every single one of them have said that very seldom have they been taken advantage of (only 1 business I recall offered this). Guarantees will give your prospects the confidence to approach you and want to buy from you. Guarantees help enhance your reputation as a business that cares.

 

What guarantee can you give your customers for your business?

 

Image credit DAE- Soft Chalk is fun  

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ABOUT

Ihubbusiness is an information hub for small businesses who wish to learn about internet marketing. The site was founded by Lola Bailey in 2010. Lola is a member of the Institute of Digital Marketing and has over 20 years sales and marketing experience. She is also a full-time copywriter at www.write-upcommunications.co.uk, a copywriter consultancy which she founded. Email: editor@ihubbusiness.co.uk

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