Understanding the Marriage of Technology and Human Behavior

 

Jan. 12, 2012

Whether you’re selling products, services or both – your marketing/sales future depends on whether you’re up-to-date on technology. That’s because it’s so intertwined with human behavior.

An interesting article in Ad Age is a timely reminder.

It’s entitled, “CMOs Explain Why They’re Flocking to Vegas for CES.” The article explains why thousands of advertising and marketing professionals consider the annual Consumer Electronics Show in Las Vegas a must-attend event.

The obvious conclusion: CES is vital for their job security. On a macro level, marketers attend CES to stay abreast of technology and the resulting human behavior – how people connect with brands.

They understand the importance of profiting from emerging human behaviors.

Not to criticize, but that’s why it’s so puzzling that Microsoft ended its 15-year association with CES as the anchor sponsor. Yes, I understand the reasons given by Microsoft. But when you own a franchise, you don’t give it away. You’ll never recoup it. And CES is the go-to tech event at the start of every year. Like soft drinks and Coke, Microsoft needs to be synonymous with new technology.

Further, it’s a chance to meet face-to-face with thousands of influential people and to stay abreast of technology. And as each year passes with new evolving technology, CES becomes more important.

From the Coach’s Corner, here are marketing resource links to keep up with your competitors –

How Small Businesses Can Capitalize on Cyber Strategies for Profit

Why B2B Marketers Like Content Marketing – Study

Best Practices to Optimize Your Brand, Manage Your Web Reputation

“Many of life’s failures are people who did not realize how close they were to success when they gave up.”

-Thomas A. Edison

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Terry Corbell is 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?

Understanding Customers: Social Media Teaches Another Lesson

 

Marketing is 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.

Inexplicably, Verizon joins the list of big companies failing to understand how poor research and judgment would draw fire from their customers and social media.

You might recall the wireless company announced a controversial $2 fee on their customers for making one-time telephone or Web payments. It was to take effect on Jan. 15, 2012. Less than 24 hours after making the announcement, Verizon was forced to rescind the scheme.

Why?

Verizon was lacking in discernment, and the fee announcement instantaneously drew the wrath from thousands of jolted customers.

Social media was buzzing. More than 100,000 customers signed a Change.org petition demanding the company change course. A regulatory agency, the Federal Communications Commission, announced it would investigate the issue.

In turn, Verizon was startled into reality. It was a sharp reminder that Verizon misread the situation. To be fair, Verizon isn’t alone.

Just two months ago, Netflix backtracked on its decision to break up a division – morphing its DVD rental service into something called Qwikster. Poor sales caused the CEO to take a cut in his remuneration.

In November, Bank of America incurred the wrath of thousands of customers when it announced a $5 charge for using debit cards. Thousands of customers became credit union members.

What were they thinking? Why aren’t such companies aware of the implications of the Digital Age and the economy?

Apparently, executives need to spend some time in sales with customers. Companies need to think 1930s for business success. Consumer attitudes are changing.

Verizon, Bank of America and Netflx should have enough marketing sophistication to understand the economic elasticity of consumer attitudes and fees. To the businesses, they were only charging a little extra money. To their customers, it was a strong perception of greed and unfairness.

Add social media to the mix and the companies face a firestorm. Not only is it a waste of corporate time and money, such naiveté leads to a dilution of their brands and weakening of sales.

The Internet launched an era of consumer awareness. That was both good news and bad news for business. It gave Web users unprecedented power – power for them to research brands and prices – and power to share critical information with countless other users.

And given this economy, Internet users and all consumers are more concerned than ever about value. So it’s important for companies to use best practices to optimize their brands and manage their Web reputations.

It’s also a good time to review PR-crisis management tips, research their customers and make certain that they’re discerning correctly.

Again, the lesson: Marketing is 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.

From the Coach’s Corner, before you’re tempted to make a possible catastrophic decision about fees or prices, consider eight simple strategies to give you pricing power.

“The only thing that’s worse than being blind, is having sight but no vision.”

-Helen Keller

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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?

10 Basic Tips — Leadership For Business Profit

 

Dec. 21, 2011

In the new economy – a former Great Recession that seems to linger and linger – companies will succeed by being a leader in generating capital. Unfortunately, this economy has become a zero sum game for many businesses.

