Weekly Edge

Do you know what really works for your business?

Heather Frame - Wednesday, March 13, 2019

Testing and measuring is the most important thing you can do for your business.  Every aspect of your business, no matter if it’s a marketing campaign or the nuts and bolts of selling your products or services, must be tested and measured to ensure your business is running at it’s peak.

 

If you don’t test and measure, you’ll never know what really works and what doesn’t.

 

You’ll always be guessing and guessing in the world of business is a recipe for disaster.

 

That’s why we’re always surprised when we hear about people who use social media but fail to test and measure the effectiveness of what they do.

 

Like any marketing campaign, any work that you do in social media to grow your customer base should be tested and measured.  Many businesses just assume because they are using social media, it must be effective, but they couldn’t be more wrong.

 

One major difference between traditional marketing and social media marketing is social media marketing shouldn’t cost you a lot of money, so it is far easier to have an effective campaign. 

 

But as it turns out you might not be as focused on the return you get from social media as you would the return from a campaign of radio commercials you had to spend an arm and a leg for.

 

So, whether it’s traditional media or social media, you don’t want to waste time on campaigns that aren’t as affective as others and the only way to know what works best is by testing and measuring.

 

How do you start?

 

It’s simple. Just keep every lead you get from your social marketing campaign separate from your other leads.

 

If you have multiple pages and sites, keep each separate as well. This way you can figure out why some do better than others, instead of throwing away your time and effort on what doesn’t work.

 

It may be that the message isn’t uniform or maybe one ad or website has a better offer or better copy.

 

Whatever the answer is, without testing and measuring you’ll never know.

Here’s a quick test for you

Heather Frame - Wednesday, January 30, 2019

Do you know what a client is worth to you in your business?

 

What we’re talking about is their lifetime value.

 

Is a client worth $100?  $500?  $1,000?  20,000? Or even more?

 

Take a moment to get a figure in mind of what a client is worth to you…

 

Once you’ve got that figure think about this question

            What would you be willing to pay to get a new client?

 

Whenever you do any marketing, like placing an ad in the paper or doing a letter box drop for example, the cost of the activity must be divided by the number of new clients it creates.  This is your cost of acquisition.

 

So, whenever you embark on a marketing campaign in your business make sure you know how much you are going to spend and test and measure the results of how many new clients you gain from each campaign.  So you know exactly how much it costs you to acquire each client.

Moving forward in 2019

Marcus Everett - Wednesday, January 16, 2019

Great leadership requires the ability to control what is in your power to control, to give people clarity, direction, and a sense of security, to chart a course and set goals your employees believe are attainable.

 

As we begin a new year, it is your job as the business leader to set and communicate expectations for the year ahead. From strategic initiatives to marketing campaigns, from new positions to new product lines, your company is waiting for you to clearly set the goals for the new year.

 

It also falls on your shoulders right now to make sure that your financial house is in order, that you understand thoroughly where you are today, how you got there, and have a plan moving forward.

 

Three areas of financial focus for Quarter One

We’re all eagerly anticipating good things from the year ahead. But hoping is one thing, preparing is another. Here are three financial objectives you really need to have in order to start the first quarter off right:

 

1.     Set Your Budget - Your budget is the financial plan for managing and controlling revenue and expenses over a period of time.

 

2.     Determine Your Financial Goals - A big part of your budgeting process revolves around the financial goals you’ve set for the year ahead. Where do you want and need your business to be at the end of the year?

 

3.     Communicate to your Team - we talk a lot about the importance of creating your Company Culture, or “the way we do it here” and communication is the key.

 

How your business does in Quarter 1 sets the tempo for the entire year. Make sure that you set the right tempo for the year ahead with clear direction, a realistic budget and the support of your team. Here's to your success!

 

Need help developing a budget? Just email us at info@profitedge.com.au  and we’ll

arrange to send you some tools to create your Budget and Cash flow forecast

Strategies to shorten your cash gap

Marcus Everett - Wednesday, June 06, 2018

Following on from last week’s explanation of the cash gap and potential impact it has on your business today we bring you 13 key strategies to help you shorten the cash gap in your business.  You may have some of these in place already.

