Do You Know What Drives Your Profit?
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.
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.
Entrepreneur mistakes
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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Author Terry Corbell has written innumerable online business-enhancement articles, and is a business-performance consultant and profit professional. Click here to see his management services. For a complimentary chat about your business situation or to schedule him as a speaker, consultant or author, please contact Terry.
8 Simple Strategies to Give You Pricing Power
If you’re struggling with pricing strategies, you’re not alone. Many big companies struggle, too.
By way of explanation, according to a 2011 study, almost 90 percent of executives in a global survey forecast their continued growth. However, they anticipate implementing just minimal price increases as they continue to slash costs, or at least closely monitor expenses, for positive cash flow.
A global consulting firm, Accenture, reports that’s the salient conclusion following responses from 1000 chief financial officers (CFOs) and chief marketing officers (CMOs), who were surveyed across eight industries in 12 countries.
The study’s objective: To learn how CFOs and CMOs maximize profits in controlling costs, managing money, and in pricing.
Ironically, nearly 50 percent of them expect revenue increases until about 2013. Unlike shorter downturns, the seemingly permanent volatility in this global economy continues to be a catalyst for more due diligence.
Seventy-one percent of the CMOs say pricing strategy ranks among their three most-salient objectives.
So, pricing strategies are universal dilemmas.
Often, companies mistakenly price products and services solely from their own perspectives as sellers. Businesses should focus on the perspective of the customer about value – not solely on offering the lowest price in the marketplace.
Psychology for setting prices
A minority of customers focus solely on price – people who can’t afford not to save money, and people who want to save money.
My research continues to show at least 80 percent will base a buying decision on five psychological perceptions of value. Not all buying decisions are based on what you might automatically think is logical rationale.
Therefore, in the following order, you must know the answers to these questions: What does the customer think of you and your employees, your company’s image, product or service utility, price, and the convenience of doing business with you?
For more expensive items, perceptions about price often include the cost of payments in financing. That’s especially true when the purchaser pays and uses the product on a regular basis.
Specific numbers play a psychological role. That’s why you will often correctly see value-pricing for fast food end in the number, nine, such as $3.99. For more luxury items, a psychology of quality is what counts. So quality pricing will often end in the number, zero.
My definition of marketing: The understanding of your customer for the cost-effective process of selling the right product or service at the right time and at the right price.
Therefore, it’s important to closely monitor your cost structure to generate profits, as well as your customers’ motivating perceptions and the approach of your competitors.
Eight Basic Pricing steps
- Conduct a full-scale SWOT analysis of your strengths, weaknesses, opportunities and threats.
- Analyze your marketing strategy, which includes an assessment of your marketplace, targeting and branding.
- Determine your marketing mix by defining your channels of distribution and campaign maneuvers.
- Forecast your demand curve by anticipating how your product quantity will fluctuate with the price. Not to oversimplify, consider whether an increase in price decreases your revenue or a decrease in price will increase your revenue.
- Gauge all your costs – be sure to determine both your fixed and variable costs. Fixed costs, such as office rent payments that remain at the same amount. Variable costs, such as fuel for your vehicles, can change because of gas-station prices or if your vehicle mileage go up or down.
- Anticipate your marketplace dynamics or environmental factors – whether they are competition or legal considerations, such as government regulations, or impacts from short-term or long-term strategies.
- Slate your pricing goals. That can include maximizing your profits or stabilizing your prices.
- Establish your prices, including your methods and structure. Determine the limits of what you’ll offer in discounts.
In addition to the psychology of pricing, you have other choices such as bundling to sell more products; penetration pricing, offering free or loss leaders to launch a new product; variation pricing, like the airlines that sell a flight’s first batch of tickets at the lowest fare; or geographical pricing where the location determines the price.
From the Coach’s Corner, here are related resource links:
- Daily Deal Sites and Pricing Principles – What’s Sustainable and What Isn’t
- Hottest Tactics to Beat Your Competitors
- Think 1930s for Business Success. Consumer Attitudes are Changing.
- Case Study: Mistakes Companies Make When Losing Profits
- Secrets to Success in Recessions: Expand Marketing
“Incentives are not strategy, they are tactics. Defensive measures.”
-Carlos Ghosn
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Author Terry Corbell has written innumerable online business-enhancement articles, and is a business-performance consultant and profit professional. Click here to see his management services. For a complimentary chat about your business situation or to schedule him as a speaker, consultant or author, please contact Terry.
NFL Heroics: Great Metaphors for Business Success
Past Super Bowl feats serve as terrific examples to inspire equally superb business performances to achieve profits.
