What can derail your promotion? Face it, as the owner or manager of a small business we all have to write something at some stage that is meant to lead to a sale. It may be a sales letter, a promotional email, a quotation, a response to a Request for Proposal (RFP) or Request for Tender (RFT). And it could be your new web page, or even an advertisement for your local newspaper, a flyer or a brochure.
Whichever, your intent is to have a prospective customer to say “Yes please, I’d like to buy that.” Now you could just write it, and put it out in your market place and wait and see the impact, but there are a few basic checks you should follow before you do so. Now you may well do some of these, but I’d hazard a guess you don’t do them all.
These checks can be broken down into 2 groups; who you are addressing, and what can derail you.
This fundamental factor stymies so many small business marketing efforts. They think their marketing needs to cover as broad a range of people as possible, just in case they miss a potential prospect.
Your promotion must be targeted.
Now this factor doesn’t apply to you if you are writing a specific response to a request – a sales letter, quotation, RFP or RFT (the second group of checks does apply), but it does apply if you are writing any other form of promotional material.
Is your market “everybody”? Can you tell me who “everybody”; what are their beliefs, feeling, desire? Why are they buying? What is their specific problem that you can solve? The fact is that very few of “everybody” will have that problem, and even those who do, may not be aware of it, or are not ready to buy.
Your promotion to these people will simply be a waste of time and money. You might as well throw a dart at a dartboard while blindfolded and hope to score a bull’s-eye – and that is about the odds you will have.
The 80-20 rule always applies; 80% of your sales, and profits, will come from 20% of your customers.
So it makes a lot of sense to specifically target those highly profitable 20% with an offer that meets their needs, and not try and please everybody with an offer that meets no-ones needs.
Is what you are saying aimed at a specific target, and do you really know what that target desires?
When you write something with the intent of getting someone to do something you need to:
Check it for typos and grammatical errors – basic, I know, but you would be surprised how many get through. I know I’m much better at picking up others errors than my own. There’s a good reason why that applies to all of us - we know what we mean to say and subconsciously skip over things.
The problem with typos and grammar errors is that the reader, having been moving along smoothly with your pitch, comes to a screeching halt. You lose their momentum. It interferes with them absorbing your message. Even worse, typos and poor grammar plants a question in their mind, “Will this lack of attention to detail carry over into your product or service.” They will question your quality.
The next few checks help overcome this.
Sleep on it – 24 hours later you see things in a different light. This not only applies to typos and grammar, but also to what you’ve said and how you’ve said it. You will be surprised at the changes you make in the cold light of day.
Read it out aloud – when I first came across this check I said to myself “don’t be bloody silly”, but then I found many experts in this field in both technical and creative writing recommend it. So I tried it. You will find it makes a real difference in improving your message.
Have a colleague check it. There’s nothing like a second pair of eyes. Back in eons past when I was marketing in the aerospace industry, I found that European companies had two people sign all important letters. Now that made sure a second pair of eyes had looked at the content and its accuracy.
But there is one other check you should take, and vitally important it is too. This I’ll discuss in my next blog.
In the meantime if you would like to take advantage of my new offer, a “fast track to cash” free strategic consult, please click here. This is not a sales pitch, just an opportunity to get an outside perspective on the issues you may be facing.
© Copyright 2015 Adam Gordon, The Profits Leak Detective
23rd April 2015
A few weeks ago I wrote about disruptive innovations and how they can fundamentally damage your existing business models.
“A disruptive innovation is an innovation that fundamentally changes how your industry delivers value to its customers. It is usually pioneered by someone from outside your industry, someone with something you didn’t see coming. Eventually it disrupts the existing market, displacing existing business models.”
A couple of points I made in that blog post are relevant to want what I want to touch on today.
The first is that you can’t stand still. Changes in technology can be rapid, breathtakingly so, and before you know it you are in real trouble. Just ask anyone selling books or music.
And the second is there is another side to this. There are many opportunities being created through new technologies. They include basic back office administration, marketing though to technical skills (e.g. IT, design and draughting)
They are opportunities for improvement and allow you to deliver better value to your customers, and put cash in your bank account, without destroying your business model.