They stay alive by taking market share from their competitors, not by innovating. At some point to dominate the competition, it will be best to create new opportunities for growth.

This will only be accomplished if a company’s culture is positive and every employee acts as a team member. That requires leadership.

For a positive leadership quotient, here’s a quick checklist:

1. Budget time for “blue sky” planning. Imagine how the company can become a market leader.
2. Review your strategic mission and plan, set priorities and communicate them. The biggest single complaint that employers have mentioned to me – their employees fail to see the big picture. Find ways to communicate your values on a regular basis. Explain to employees how their roles contribute to your company’s overall success.
3. Make certain your supervisors know the differences between leaders and managers. Don’t be one of the companies ripe for EEOC complaints.
4. Be authentic. Be open in your communication, create a climate for honesty to deal with mistakes, and listen. Drive clarity and promote accountability. Position yourself to profit from employee respect.
5. Bring your employees together for collaboration. Invite them to contribute their perspectives. It’s amazing how many problems are solved and profits are created by listening to workers – where the “tire meets the road.”
6. Simplify processes. Nurture your employees. Understand their desires, passions and talents. Give them confidence to accept challenge and to reach their full potential. They will propel you and the company upward. Further, remember that there’s a definite link between financial performance and succession planning.
7. Create a fun environment. Keep focusing on the positive.
8. Keep yourself moving forward. Learn the 10 characteristics of a successful CEO.
9. Stretch and grow by understanding how and where you need to mature personally to become a Ninja innovator.
10. Keep fine-tuning your culture. Keep an open mind. Look for ways to evolve and innovate.

From the Coach’s Corner, here are 7 Tips for a young professional to become a CEO.

“No institution can possibly survive if it needs geniuses or supermen to manage it. It must be organized in such a way as to be able to get along under a leadership composed of average human beings.”

-Peter Drucker

 

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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?

11 Sales Strategies to Outsell Your Big Competitors

 

Big companies have obvious advantages over small businesses. Their brands are well-known. They can afford sales training, sales-support staff and customer-relationship management software.

On the other hand, there are good reasons why Cyber Monday has become big. Yes, many online customers do it to save money on sales taxes. The other salient reason – poor customer service by many companies. Yes, their Achilles heel – poor customer service.

So don’t let such advantages dissuade you from doing the necessary footwork for success. Remember size doesn’t matter but image, professionalism count.

Here are basics you need to put into practice:

1. Know your strengths and capitalize on them. Differentiate your business in quality, convenience, and service. Don’t forget to highlight the quality of your people. Practice the eight best practices in small business marketing.
2. Know your weaknesses and capitalize on them. Smallness is a quality. It means you’re more mobile, and it takes less time for you to provide solutions – there are no out-of-town committees making decisions. You provide more value. You don’t waste money – your customers won’t have to pay for expensive facilities for your business-lunch entertainment.
3. Make cold calls. Here’s more on the lost art – how and why to use cold-calling for higher sales.
4. To grow, remember two concepts – “Act as if…” and “fake it till you make it.” Even if you are apprehensive but if you do your best to speak to prospects with conviction, they will feel your passion.
5. Know when to cut your losses. That’s an adage from economics 101. If you’re making sales calls but sense you’re getting nowhere, focus on your other prospects. On the other hand, there’s another adage – “The longer they keep you waiting, the more they want you.” Some prospects might be interested but they’re too busy to act, or they might be waiting to see if you’re stable and going to be around for a long time. I’ve had many likeable vendors call on me, but they give up too soon before I’m ready to buy.
6. Understand that you are the company. First impressions are critical. Be mindful – of your appearance, enthusiasm, empathy, talent and commitment– to provide solutions.
7. Remember your time, service and products are valuable. Providing added value can be helpful. But don’t let customers take advantage of you. When you’re asked to do something for free, look for opportunities to capitalize on the request. Get something in return. Make certain such customers reciprocate. Use the 22 do’s and don’ts for successful negotiations.
8. Make certain you cater to appreciative clientele. Make certain you get a thank you. If they don’t show gratitude, ask for it in a subtle way (“So you like our product?” Or, “You like the way we handled the problem?”)
9. Know which customers are profitable. Be congenial. But don’t break your back for a customer who expects you to repeatedly bend over backwards. In any economy, know what drives your profit.
10. Make certain each employee understand sales and customer service. See profit drivers – how and why to partner with your employees.
11. Make the right investments for selling and serving your customers. That means cost-effective technology, and customer service and sales training for your employees. Learn how small businesses can capitalize on cyber strategies for profit. Here are 8 tips for cold calling by e-mail and telephone.