Indeed, enthusiasm and hard work deliver results. Joe Theismann always seemed to be on target as quarterback for the Washington Redskins, but he isn’t always right in predicting the National Football League’s most valuable player.
He didn’t criticize Shaun Alexander’s ability, but Theismann said the Seahawk couldn’t win the award because Seattle is a smaller media market than others, such as New York City. Of course, Alexander was an enthusiastic hard worker and was voted MVP after his record-setting performance in 2005.
The moral? Anything is possible if you dream big, stay positive and work hard.
Good Marketing Captures Emotions. In a nationwide TNS Express Online Survey sponsored by Coors, a poll asked fans to pick their favorite Super Bowl moments. Nearly half of the males said at least one of their early top Super Bowl memories was included in the current Coors TV campaign, “Coors Light Super Train.”
Three of the most-mentioned favorites:
- Joe Namath’s 1969 prediction that his New York Jets would beat the then-Baltimore Colts, which was a lesson in marketing puffery. You might recall he went on to sell tons of products, especially hosiery.
- Hank Stram’s colorful quote the following year, “Pump it in there, baby,” was a lesson in perseverance.
- The invincible “Steel Curtain” of the Pittsburg Steelers, which taught us lessons for protecting brand equity.
Even non-Steeler fans enjoyed watching the team’s cast of defensive stars, including “Mean” Joe Greene, L.C. Greenwood, and Jack Ham, including Greene’s poignant commercial when he gave his jersey to an adoring nine-year-old boy who gave Mean Joe a Coke.
His memorable commercial also sold a lot of Cokes; unlike many commercials that are clever and cute but fail to generate a good ROI.
Lessons in Execution and Courage. The aerial artistry of Terry Bradshaw’s pass completions to Lynn Swann and John Stallworth were awe-inspiring. The receivers were like graceful ballet dancers as they leaped to catch the ball. They were also tough and never fumbled; examples of mental strength and focus. With his enthusiastic, likable personality, Bradshaw remains popular as an NFL commentator.
But my all-time favorite Super Bowl was in 1980 when the Steelers defeated the Los Angeles Rams in a highly entertaining game, 30-19. My most inspiring player in that game was All-Pro Ram defensive end Jack Youngblood who played every down of the NFC Title Game and Super Bowl on a broken leg.
So act with courage and execute well. Both are needed for success in business.
Lessons in Marketing Strategy. Reprise Media’s “Super Bowl Search Marketing ScoreCard,” measures how well advertisers capitalize on their Super Bowl advertising investments. The technology firm, www.reprisemedia.com, helps companies increase their brand equity in online marketing.
The company contends that national advertisers fail to capitalize on their Super Bowl commercials by not taking enough precautionary steps in online marketing. That means focus on ad text, keyword selection, and landing page content.
Not to oversimplify, the company offers four basic reminders:
- Make sure to include your Web site address in your advertising.
- On search engines, bid on your company’s name, products, services, and your spokespersons.
- Ensure a common thread in all your advertising and repeat your key phrases.
- Prevent buyers’ remorse by making visitors feel rewarded. Offer to let them register to win a product and promote interaction with you.
Smaller advertisers, too, can benefit from Super Bowl-like performances by learning from successful national advertisers. You’ll reach the best prospective customers with good credit or high net worth by advertising on local news outlets.
Cost-effective keys to online success include media outlets with strong journalistic standards. You’ll also be amazed how economical their Web sites are, too, if you insert banner and rich media ads. Don’t forget to generate opportunities by submitting quality press releases to their news departments.
From the Coach’s Corner, branding remains an important factor in fast food sales, which has suffered as a result of the economic downturn. It has forced fast food companies to discount prices and focus on value meals. However, as consumers now count their eating out at fast food restaurants as a dining-out treat, the companies with the strongest branding and customer service will win.
Value meals are a drag on earnings if customer service is not perceived as good. Obviously, that’s a concern in the fast food business, especially when a company does not have a visionary salesperson. (Beloved Wendy’s founder Dave Thomas knew about quality, customer service and what his customers wanted.)
Whether the economy is strong or weak – 18 percent of customers will only buy the cheapest product or service – they’re not likely to return unless you have the cheapest prices. So, you want your stores to succeed on repeat business by targeting the 82 percent who are concerned about price but are influenced by other factors.
My cursory sampling of fast food restaurants shows a connection between a successful fast food stores and the perceived level of good food and customer service. A key ingredient is respect for the customer and showing an attitude of gratitude. The stores that have employees who excel in customer service and say thank you to customers are a catalyst for customer loyalty.
For value-conscious customers, price is important but their purchases are decided on emotion.