This disruption is also based on technology and it is gathering pace.
I’m referring to off-shoring, that is, simply employing people offshore to do back-office work that you may have cut back on in your business because you could no longer afford it.
As one expert (Scott Linden Jones) suggests that for every position placed somewhere like the Philippines, a business saves between $40,000 and $80,000 per year.
This is not to suggest that you should be getting rid of your local staff, but think about this; have you cut back on jobs because you can no longer afford them but would still like to provide the service? That can be done.
1. The potential for cost savings. Many admin positions can be sourced overseas by competent people at about quarter of the cost you’re paying at the moment.
Now if you could reduce your overhead costs one of the real benefits is that you reduce your breakeven point. And when you reduce your breakeven point you make more money earlier than you would have otherwise, and to make more money overall. That’s gotta be worth thinking about.
2. Improved customer service. Because you may have been cutting back on staff because of the cost you may well now have less staff than you really need to provide good customer service. I’m not just talking about the telcos call centres. I’m talking about people who can handle queries, respond to problems, provide information, action warranty claims, and so on.
3. As a business owner you have responsibility to your family, to provide them with the comfort they deserve and you with the free time to be with them. You can’t do that when you’re continually is scrabbling for cash and spending more time in the business than you really should.
The first one is poor quality. Low-cost doesn’t mean necessarily poor quality. Nor does it mean poor English. Both the Philippines and India have English as an official language and basis of education. Now just like any other staff selection process you need to be very careful and assess the people you propose to hire.
Well, there are a number of ways. In his book “The Efficient $100 A Week Worker” Mike O’Hagan suggests four ways in the Philippines market, incorporate, use a third-party provider, lease staff or hire a freelancer. In the context of the Philippines market he does not recommend the first.
I use freelancers. The two main providers are Freelance, and Elance-oDesk. They connect you with mostly home-based “virtual” individuals (occasionally very small teams), with skills ranging from basic to the top end of town. They are not all in low-wage countries; many western workers have chosen to work. In projects I have put up on Elance I have had bids from Bangladesh to Canada.
As mentioned I have used Elance for a number of projects over the last few years; from developing complex Excel spreadsheets beyond my competence, designing book covers, researching opportunities, putting offers on my website, and so on.
One colleague I know and respect, uses a Philippines-based assistant. She has an MBA does his research, a lot of his administration, runs his Facebook page, emails prospective clients and partners and so on. Another colleague has his accounts done in Singapore and his website designers are based in Hong Kong.
Scott Linden Jones suggests your offshore team can create management accounting and other reports, liaise directly with clients you want, prepare compliance documentation, chase up client documentation, Chase debtors, manage your payroll and provide administration.
Mike O’Hagan quotes is Australian accountant cost him $300 an hour and exactly the same service in Manila costing $20 an hour. So get web designers, copywriters, draughtsmen and engineers. All the skills that you could expect to find in Australia are usually available offshore.
I believe this disruption is worth exploring, the cost savings are significant, but it must be undertaken with the same depth of research as you would do with any new project.
Here are two websites of people who may be able to assist you, and I should add I’ve met neither and have no connection with them, but I thought you may be interested.
I would be interested in hearing how you go.
If you would like to take advantage of my new offer, a “fast track to cash” free strategic consult, please click here http://www.profitsleakdetective.com/fast-track-to-cash-consult
© Copyright 2015 Adam Gordon, The Profits Leak Detective (except for the bits by Scott Linden Jone and Mike O’Hagen.)
Facing up to reality such as tough times in business, and accurately assessing obstacles is intelligent. Focusing on them continually, without creatively seeking solutions with a problem-solving mindset, is stupid.
That was Catherine Palin-Brinkworth’s message in last week’s blog. As she suggests, some people, when facing tough times, moan and groan and don’t do anything about it. They go nowhere; they fail. Those that succeed look to solve the problem.