 

Even if you have great turn over or margins, cash gap is a silent killer of business, so make sure you take a look at the below strategies designed to help shrink your cash gap.

 

Cash Gap Strategies (Strategies to Shorten your Cash Gap)

 

1.            Systematize billing/invoicing process

 

2.            Require partial or full deposit on contract to be paid up front

 

3.            Give 15 day terms instead of 30 days

 

4.            Give 1 to 2% discount for early paying of invoices

 

5.            Finish projects so that they can be billed/invoiced

 

6.            Bill/invoice immediately on completion of job

 

7.            Complete the billing/invoicing process on a weekly basis

 

8.            Send multiple bills/invoices with increasingly demanding tone at 15, 30, 45 days

 

9.            Add and collect interest on overdue accounts

 

10.         Outsource the entire billing/invoicing process to speed up receivables, etc.

 

11.         Reduce inventory by using low inventory trigger points

 

12.         Buy inventory on consignment and pay when sold

 

13.         Negotiate longer terms from vendors

If you find yourself in a position where a customer is falling behind on their payment to you it would be worth considering engaging a debt collection agency before the number of debtor days really blows out and impacts on your business.

It just so happens that one of our clients runs a very professional debt collection recovery service.  If you would like to be put in contact with them to discuss the recovery of one or more of your debtors simply email heather@profitedge.com.au

 

Until next week,

 

Heather & Marcus

 

Cash Gap Explained

Marcus Everett - Wednesday, May 30, 2018

With only one month left before the end of financial year we thought it timely to share with you our understanding of the Cash Gap in a business and the potential impact it has on your cash flow

 

Cash Gap is a concept that helps us understand how business processes affect a business’s cash flow.

 

THE CASH GAP is the number of days between your business paying for goods and services purchased and then the receipt of payment for those goods and services when they are sold.  Clear as mud?....  Below is a visual picture of what we mean by cash gap.

 

In the picture below the inventory arrives into the business on day 0. 

·        The business has then paid for this inventory 30 days after it has arrived. 

·        This inventory has then sat within the business for another 30 days before it is sold.

·        The payment terms for this business are 60 days.  This means the business doesn’t receive cash for this inventory until 60 days after it is sold. 

·        So, the 30 days the inventory sat in the business after it was paid for added to the 60 day payment terms when the inventory was sold means the total cash gap is 90 days.

 

In your business these probably aren’t your exact numbers but what this means to you very really is that the longer it takes you to sell stock off your shelves the tighter the squeeze on your cash flow… And without cash flow business is dead.

 

 

 

Now here’s the question…..

 

Do you know the exact number of days in your cash gap? 

 

If you don’t then your business is at risk of a serious cash flow crisis.  It happens all the time and could really take you down.

 

gap is one of the biggest killers of business.  It directly impacts on cash flow, in addition the cash gap interval must be financed one way or another.  The longer the time difference, the more interest (real or in lost opportunity) a business must pay.  The shorter the time, the better the cash flow position of the business.

 

Any business that can successfully manage the cash gap can grow rapidly to build profit and increase market share. The supermarket industry works on an average of 2% to 4% net profitability and carries a huge inventory in dollar terms. So how do supermarkets become so large? They are experts in managing their cash gap.

 

Next week we’ll share with you strategies to help you shrink the cash gap in your business.

 

Even if you have great turnover or margins, cash gap is a silent killer of business, so make sure you look out for our strategies next week.

 

Until next week,

 

Heather & Marcus

 

 

Do your customers buy on price?

Heather Frame - Monday, September 11, 2017

Many business owners that we speak to are firm believers that their customers are 90%, if not totally, price focused when they shop.  We want to challenge you by stating that nothing is further from the truth.

