In Any Economy, What Drives Your Profit, Really?
Who have the toughest jobs? Well, in my experience, single moms who work outside the home, have the toughest job of all. Entrepreneurs have the second-toughest job.
For profits, entrepreneurs must learn how to manage their financials and performance, which are difficult tasks. Savvy business owners know who their ideal clients or customers are.
Entrepreneurs realize financial benefits when their revenue from business exceeds their expenses and taxes. This results in a much easier task – deciding whether to save, spend or invest the profit back into the business.
Until employees and customers actually walk a mile in an entrepreneur’s shoes, they often think a small business owner is wealthy. That may or may not be true. In recent years, the odds are that many small business owners are struggling.
Smart, hardworking business owners enhance their chances for success — by completely understanding the critical factors that drive profits and they tirelessly focus on those profit-drivers.
The four basic drivers of profit:
- Price
- Variable costs (variable costs change as a result of revenue from the cost of sales)
- Fixed costs (also known as overhead)
- Sales
Which of the profit drivers have the most impact on an entrepreneur’s success Price. That’s because increases in price immediately add to any profit margin.
Many entrepreneurs make the mistake of focusing on sales volume without regard to price. Especially, in a sour economy, business owners are focused on selling to alleviate ageing issues.
The dilemma, however, is that sales increases are tied to increases in variable costs, which lead to less profit.
Conversely, decreases in variable costs increase profit margins, but total revenue will not increase.
Many business owners fail to realize that cutting fixed costs do not affect revenue, which means it has the least effect on profits.
The three biggest profit-mistakes of entrepreneurs:
- Business owners are so focused on developing revenue from prospective customers, they fail to concentrate on their existing customer base.
- They fail to build their brand image so they miss opportunities to increase prices.
- When they cut good marketing and lay off employees to cut costs, most often they’re cutting their investments in their business muscle not fat.
To elaborate on mistake No.2 — missing brand-building opportunities to increase prices — successful entrepreneurs determine how much they can hike prices without losing profit.
True, you will most likely lose the 18 percent of customers who only buy products at the cheapest price. But depending on the amount of a price increase, you can still make a better profit.
Price-sensitive customers who do not appreciate value, most-frequently make the most-undesirable customers. They’re high maintenance, and demand the most service. They complain the most and most-readily return products.
The moral: Build your brand to maximize prices and target the best customers. That’s what leads to long-term profits – and success.
From the Coach’s Corner, here’s more: 8 Simple Strategies to Give You Pricing Power.
“I don’t want to do business with those who don’t make a profit, because they can’t give the best service.”
-Richard Bach
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Columnist Terry Corbell is also a business-performance consultant and profit professional. Click here to see his management services (many are available online). For a complimentary chat about your business situation or to schedule Terry Corbell as a speaker, why don’t you contact him today?
How to Profit: Word-of-Mouth Advertising, Customer Service
When was the last time you explored options for improving your word-of-mouth opportunities? Customer service is the No. 1 key to good word-of-mouth advertising and repeat business.
My firm’s research shows that consumers usually respond favorably to marketing after receiving five positive messages. Conversely, they will divorce your company if they have five or fewer unfavorable experiences.
So we’re talking about performance and delivery. If your company fails to meet a customer’s expectations, it’s important to respond instantly with empathy and problem-solving skills.
If customer-retention is an issue, it’s worth noting why: Customers start patronizing your competitors 70 percent of the time because they feel taken for granted. Most won’t warn you. And if customers feel your service is horrible, they’ll vehemently complain and tell acquaintances about their unhappiness for years.
In the eyes of many consumers, customer service has developed a split personality. A boss is usually adamant about customer service being paramount. But the employees don’t seem to get the message. It appears companies place too much importance on sales as a profit center while treating customer service as a cost center.
Naturally, it’s important to look at business processes and understand the emerging dynamic in consumerism. Thanks to the Internet, consumers are in charge. They can easily obtain competing information about products and services, and they blog about their experiences. Your employees need to realize that consumers are serious about demanding service. Only then, will you be ready to develop and implement customer-service strategies for higher profits.
For your business to stand out to earn more word-of-mouth opportunies, here are ten reminders:
First impressions. Value perceptions about your customer service start within seconds of the first contact. In order of priority: Consumers psychologically evaluate your company by the quality of your people, your company image, product or service utility, convenience factors and price.
Last impressions count, too.
Dialogue techniques. Develop unique, value-selling propositions. You’ll want to establish a dialogue, but never start by asking a closed-ended question, such as: “Can I help you?” Great salespeople know an 80 /20 ratio of listening vs. speaking yields the best results. Use an open-ended question to entice the customer into talking.
When the customer leaves – whether making a purchase or not – it’s vital to thank the customer and close with a statement to prevent buyer’s remorse. But never close with this trite, over-used phrase: “Have a nice day.” Upon hearing that phrase 15 times a day, I’m tempted to respond: “Thanks, but I’ve made other plans.”
My questions are:
- How boring do you want your company to be in the eyes of your customers?
- Why would you want diminish your chances by 50 percent to make a sale?
Attitude gratitude and service. Look for opportunities to show a positive attitude. Never end meetings with customers or employees until you consider saying the magic words, “thank you.” In 98 percent of conversations, if you think about it, these events translate into golden opportunities to bond with others. That goes for emails, letters and faxes, too.
Centers of Influence. Some customers are Centers of Influence – their emphatic word-of-mouth advertising provides the prospect for a competitive edge. It’s then possible to kick sales to the next level with new cross-sell and up-sell opportunities.
Event factor. In the mind of a consumers, even the smallest of purchases represent an event their lives – sometimes a celebration. That means the bigger the purchase a customer makes, the bigger the event. So be attentive before, during and after the sale.
Surprises. Consumers don’t appreciate negative surprises. They expect seamless service. When several steps are needed in the sale process, proactively keep the customer apprised with status reports with e-mails or telephone calls.
Commitments. Keep all promises. And you’ve heard the adage: “Under promise and over deliver.”
Common courtesies. Never miss an opportunity to say please, thank you, and the person’s name. If you’re talking to someone older than you, use the person’s last name, preceded by Mr., Ms. or Mrs. And in your e-mails and notes, use a 19th century salutation, “Dear…”
Candidly, I make it a practice to use formal greetings the first five times I meet a prospect or customer. I have two clients I’ve known since 1993 and I still greet them or refer to them in front of their employees as “Mr.” 50 percent of the time. And guess what, they still appreciate it. It also reminds them how I value them and it is an for me when I interact with them.
Referrals. The most-opportune time to ask for referrals is when a customer compliments you or your business.
Never ask: “Can you refer me to anyone?”
Instead, ask an open-ended question, such as: “What are the names of people just like you…?”
Remember good salespersons never let a customer do what the salespersons should be doing – by themselves.
Complaints. True, customers are not always right. But when they are, many companies forget it costs more to attract new business than it does to keep customers happy. If you get a complaint, the first response should be empathy.
The second should be appreciation. Encourage your employees to be resourceful in solving the problem. Give them adequate authority to act. Some calls from unhappy customers shouldn’t end with this annoying question: “If there anything else I can help you with?” Besides it’s poor grammar.
From the Coach’s Corner: An on-demand customer service software company, Parature, has a series of white papers for being successful in customer service. Here’s the link: www.parature.com.
You might want to check out this: “60 Ground Rules for Effective Client Service.”