She suggested the solution to the problem is to be found in three key skills; management, marketing, and motivation. I found five takeaways from her analysis of management necessities:
• Having a strategic plan
• Knowing your most profitable products or service lines
• Having all your financial reporting up to date and analysed
• Managing your market intelligence
• Managing your people
Can you give yourself a tick against each one of those? If so you are well on the way to not just survival, but also growth. As Catherine pointed out there are many large and successful companies, and she gave the examples that were established in previous tough economic times.
So let’s go on to look at her next two key skill sets.
It’s all yours again, Catherine
With real estate we have always been told the three rules are location, location, location. Now, with marketing anything, it’s database, database, database. Your business value, your goodwill, is now in your list. That is your real estate.
Of course you have a website. It could be a simple brochure site, which impresses the daylights out of anyone who is thinking of doing business with you - because it provides all the reassurance and evidence they need of your capability. Or it could be a full e-commerce site, providing a way for people to do business with you online.
I’m continually excited by the borderless nature of the net; my clients are now all over the world, and I no longer have to sit in a metal tube for hours at a time eating cardboard.
At the very least, your website will have a data capture facility; an encouragement for people to leave their name and email address with you, probably in exchange for a gift, or discount, or other incentive.
I’m really frustrated at the number of retailers I visit (and I do shop a great deal) who never ask me for my contact details - especially my email address. I would give them, if I had a good reason. I like a good deal! I like to be kept informed! Please don’t assume in advance that I will say no - just ask me.
And create offers, information, ideas, that could be of value to me, so that I get to build a relationship with you. There are probably heaps of things you can provide, that you take for granted. For instance, my local tyre dealer now runs workshops teaching women how to change a wheel. Guess who I go to for my tyres, and to whom I refer all my girlfriends.
As a professional speaker and trainer, I often am asked if I am a motivational speaker, with some cynicism. My answer is always that I hope so, I would rather be motivational than boring. Of course I work primarily with valuable business content. But I always loved the quote from the famous Zig Ziglar, who said ‘you’re right, motivation doesn’t last - neither does bathing - that’s why we need to do it every day!’
If you are a business owner, you might be asking ‘who motivates the motivator?’ I can give you plenty of ideas, places, websites, venues, organisations that can support you.
But here’s the important question - are you motivating your staff? Every day? To do great work for you? Are you motivating your customers to come back often and spend more each time?
By now you’ve got the picture. You are probably leaving thousands of dollars behind every week. There is still a lot of money to be made in business. But if you do what you’ve always done, you’ll get what you’ve always gotten – or less of it.
The world is changing. Are you?
There are more key takeaways from Catherine’s article.
Your business value, your goodwill, is in your list. You will sell more to existing customers than new customers. And it costs money to acquire new customers. Your current customers will always be more profitable than new. So cherish them, retain them, and build your list.
You must have a website. A website enables customers from everywhere to access you. Properly set up, your website will convince potential customers of your experience and reliability. It will provide social proof of the key people who use your products or services. It will provide testimonials that remove doubts the prospective customer may have and, most importantly it will provide a basis for capturing more names and addresses, building your list, your business value, your goodwill.
Capture the contact details of new customers who come through your door. When you have those you can promote offers, inform them of new services or products, and, most importantly, maintain contact.
Motivate your staff - your customers will notice it. Motivate your customers – and they will come back.
If you would like to take advantage of my new offer, a “fast track to cash” free strategic consult, please click here .
© Copyright 2015 Adam Gordon, The Profits Leak Detective (except for the bits by Catherine)
Recently I had the pleasure of meeting Catherine Palin-Brinkworth. Catherine is known for her wisdom and insight, her inspirational energy, her leadership experience, impact and influence.
Her successful business background ensures her work is grounded, practical, and immediately usable. She says she is powered by research, real life relevance and renegade thinking.
Catherine contributed this week’s blog. You can obtain further details at www.catherinepalinbrinkworth.com
It’s such a cliché, we groan when we hear it and then dismiss it. “When the going gets tough, the tough get going!” Unfortunately, for those who prefer to moan and groan rather than ‘get goin’, it’s true.
Intelligent versus stupid - facing up to reality and accurately assessing obstacles is intelligent. Focusing on them continually, without creatively seeking solutions with a problem-solving mindset, is stupid.