From the Coach’s Corner, for consulting and service firms, here are three resource links:

Consultants / Service Firms: Why Hourly Billing Isn’t Best

60 Ground Rules for Effective Client Service

Your Dream is to be a Consultant? Here’s How to Develop Your Vision Plan.

“Remember, you only have to succeed the last time.”

-Brian Tracy

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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?

Lagging Profits? Year-End Is Ideal For Reflection, Planning

 

Dec. 15, 2011

Year-end is a perfect time for reflection and planning for your business.

Don’t be distracted from improving your business because of all the negative news: RealtyTrac reports homeowners from Seattle to Sarasota face another round of foreclosures. Nearly 50 percent of Americans are either characterized as low income or in poverty. U.S. business expects anemic growth and Europe anticipates a recession.

The only possible bright spot is in employment numbers, and CFOs plan more hiring in 2012 according to the Duke/CFO Global Business Outlook Survey.

Yes, you are busy and overwhelmed. You can’t do much about the macro developments but you can do something about your company. Even if you’re a retailer scrambling to make your numbers from holiday sales, it’s fitting that you start reflecting about 2012.

Start with an attitude of gratitude – make a gratitude list about what is working well. If you’re still operating as a business, you do have some blessings. Consider your customers, employees, family and close friends. All deserve your gratitude, time and attention.

If you’ve been feeling beleaguered, chances are you’re focusing on the 10 percent that needs correction instead of the 90 percent that’s working well in your professional and personal life. Consider these 23 tips to reduce stress, and work Happier for top performance.

Now that you feel better from a more positive perspective, think about what is needed for a better 2012 – Reflect on your strengths, weaknesses, opportunities and threats.

If you need a complete turnaround, here are13 steps you can take;  plus these 12 tips for profits to keep your business dreams alive.

Here are 31 New Year’s Resolutions to Recover from the Great Recession.

Otherwise, consider:

• Start with your role. Have you performed at a high level as a boss? Did you know there are 10 key differences between leaders and managers?
• Finances and cash flow – analyze your profits and expenses. Don’t forget to review your break-even point. Plan to make any needed changes.
• Regarding employees, decide what is needed in performance appraisals, salary reviews, training, and corrective action.
• Check your online customer service reviews. Write responses for negative reviews, but strategize on the internal changes you need to make to prevent more complaints. If you don’t have enough reviews, give an incentive to each of your best customers to take a moment to write a favorable review.
• Identify what you need in technology and make an investment to innovate for profits. That includes a strategy for a Web site update, online mentions and social media – LinkedIn, Facebook, Google+ and Twitter. Get your employees involved.
• If you’re frustrated in looking for new business, soften your approach.

Here’s to your serene holidays and a prosperous New Year.

From the Coach’s Corner, continue to fine-tune your strategies as events occur. But remember to think 1930s for business success. Consumer attitudes are changing. Maybe you should, too.

“I am still determined to be cheerful and happy, in whatever situation I may be; for I have also learned from experience that the greater part of our happiness or misery depends upon our dispositions, and not upon our circumstances.”

- Martha Washington

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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?

12 Tips for Profits to Keep Your Business Dreams Alive

 

Most businesspeople agree the economy continues to be challenging. Signs of a lingering downturn are everywhere. Business activity is slow. Governments at all levels report low tax revenue and are restructuring, and not spending. Customers want you to cut prices.

With a high level of oversupply in many industries, high unemployment and reduced customer spending, many businesspeople face a highly competitive environment.