Price is really just a reflection of value and value is more that your raw product.
 Value is really about what your prospect feels they will get when they purchase from you. Here’s a metaphor to demonstrate the point.

Tom was a hairdresser who had been running his salon for 7 years.
 He was well known by the community and had a great reputation for his consistency, good manner and level of service.  He charged $22 for a haircut and felt that his clients were getting a great deal, especially since he had not put up his prices in 5 years.

Business was really cruising until one day he looked across the street and noticed a new hairdresser opening up shop.
 He thought to himself, "no problem, nothing like some healthy competition, my clients are loyal to me and will stay because of my consistency, good manner and level of service."

A few weeks went by with very little impact on his business until one day he looked out his front window and to his dismay, saw a massive sign painted across the front window of the shop across the street which said, "$11 haircuts!" Tom nearly had a heart attack!
 He knew that there was no way he could compete with $11 for a haircut, his base costs were more than that.  This sign spelled the start of the end for Tom.

After many sleepless nights wondering how he could combat such an aggressive move, Tom was at a total loss for how he could stop his clients from slowly being converted to using the new hairdresser; after all he just felt that for the difference in price, there just wasn’t enough difference between them.
 Tom was seriously considering shutting shop and quitting while he was ahead, until finally the answer struck him in the middle of the night.

The next morning Tom was up early, he had to hurry to the hardware store to get some paint and brushes, he had a spark in his step and a look of confidence and relief as he started to sign write on his front window.
 What flash of inspiration do you think Tom had come up with that had made him feel so secure about his business and keeping his clients?

The sign on Tom’s window read, "We Fix $11 Haircuts!!!!"

The moral of the story is, prospects do not buy based upon price alone; what they really buy is VALUE and CONFIDENCE - confidence in you and your product/service.

The question is: How do you demonstrate value and confidence in your product/service?

Our tax system explained in beer!

Marcus Everett - Thursday, August 31, 2017

Suppose that every day, ten men go out for beer and the bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this…

The first four men (the poorest) would pay nothing.
The fifth would pay $1.
The sixth would pay $3.
The seventh would pay $7.
The eighth would pay $12.
The ninth would pay $18.
The tenth man (the richest) would pay $59.

So, that’s what they decided to do.

The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve. “Since you are all such good customers,” he said, “I’m going to reduce the cost of your daily beer by $20.” Drinks for the ten now cost just $80.

The group still wanted to pay their bill the way we pay our taxes. So the first four men were unaffected. They would still drink for free. But what about the other six men? The paying customers? How could they divide the $20 windfall so that everyone would get his fair share?’ They realized that $20 divided by six is $3.33. But if they subtracted that from everybody’s share, then the fifth man and the sixth man would each end up being paid to drink his beer.

So, the bar owner suggested that it would be fair to reduce each man’s bill by roughly the same amount, and he proceeded to work out the amounts each should pay.

And so the fifth man, like the first four, now paid nothing (100% savings)

The sixth now paid $2 instead of $3 (33% savings).
The seventh now pay $5 instead of $7 (28% savings).
The eighth now paid $9 instead of $12 (25% savings).
The ninth now paid $14 instead of $18 ( 22% savings).
The tenth now paid $49 instead of $59 (16% savings).

Each of the six was better off than before. And the first four continued to drink for free. But once outside the restaurant, the men began to compare their savings.

“I only got a dollar out of the $20,”declared the sixth man. He pointed to the tenth man,” but he got $10!”

“Yeah, that’s right,” exclaimed the fifth man. “I only saved a Dollar, too. It’s unfair that he got ten times more than I!”

“That’s true!!” shouted the seventh man. “Why should he get $10 back when I got only two? The wealthy get all the breaks!”

“Wait a minute,” yelled the first four men in unison. “We didn’t get anything at all. The system exploits the poor!” The nine men surrounded the tenth and beat him up.

The next night the tenth man didn’t show up for drinks, so the nine sat down and had beers without him. But when it came time to pay the bill, they discovered something important. They didn’t have enough money between all of them for even half of the bill!