Yet so many do. Waiting, whining and wondering who will bail them out. Wailing down at the pub or over a coffee about the government, and how much better they would manage the economy. And all the while not managing their own businesses with the attitude, energy and positive belief they deserve.
A quick search on the web produces long lists of businesses who were born, or built and thrived during recessions in the United States. There’s General Electric, Disney, Burger King, Microsoft, CNN, Apple. So it can be done. And right now, there ARE businesses who are thriving, growing, and making the most of the opportunities that do exist.
We simply need to improve our business management skills, and enhance our sales and marketing strategies. It's not a time to lose our nerve, but to go out and get the businessothers will lose from their negative mindsets.
The answer is usually three-fold:
Yes, it’s time to cut back on non-essentials. But let’s be clear what these are - or more importantly what they’re not. They’re not anything to do with marketing, networking, genuine business generation or good management. They are not to do with upskilling or rewarding performance. They are not to do with production capability.
They are to do with time wasted, materials wasted, and anything not congruent with your strategic plan. You do have one, don’t you.
You will have done an analysis of your most profitable product or service lines, and you’ll be able to focus on them and cut the rest, unless they are strategically valuable.
If there is insufficient demand for your existing products or service, you will have analysed whether there is demand for them from other providers (in which case your marketing is at fault) or whether you have missed market signals and you need to tweak/update/modify your offerings.
You will by now have learned the critical importance of having all your financial reporting up to date and carefully analysed. When times were easy, we may have been careless. Now, we can’t. There’s heaps more money to be made - we need to know where to find it!
You’ll be managing your market intelligence; reading business journals, attending relevant industry events, reading between the lines both nationally and internationally, to try to find the jump on others in your local environment perhaps. Now, with the internet, it’s so much easier!
Most importantly, you’ll be managing your people. Hire the right ones, and train them the right way. Never throw them into your business assuming they can do the job because they have done it before elsewhere. Always run an induction program for them, even if it’s a day or two. Because you want them imbued in your culture by YOU, not by one of your team members who may be currently disenchanted or just having a bad day.
Hire on attitude, and train skills. The latter are learned much more easily than the former. Train them regularly - money spent on training is never wasted. There is a BEST way to train, of course - workplace specific, spaced repetition, with management involvement. Look up www.best-training-systems.com if you want more information.
Before we leave I’d like to address some key takeaways from Catherine’s article.
Having a strategic plan. It needn’t be complex, it needn’t be long, but you need one. A strategic plan is all about knowing we’re going, having an end goal, heading in the right direction. As Dan Kennedy put it’ “You can eventually get north by going due south, but life is a lot easier and less stressful, and business more profitable, it you actually get headed in the direction that leads to your destination of choice”.
Knowing your most profitable products or service lines. Unfortunately, in my experience, so many profit leaks occur in small businesses because they don’t know which are their most, or least, profitable products and service lines, and markets.
Having all your financial reporting up to date and analysed. I always require my clients to report to themselves at least monthly. Why? Because when they don’t report themselves and analyse what the information is telling them, they don’t have control of the business. And without control they are not able to head in the right direction.
Managing your market intelligence. How many of you actively research and read reports on what is happening in your marketplace, and the wider economy that impacts on that marketplace? Forewarned is forearmed.
Managing your people. As Catherine mentioned, this starts with hiring the right people, or as Jim Collins puts it in “Good To Great”, having the right people on the bus. In fact Collins suggests leaders of businesses that go from good to great start not with “where” but with “who.” They start by getting the right people on the bus, the wrong people off the bus, and the right people in the right seats. And they stick with that discipline—first the people, then the direction—no matter how dire the circumstances.
Now that is food for thought. Next week I’ll come back to the other two business management skills Catherine espouses, marketing and motivation, and why they are so important.
© Copyright 2015 Adam Gordon, The Profits Leak Detective
Wouldn’t it be useful if you could identify a tool which would give you an unfair advantage over your competition? A tool you could use again and again because the competition go through the motions, but that is all they do. They don’t systematically or professionally use this tool to increase their sales, their profits, or their cash in the bank.