To keep your dream alive in this downturn, you must find ways to adapt and do it quickly. That means re-examining business plans, strengthening risk management initiatives, retaining top talent, and making internal changes and restructuring to increase efficiency and profitability – all while looking for new opportunities for growth.

How to improve your business position:

1. Be defensive. Protect your turf by taking the best possible care of your best customers. You can invigorate sales with customer retention strategies. Find out what they think of your company, and make necessary improvements. You might consider jettisoning high-maintenance customers. Upon careful review, you might find they’re not profitable for you. You don’t want to be in a position where you’re just moving money around.
2. Expand your customer base. By surveying your best customers, you’ll probably get some compliments. That’s a perfect opportunity to ask for referrals. Find low-cost ways of rewarding them for referring their associates, relatives and friends to you. Here are sales and networking strategies to build strong relationships.
3. Invest in your future. Keep your productive marketing going. Train your workers. Take advantage of innovations in technology. Consider the 11 strategies to keep your business floating above water.
4. Develop an employee-loyalty program. Make it a fun working environment. Even if you can’t give raises, learn how other businesses are successful in retaining their best employees.  Learn which employees are most-likely to quit. Be transparent with them. Explain your challenges and how they can help, especially in processes and with customers. Note the strategies if a valued employee wants a raise, and money’s tight.
5. Fine-tune your branding. The Eight Best Practices in Small Business Marketing. The key to remember – customers want value. Think 1930s for business success. Consumer attitudes are changing.
6. Give back to the community. Did you know that cause-related marketing can increase sales by double digits?
7. Review your pricing strategy. Determine how to get more return on your sales. There are eight simple strategies to give you pricing power.
8. Use best practices in managing your financials. If you’re struggling, here are the step-by-step solutions for a company turnaround.
9. Be creative in your receivables. If collections are a challenge, here’s how to ease debt-collection headaches.
10. If you’re small, make it work for you. Remember  size doesn’t matter but image, professionalism count.
11. Do your best for the environment. Eco strategies work with customers. Here’s a checklist for branding, selling your biz as green.
12. Become an innovator. You must constantly evolve. Here’s how successful companies innovate. Once you are running on all cylinders, consider buying your competitors – providing, of course, you can manage them.

From the Coach’s Corner, if you’re really in a survival mode, here’s a six-part series with tips on “Surviving Economic & Industry Downturns” for your Downturn Survival.

“Nobody talks of entrepreneurship as survival, but that’s exactly what it is and what nurtures creative thinking.”

-Anita Roddick

 

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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?

Profit Drivers – How and Why to Partner with Your Employees

 

If you want maximum profit, consider partnering with your employees.

“Key employees – in fact, all employees – will be more valuable to a company if they understand what drives profit and improves cash flow for the business,” says leading financial consultant Roni Fischer.

Ms. Fischer explains typical obstacles to profit:

• A furniture retailer might have employees who believe every conceivable product should be stocked for easy sales, but workers don’t understand the need for diligent inventory management so cash isn’t tied up unnecessarily. 
• Because of the economic downturn, some sales people want to discount prices. They don’t understand the need to sell products at full price to preserve profit margins. 
• Sales persons might focus on prospecting for new customers rather than nurturing existing relationships. They don’t appreciate that retaining customer loyalty by providing added value to those who are already buying your products is much more cost effective than pursuing new customers. 

Ms. Fischer knows the greatest asset that any company has is its human capital.  

“The best way in which to engage and empower these employees is by sharing management’s vision, goals and sales targets with the company’s personnel,” she explains. “Employees in every department can impact the profitability and cash flow of the business. When staff members understand how their roles impact the bottom line – and are financially incented to achieve the company’s goals – they become key partners in the business.” 

She recommends key profit-making roles and contributions by departments: 

Marketing – Ensuring that marketing campaigns focus on “benefits” – how their products respond to a customer’s “pain” or “need” (rather than merely detailing the features of the product) – maximizes sales.

Sales – Focusing on products with the highest gross profit margins, rather than top line revenue dollars, increases profitability. Structuring commission schedules to reward more profitable sales redirects emphasis to those products and relationships that are most financially lucrative. Partnering sales with finance to collect outstanding accounts receivable balances – before sales commission checks are cut – escalates cash flow.