And that our friends is how our tax system works. The people who pay the highest taxes get the most benefit from a tax reduction.

As business people it is vitally important to use the tax system to your advantage. The Australian Government gives business tax concessions because they understand that business is responsible for the life blood of the country.

For those who understand, no explanation is needed.

For those who do not understand, no explanation is possible

Knowing the average lifetime value of your customers

Heather Frame - Wednesday, November 16, 2016

The best way to make money in most businesses is by making sure you stop losing any of the customers you’ve got.

If you are in business then chances are you’re losing customers right now, right this very minute.  For whatever reason, customers are lost and you see them again.  This is what we call ‘holes in the bucket’.

So how do you plug those holes?

First up, you need to work out how much each customer is worth to you.  This is called your Customer Life Time Value (CLTV).  For example, if your average customer spends $50 a month and buys 12 times a year and usually stays with you for 3 years, your CLTV would look like this

$50 x 12 = $600 x 3 = $1,800

So your average Customer Life Time Value is $1,800

Keep it simple and be conservative, but try to be as accurate as you can.  Then you simply allocate how much money you will invest on these customers to make sure they will stay with you.

What’s the average dollar sale in your business?

Heather Frame - Wednesday, November 02, 2016

The average dollar sale is a very powerful number is every business.  So you’ll want to make sure you’ve got a good handle on this for your business.

 

Some customers might spend $500 while others $23.50.  The average dollar sale is just that: the average dollar spent from everyone who does business with you.  All you need to do is divide what’s in the till (or what you’ve billed for) with the number of transactions you’ve made. 

 

Just like McDonald’s employees always ask ‘Would you like fries with that?’ you need to look for ways of increasing your average dollar sale.  Even though most people say no to fries, think of the millions of extra dollars they make a day from those that say yes.  Now think of how a similar strategy could unlock a gold mine for you.

 

The key is remembering that it only takes slight improvements to make a drastic difference in your profitability.  These customers are already doing business with you, and any little extra you can add on is all icing on the cake.

How is your cashflow?

Heather Frame - Wednesday, October 26, 2016

Have you ever experienced cash flow difficulties? If you have then you should read on.

 

Chances are that at some point, one or more of your customers have used you as a bank without even asking, or having to fill out any paperwork or put up surety for the credit. Would a real bank allow this to happen?

 

The sad truth is that your customers are using you as a bank every time they pay late. This is the number one cause of cash flow difficulties in business today.

 

Here is why this is so important,

 

Business statistics collected by Dun and Bradstreet show that the average debtor days (the number of days from invoice to payment) for small to medium Australian Business is a whopping 56.5 days.

 

Many businesses run at a net profit of 10% or less. BUT, and here’s the kicker, many only achieve 3-4% in real terms.

 

Here is what this means to you.

 

Let’s use Bob’s Emporium (and reluctant bank) as an example and assume he’s operating at a net profit of 10%.  If Bob’s Emporium has just one debtor with $10,000 in unpaid invoices who defaults on the debt it would take the sale of $100,000 of products or services to recoup the loss of the original $10,000.

 

And it gets even worse.

 

If a business has any outstanding debt a good profitable sale quickly becomes non profitable as the debtor days increase.

 

For example, if Bob’s Emporium uses an overdraft at 12% interest to fund the Australian average of 56.5 debtor days on a $10,000 debt; it would cost Bob $188.00 per month just because the debtor is using Bob as a bank.  If Bob held the debt for five months he would have lost all profit on the original sale, and then starts loosing money. And remember a net profit of 10% is quite high in many businesses.  If Bob had a net profit of 5% he would start loosing money after 3 months from a profitable sale.

 

It’s time to act now.

Make sure that your credit policies are watertight and enforced with a personal phone call to your customer the day their payment is overdue.

If you strike resistance, make sure you have a clear, well-thought-out system that you or your staff can follow that has been carefully designed to preserve your customer's buying relationship with you, while getting your money in on time!