A report earlier this year in which the influential Fournaise group, which researches such matters, discovered:
• 67% don’t believe marketing ROI requires a financial outcome
• 64% use Brand Awareness as their top marketing ROI KPI
• 58% place “Likes”, “Tweets”, “Clicks” and/or “CTR” in their Top 5 marketing ROI KPIs
• 31% still believe simply measuring the audience reached is marketing ROI
“Every Tom, Dick & Harry is a Marketer lacking scientific and financial knowledge.” noted the report.
If the competition knew what they were doing when it comes to marketing then it would be a different story. Having been working with small businesses now for more than 25 years I can tell you they don’t.
Now the chances are, when you step back, you might not as well. But the difference is, you can decide to do something about it! Now that will give you an unfair advantage.
There are two issues here:
• The critical role of marketing in your business, and
• Secondly, without proper measurement, effective (i.e. produces profits) marketing is not possible.
Pour yourself a coffee, sit back, and take a few minutes to think about this; the foundation for the “scientific and financial knowledge” of marketing. Business begins with a sale. Without a sale you haven’t a customer, and customers are the lifeblood of your business.
You might find them difficult at times, cantankerous, not ready to buy when you are ready to sell, or even the customer from hell (and we’ve all had one of those). But without customers you don’t have a business.
Michael Masterson said in 'Ready, Fire, Aim' your primary concern has to be making sales. Even if you have a good product or service – one that is in demand – you can’t force people to buy from you.
Sales occur when you have a transaction. Marketing is getting them to that point.
Michael Masterson ties marketing to cash flow, and hence your bank balance, very well.
“The other functions are important, but without marketing you will not have sales and without sales you will not have cash flow and without cash flow you will not be able to pay for all the other functions (except by going into debt, which is simply borrowing against the cash flow of the future).”
What you need is planned marketing program for the year, a program which will predictably stimulate and sustain profitable revenue growth over the year. I’ll get to the “predictably stimulate” bit in a minute. But first, let’s talk about a marketing calendar.
What is a marketing calendar? It is a program that systemises all marketing for the next 12 months. Here are the ingredients:
Budget - Do you have a budget, and I mean a monthly budget, not just an annual figure? Does that budget reflect the reality of the seasonality or whatever impacts the variability of your sales over the year, and not the annual figure divided by twelve?
Sales targets - Can you break those monthly sales down into, and now this is very important, the product groups you hope to sell, AND, the customer groups you plan to sell them to?
Marketing arsenal - Do you have a defined marketing arsenal? What goes into a marketing arsenal: Core Marketing Message for each customer group, an effective website, keyword search phrases identified, testimonials, written guarantee, social media accounts (which will depend on your markets), client referral system, client reactivation system, lead magnet, and PIPES structure for your sales messages.
Monthly projects and campaigns defined by each month using the marketing arsenal to achieve those monthly sales targets. This is your marketing calendar.
Your budget and sales targets will be usually displayed through a spreadsheet. Spreadsheets are also great for setting out your marketing calendar.
Glance back at those findings of the Fournaise group. Do you think those people are measuring what matters? The fact that 67% believe that the aim of marketing does not require a financial outcome is quite beyond me.
Measuring tweets, clicks, brand awareness may be interesting, but is does not link sales and marketing effectively, which means you're left with a view of marketing that is all talk and no substance.
As I wrote in Does Social Media Pay? "The essence of good marketing is measurement of results, so that you know whether what you are spending is getting you a result.
And that is the problem many companies have with social media; that same proportion point to a lack of ability to measure the actual return on investment from their social media marketing, or confusion as to how to measure it."
What matters from marketing is profitable sales, delivering value to customers so they come back again and again. It is about identifying and targeting those customers who are most likely to buy – the 80/20 customers (link). Measure real results. That is where the “scientific and financial knowledge” of marketing comes from; knowing the real results you will get when you follow your marketing calendar.
Don’t leave your marketing to a whim or impulse. Develop a planned program which will predictably stimulate and sustain profitable revenue growth over the year.