Operations / Manufacturing – Streamlining manufacturing and operational processes to eliminate waste and minimize defects conserves cash. Accurately planning production levels in response to marketing’s projections enhances the likelihood of having sufficient inventory to meet customer demand (thereby maximizing sales) and minimizes overproduction (which generates costly excess inventory). 

Finance – Collaboratively developing budgets that incorporate input from all company departments and tracking performance against these budgets provides a means of quantifying the company’s activities.  Translating these budgets into cash flow projections helps ensure adequate capital for payroll-related expenses, production, sales and administrative expenses, R&D, capital expenditures, etc. Evaluating credit worthiness of potential customers and determining when to offer payment terms minimizes the risk of non-collection of accounts receivable balances. 

Human Resources – Communicating management’s vision, goals and objectives provides the framework for training and empowering employees to optimize their personal contributions toward achieving these goals.  Incenting employees with three-tiered bonus compensation plans reflecting individual, group and overall company performance enables all employees to share in the company’s success. 

Management – Strategically guiding the business and empowering the employees to partner with Management in attaining the company goals capitalizes on the business’ human resource assets.  

“One tool that can be exceedingly effective in guiding, tracking and communicating the company’s performance is the flash report,” she points out. “This one-page document incorporates key performance indicators (KPIs), or critical success factors, that management has identified drive the company’s success. Typically these relate to sales, collections, cash balance, accounts receivable, loan balance, accounts payable and backlog.”  

How KPIs are best utilized 

“Updated daily by 9:00 a.m., with the KPIs compared against the monthly and year-to-date budget, the flash report should be shared with as many people in the company as possible so that all departments understand their roles and can assume a sense of ‘ownership’ in achieving the company’s goals,” Ms. Fischer explains. 

Ms. Fischer is president of RLF Associates, Inc. in the Los Angeles area. As a leading consultant for over 25 years, she provides expert financial and management solutions for firms ranging from start-up companies to multi-hundred million dollar corporations. 

See more of Ms. Fischer’s insights: Budgeting Basics for a Micro Business.

Her Web site: www.rlfassociates.com.

(Note: She is a fellow member of Consultants West, www.consultantswest.com, a roundtable of veteran consultants in the Los Angeles area.)

From the Coach’s Corner, here’s a related resource link:

Accounting / Finance – Why and How to Determine Your Break-Even Point

“I never lost money by turning a profit.”
-Bernard Baruch

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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?

15 Quick Tips for Profitability in the New Economy

 

First, it’s important to accept the facts. The new economy – challenging times – is here to stay.

A business should perform like a championship sports team. That means protecting your turf while aggressively pursuing new opportunities, and making full use of technology.

For new or existing businesses, here’s a checklist of strategies:

1. Evaluate your strengths and weaknesses, opportunities and threats – including yours, key employees and the mission of your business. Consider a SWOT analysis at every level. You need to understand your talents, and your special niche. 
2. Study your marketplace. Your customers want to anticipate how your products and services will work for them. 
3. Develop a new marketing approach to differentiate your business from your competitors. Design a unique message with a minimum of five value propositions, a branding slogan and logo that demonstrates value. Use the right verbiage. Increasingly, customers favorably respond to words that connote security, convenience, good, new, proven, results, community involvement and green or environmentally safe. 
4. Write a vision plan, strategic action plan or a business plan, which is even better. Determine clear, pragmatic goals and how you will achieve them for the short and long term. 
5. Get the right advice. At the least, get a mentor who is successful and understands your business. Additionally, a network of business advisors will work. 
6. Monitor your expense and eliminate unnecessary costs. 
7. Leverage the insights of financial, legal and insurance professional, whom you can trust. 
8. Determine where your most profitable customers are. Get to know and understand their concerns and needs. Provide exemplary service. 
9. Recruit and hire the best talent. Look for attitude, education and soft skills. Pay them well. Be mindful of their lifestyles and family concerns. 
10. Continually look for multiple revenue streams and new product lines that make sense for your business. 
11. Don’t become a low-price leader. Be careful in using loss-leader pricing, and remember coupons only attract price-conscious customers. They will not be loyal and become repeat customers. 
12. Be pro-active, which means doing the footwork, and making old-fashioned cold calls. 
13. Nurture your relationships by sending greeting cards, thank you notes, special offer notifications, and an occasional visit or phone call to just chat and not sell. 
14. Make certain your small business voice is heard – vote, and make your business concerns known to lawmakers. 
15. Develop a succession plan and exit strategy, especially if you’re approaching retirement. 

