Weekly Edge

Are you a business or a bank?

Heather Frame - Wednesday, April 15, 2015

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!

Until next week

Heather & Marcus

 

Market Share versus Wallet Share

Heather Frame - Friday, April 10, 2015

The principle we have to share with you today is…

We’re not after Market Share

We’re after Wallet Share

You see, chasing market share in today’s business world is a guaranteed formula for chasing your tail.  If buying customers is your biggest expense, then continually buying new customers (buying market share) is the most expensive way to do business.

Market share, or a focus on new customers, comes with an assumption that you’re in the business of buying products or services and selling them to customers.  If however, you move to the idea of buying customers, then your whole ballpark changes.  You’re no longer chasing market share, you’re chasing wallet share.  The issue becomes how much, how many, and for how long can you sell to each customer you buy.

In the world of business, where customer loyalty is everything, you’ve got to know that if you’ve already spent the money to buy a customer then it makes total sense to make sure you get a full return on that customer (your investment).

Chasing wallet share is as simple as remembering that you’ve got a loyal customer base, so what else can you sell to your customers?

Until next week,

Heather & Marcus

What’s in a lamb roast?

Heather Frame - Wednesday, March 05, 2014

One night at dinner a young man asked his wife, “Why do you cut the ends off the lamb roast?” Her reply, “I’m not sure.  My mother used to do it.”

 

A week went by and they visited her mother for dinner, and you guessed it, lamb roast for dinner.  So he asked, “Why do you cut the ends off the lamb roast?”  Her reply “I’m not sure.  My mother always did it.” 

 

So he made a phone call to his wife’s grandmother and asked, “Why do you cut the ends off the lamb roast?”  Her reply “Well I’ve only got a small baking tray.”

 

So often we do things just because it’s the way we’ve always done them, having absolutely no idea why it was done that way to start with.

 

When other people zig, you’ve got to zag.  Following the crowd will almost certainly lead you to slaughter.  But you’ll also notice it’s rare for eagles to flock together.

 

In an increasingly competitive environment, you must distinguish yourself by more than just price.  You do this by being different.  Think about what makes you unique and then tell the world.


Cheers

 

Heather & Marcus

 

 

Moving forward in 2014

Heather Frame - Wednesday, January 08, 2014

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

Here’s how to determine average dollar sale in your business

Heather Frame - Wednesday, December 11, 2013

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 to BOOST Your Cash Flow

Heather Frame - Thursday, October 17, 2013

Let’s face it, business is getting tougher.  To survive and thrive in the new economy, you need to be smarter than the rest.

You need to be able to market your business effectively.

So here’s a little secret.

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

If you’re in business, you’re probably losing customers right now, right this very minute. For whatever reason, customers are lost and you never see them again.

This is what we call “holes in your bucket.” The BIGGEST profit breakthrough for you is to plug those holes.

Here are 3 critical areas to focus on to plug those holes.

1: Reinforce (Stick)

When you get a new customer, make sure the sale sticks and give them good reasons to shop with you again. We’ve got clients who send out BIG welcome packs.  However, even a simple “Thank You” card is a lot better than nothing.  When was the last time someone sent you a thank you card for shopping with them?  Our guess is never or very rarely.

2: Retain (Keep)

Retaining your customers comes down to staying in contact with them.  Direct Mail your customers with new promotions, products etc.

The best strategy here is to provide a free, monthly newsletter mailed to your customers door.  Nothing beats it.

3: Re-activate (Rescue)

This has to be the quickest and easiest way to bring cash into your business.  (It’s so simple, you may dismiss it. It may seem too good to be true.  But that’s NOT the case.)

The BIGGEST bang for your buck is number 3, re-activating old customers. And it’s so easy to do.

Let us explain.

If you’re in an established business, chances are you’ve got customers that have bought from you a few times but have moved on.  This strategy involves contacting these past customers with an irresistible offer to come back.

You simply write a letter to your customers and make them an offer to get them to purchase again. (Direct Mail is best. Email is cheaper, faster, but less effective.)

The success of Re-activation Campaigns depends largely on the kind of relationship you have with you customers.  If you have never mailed, don’t keep in contact, then you’re job is tougher than a business that keeps in contact with their customers.  When it comes down to it, business is all about how your customers feel about you.

Anyway, we like to keep Re-activation Letters simple.

We don’t confuse the reader. We state our case, make an offer, and then we’re out of there.

There are five important elements we like to cover. They are:

1: We include a headline that gets their attention.

2: We tell them we appreciate their past business.

3: We explain why we are writing.

4: We update the customer on any changes of products or services since their last purchase that they may be unaware of.

5: We make an offer to come back. (Put a limit on the offer)

There are other elements you may wish to include, but as we’ve said, we like to keep it short, sharp and simple.

Time to start re-activating your old customers….

Developing your niche

Heather Frame - Thursday, October 17, 2013

Do you have a “best-seller”?  Do you know what it is?  What is the margin on that product? Don’t know?

Find out!   And, when you do, raise the price on that product by at least 10 per cent.

Then, ask yourself if you could simply focus on that product (and perhaps the accessories for that product or service) to create a more narrow, yet more highly profitable business.

Say you own a full service restaurant, but the morning breakfast crowd is the bulk of your volume... Can you become a breakfast-only cafe?

Can you focus on great coffee and freshly-squeezed juices?  Can you become a “premium” priced café versus a “discount” full service restaurant?

Take a look at your business.  Learn your numbers and know what it is you are selling.  You just might discover the “gold” you are looking for outside of your business actually exists within it.

How do you get new leads and customers... and how much do you spend to “buy” your customers?

Do your marketing efforts pay for themselves?  More importantly, do they make you money?

Do you know how much it costs to get a potential customer to your door?  Through your door?  Or how much it costs to convert that lead into a sale?

If your advertising budget for last year was $100,000 and you can’t tell if it brought in new customers or added new dollars to your bottom-line, you have a serious business issue you need to resolve right away.

Learn as much as you can about how to turn your business into a marketing machine.  Get comfortable with the idea of marketing and of “buying” new customers through advertising.  If buying a new customer costs you $30, but the lifetime value of that customer is $5000, you have a great business and marketing program.  But if those numbers are reversed, you won’t be in business long.  As the late management guru Peter Drucker wrote, “the purpose of business is to create and keep a customer.”

Just remember simple is not always easy. But it can be very, very profitable.

Are you a business or a bank?

Heather Frame - Thursday, October 17, 2013

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!