A toddling tale

That may sound like a silly question, but when we re-located nearly eight years ago to an old family haunt, one of the features of local business that rather surprised me was the number of local businesses that refused to accept credit cards.

I would be told to toddle off to an ATM and come back with the required cash. 

Image the number of people who would decide it was all too hard, and continue toddling, never to come back?  The gross profit that toddled off would be far greater than the 1-2% foregone from the credit card transaction.  After all 2% saved on nothing is still ….. nothing.

That “never to come back’ is an important consideration such businesses obviously never took into account.  You will know you make more money from repeat customers than new customers.  There are a number of reasons why you do so:

  • Cost of acquisition – repeat customers cost less money to acquire.  Think of your promotional dollars, usually aimed at getting people to come through your door.  Repeat customers know where your door is, and what they are going to find.  That’s why they come back.  And here's a thought about discounts - discounts cost you money. Some businesses offer specials to make a sale.  Good businesses offer specials to gain a customer.
  • Referrals – word of mouth is the most effective form of promotion, worth far more than endless promotional campaigns.  People believe their friends, and a repeat customer is highly likely to tell others where and why they bought something.
  • Size of purchase – the initial purchase may be small, that’s why on-line marketers offer small products as “lead magnets to get you ‘through the door’, but as the customer’s confidence in you grows, the size and frequency of their purchases grows.

Make it easy for them to buy

You may or may not want to offer credit but the more options you can give the customer to pay the more likely they are to buy. 

The list of widely used payment options is not long. On-line you can use credit and debit cards: Visa, Master Card, American Express and Diners, or PayPal.  Offline you have EFTPOS for the various credit cards, direct debit plus of course cash or cheque. 

I continually scratch my head in bewilderment when I find businesses preferring to save the transaction fee on credit cards rather than make the sale.  You haven’t saved anything if you have lost the sale.

If it is harder to do business with you than with your competitors, guess which way the customer will go.  And you not only lose the customer, you lose their repeat business.  What is “saved” in transaction fees will be dwarfed by the lost opportunities.

What other cost-cutting measures cut sales?

Very often businesses decide they need to “cut costs”, and yes, this can be very important for two good reasons:

  • Fixed costs – the more you can lower your overhead or administration costs, the more you reduce the break-even point for your business.  And once you are past breakeven, the more profit you will make each year.  See "How to bring forward your breakeven point".
  • Cost of Sales – if you can reduce your Cost of Sales while retaining your price, obviously your Gross Profit will improve.  And as I keep repeating, it is not the volume of Sales that determines your profitability, but the volume of Gross Profit.

For more on breakeven and its importance see "What is breakeven and why is it so important."

But as Paul Lemberg suggests “There are tons of proven ways to lose sales by making it extra hard for customers to buy from you. Mostly these are just bad decisions people make to limit expenses, but they are almost always short sighted. They repel good customers, and not only for the all-important first sale, but for all the otherwise super-profitable recurring sales as well.

Once pushed away, those potential customers are pushed away forever. They never come back for that ever-more-valuable repeat business.”

Cutting costs which make it more difficult or off-putting for the customer can be cutting of your nose to spite your face. 

Here are some more examples:

  • Cutting staff – now I know people are your biggest expense.  They are often around 50% of more in many small businesses.  But customer service is a critical element in customer loyalty.  If numbers have to be reduced, look for ways to compensate and improve the customer experience.
  • Shipping and handling costs – yes, they can be genuine, but they shouldn’t be loaded.  Overcharging shipping and handling to make an extra dollar is cheapskate.  Make your margin on a good product.  You can even use shipping and handling to increase sales, as Amazon does, offering free delivery if you buy an extra book.  Some businesses offer free shipping to make it easier to win the sale.
  • I can’t find what I want – you go into a business, or online, and you can’t find what you want.  It’s very off-putting.  Online, the easiest thing to do is to click away to another site.  Offline, clear signs, well organised, well labelled merchandise makes a big difference.  Even a small change in the question your staff asks customers can make a big difference.  Instead of the off-putting “Can I help you?”, try “How can I help you?”. 

Make dealing with you a pleasure, not a pain, and build loyal customers and repeat business.

Is your business travelling as well as it could, and should?

When clients approach me for coaching, clients with businesses that are underperforming despite the crippling hours and effort the owner is putting into them, it is not just marketing that is holding them back.  It is the lack of control they have over their business, and eight times out of ten that lack of control comes down to a lack of knowledge of what is happening in the business.

The problems lie in the dark recesses of the business, unseen and un-resolved.  Illumination is provided by knowledge of what is happening in the business, and how to respond.

Two spaces left –I have only two spaces left for a business assessment this month. 

If you would like to avail yourself of one, and there is no cost – this is my gift to you, book a Strategy Consult here.

© Copyright 2016 Adam Gordon, The Profits Leak Detective 

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