From the Coach’s Corner, here are more resource links:

10 Scholarly Solutions for Selling More Products

Marketing Essentials on a Shoestring Budget

Management and HR for higher performance

“If your goal is anything but profitability – if it’s to be big, or to grow fast, or to become a technology leader – you’ll hit problems.”

 -Michael Porter

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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?

 

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:

1. Price
2. Variable costs (variable costs change as a result of revenue from the cost of sales)
3. Fixed costs (also known as overhead)
4. 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:

1. Business owners are so focused on developing revenue from prospective customers, they fail to concentrate on their existing customer base.
2. They fail to build their brand image so they miss opportunities to increase prices.
3. 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?

Accounting / Finance – Why and How to Determine Your Break-Even Point

 

Best practices in management mean having the right information to alleviate uncertainty in business. For that you need the right tools. One important tool – know your break-even point (BEP).

A BEP analysis should be an integral part of your financial planning. If it isn’t, you can count on suffering from unnecessary stress – emotionally and financially. You need to be able to make the right decisions because positive cash flow is paramount to facilitate success.

Generally, there are multiple benefits to knowing your BEP, for example:

1. You can track when or if you’ll break even.
2. You’ll be in a better position to evaluate whether your new products or services are good ideas.
3. Whether to expand in other ways.
4. Businesspeople who perform such analysis are often more profitable.
5. In a loan scenario, the bank will want to know your BEP. Plus, you’ll know how much you’ll need to sell to successfully pay off the loan and to make a profit.

Success can be dangerous as it sometimes leads to complacency in financial management. If your business is on a roll – your profits are strong and your cash flow is positive – you’re probably not worried about your financial position.

But one thing is clear in business – you can expect negative surprises. You should be prepared for any contingency. And there are many.

To name a few: You could lose your best talent, your products can reach the end of their life cycles, or you can be hit by an earthquake or hurricane.

Sure, it helps to stay up-to-date on your checking account balance, general ledger, sales receipts and your monthly profit and loss statement. But these are insufficient – if you’re to accurately ascertain how and when to pay the bills and to meet your payroll, especially in this uncertain economy.

Time is a valuable commodity in business. Even in good economic times, most entrepreneurs are too busy putting out fires and reacting to problems.

If you understand where your BEP is, you’ll know instantly whether you can cover your obligations and know how far ahead or behind you are in terms of cash flow. The longer you wait to develop such financial information is to invite disaster. So, it’s best to be proactive.

In essence, the BEP is where your revenue equals the cost of sales plus expenses.

It’s a mistake to determine just your cost of goods or services but failing to consider your fixed costs or operating expenses, which are also called overhead.

A good friend, Neil Delisanti – the esteemed former Small Business Development Center advisor in Washington state, and who taught at the University of Puget Sound and The Evergreen State College – helped thousands of people. He also advocated a break-even analysis.

He provided this basic BEP formula: BEP = Fixed Costs divided by Gross Profit as a Percentage.

For example, if your fixed costs average $2,000 per month and your gross profit is 40 percent, your cost of goods is 60 percent.

How this BEP is determined: $5,000 = $2,000 divided by .4.

This formula indicates you will have to achieve $5,000 in sales to cover your cost of goods and fixed expenses.

If you attain your BEP in each reporting period you’ll be OK. After you achieve the BEP, the balance is yours.

Remember, this proactive tool is helpful to avoid or get out of difficulties while you still have time to do the necessary footwork. So manage the books and be ready for change – any change — especially negative change.

From the Coach’s Corner, here are related resource links:

Primer for Best Practices in Preparing Financial Statements

Step-by-Step Solutions for a Company Turnaround

8 Simple Strategies to Give You Pricing Power

Change is inevitable, except from a vending machine.

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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?

 

 

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