In order of importance, their five buying perceptions are:
- What they think about your spokesperson and employees
- Your company image
- Product or service utility (is this good food?)
- Convenience
- Price
For more related reading: The Seven Steps to Higher Sales, and Sports Offers Lessons on Strategic Management and Planning.
Meantime, emulate Terry Bradshaw’s enthusiasm and you’ll get repeat business.
“Californians are good at planning for the earthquake, while simultaneously denying it will happen.”
-Sheila Ballantyne
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Author Terry Corbell has written innumerable online business-enhancement articles, and is also a business-performance consultant and profit professional. Click here to see his management services. For a complimentary chat about your business situation or to schedule him as a speaker, consultant or author, please contact Terry.
Profits Down? 7 Quick Tips to Get a Competitive Edge
Are you an apprehensive business owner? The struggling economy is a sign of declining profits everywhere.
But in Google News, surf the key word “profits” and you’ll see there are many articles about companies making money. You, too, can get a competitive edge and overcome economic uncertainty by increasing sales and improving efficiencies.
Here are seven quick tips to get a competitive edge:
Retain your best employees. Employees with the best potential quit when they don’t feel valued foseveral possible reasons: Lack of career opportunities, chilled relationships with their bosses unhappiness over wages, health care benefits, and flexibility in work schedules.
So, money is not always the main issue. Workers feel more appreciated when they are engaged with periodic positive communication. This includes giving workers a sense of control over their careers and explaining possible options for professional growth.
You want employees who will push you up the ladder. Here’s more on how not to worry about keeping your top employees.
Planning. The biggest misstep for small business owners is failing to plan for the big picture. They’re so busy with daily emergencies that they don’t believe they have time for planning. They see such time as a luxury.
The solution is simply to budget the time in order to strategize specific actions and timelines. An old-fashioned SWOT analysis – evaluating your strengths, weaknesses, opportunities and threats – will help you create a strategic plan. Also consider 10 basic tips — leadership for business profit.
Entrepreneurs can’t afford not to take the time to plan. That includes determining your break-even point. And remember backup options and equipment are needed for contingencies.
Pricing. The tendency now is to slash prices. However, small business owners needn’t give away their power to the big chains by price-cutting. Here are the eight simple strategies to give you pricing power.
People appreciate outstanding customer service. For most products and services, price isn’t the most important concern for about 80 percent of all consumers.
Customers are like employees – they want to feel special.
Daily prospecting and marketing. Solicit “centers of influence” or strategic partners to attract customers. Look for opportunities to obtain publicity. Advertise to remain in contact with customers and prospects. Use the marketing plan essentials for best results.
Sales follow-up, with phone calls, personal visits and note cards will pay dividends. Don’t forget to ask for at least two referrals from each satisfied customer.
For most small businesses, job one for the boss is contacting customers and prospects. If you’re fortunate to have sales reps, each should contact 15 prospects per day— in-person, as much as possible.
Delegating. Most struggling entrepreneurs usually fail to delegate. You’ll grow by learning to delegate. Good employees appreciate opportunities for teamwork and to make contributions to the business.
A smart boss knows how expensive it is not to delegate. Here are the eight best practices in employee delegation.
Operations and procedures. Develop formal procedures along with checks and balances. To ensure standards of excellence, make certain that you and employees adhere to policies from bookkeeping to operations. Use the mannagement best-practices in solid operations checklists.
This way, there will be no glitches in your receivables. Like you, your customers don’t like surprises either.
Other professional relationships. When you’re able, get proper financing and make sure you have a plan to repay funds. Additionally, develop a rapport with a bank manager, good accountant, lawyer and insurance agent.
The secrets to getting a competitive edge in small business are planning and execution. As a result, a third dynamic, also known as luck, will mysteriously appear from seemingly nowhere to benefit your company.
I love this quote by chemist Louis Pasteur: “Chance favors the prepared mind.”
From the Coach’s Corner, if you’re really in trouble, see how to overcome obstacles for a business turnaround using 13 steps. Like great football teams at halftime, good entrepreneurs adjust quickly to fast-changing conditions.
At the end of every day, do a report card. Review the events affecting your business as well as your response to each situation. Evaluate how you performed and how to move your business forward. Then, take the night off, especially after your daily assessment on a bad-hair day.
And tomorrow – keep on trying. Don’t give up.
“A business absolutely devoted to service will have only one worry about profits. They will be embarrassingly large.”
-Henry Ford
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Author Terry Corbell has written innumerable online business-enhancement articles, and is a business-performance consultant and profit professional. Click here to see his management services. For a complimentary chat about your business situation or to schedule him as a speaker, consultant or author, please contact Terry.