© Copyright 2014 Adam Gordon, The Profits Leak Detective
There are very few people who talk sensibly about the one of the key Cogs in the Working Capital Wheel. Merrill Allen is one. She is an accomplished business manager, with an excellent understanding of how strategic and financial planning can optimise the growth of a business. Her passion is to upskill you in the areas of Planning, Forecasting and Buying, to maximise the Return on Investment of your inventory and increase your profits.
As I wrote in the Working Capital Wheel, inventory is a key clog in the Wheel, It doesn't have to be dead stock to make stock a dirty cog, slowing up the speed with which the wheel turns. Any stock that moves more slowly than it should do will do that.
Merrill has the answers to take back control of your business, increase profits and improve cash flow when it comes to inventory Management.
Take it away, Merrill!
In any retail, wholesale or product based business, the inventory is the largest investment you will make in that business and accounts for a large part of your assets. The way in which this investment is managed is crucial to the long term success of your business.
Sales from this inventory are also the only source of income for the business. Hence the importance of ensuring it is managed in a way that will maximise opportunities and minimise risk.
Basically, like any other investment you want to establish a process that will put that investment to work, to achieve the best return. (ROI)
After all, when you are buying and selling products, turning them back into cash is the only way to make a profit and enable you to fund expenses and future purchases. The more efficiently you do this, the more profitable your business will be.
The ability to generate maximum sales, on the smallest inventory investment as possible, whilst maintaining sufficient stock to maximise the sales potential, is the best way to achieve the highest inventory ROI and therefore the highest Gross Profit result for your business.
As the health and value of your business is also largely measured by the inventory ROI, ensuring this is competently managed is a key benefit.
However this is not always the easiest process to master, and is often the most challenging aspect of a product focus business.
1. The Ability to confidently allocate Open-To-Buy: Who has ever popped into the grocery store for a couple of things and walked out with a full trolley?
If you haven't formed a plan to create a list of exactly what you need to achieve the required sales, you will inevitably buy more or buy inappropriately to the needs of your business.
Just like popping into the grocery store, this is exactly what can happen when there are no Inventory Planning processes in your business. You have all good intensions to only purchase a small amount from a supplier but end up with more than you actually need!
Open-To-Buy planning is all part of Inventory Management, and with a Sales Budget in place along with the knowledge of what inventory is on hand, a correct Open-To-Buy amount can be determined. Then you can confidently meet suppliers with a specific list and only purchase in-line with the actual needs of your business.
2. Correct Stock Levels by Product Category: Have the correct amount of Inventory for your business is one step; however ensuring it is the correct assortment mix to maximize sales is somewhat more challenging. This is very difficult to achieve without an accurate Inventory Planning process.
Carefully analyzing each category is a critical part of Inventory Management. You may have adequate stock levels to meet your sales budget; however, neglecting to manage the category mix will negatively impact the sales potential and ultimately increase markdowns. Sometimes what we think is, isn’t also what is !
3. Stock Turn Rate: Poor Inventory planning will often result in low stock turn rate. This is a clear indication of the Inventory investment not being put to work.
A low stock turn rate will often result in low sales due to carrying too much old merchandise and not enough fresh merchandise. And as a result of the carryover stock, Cash Flow will be reduced and markdowns will likely be higher than normal, leading to a reduced Gross Profit.
On opposite end of the scale, a stock turn rate that is too high can result in inadequate stock levels and risk losing sales. An efficient Inventory Management system and process will help monitor this key performance indicator.
4. Risk Management: As the Inventory is your largest investment, obviously it is also your largest risk. The absence of an Inventory Management system and regular monitoring will increase your risks considerably and you will find yourself being much more reactive when making Purchasing and Markdown decisions.
Inventory Management includes continual forecasting and therefore will keep you proactive in critical decisions resulting in decisions that are more effective and less radical.
5. Managing the Sales Roller Coaster: Every business has peaks and troughs and surviving through these varied times can be challenging. If the Inventory is not managed correctly these times will be even tougher and result in unmanageable Cash Flow.
6. Sales: The full sales potential may not be recognised. Lack of effective inventory analysis will impact the ability to identify missed sales opportunities in your business and constrain its potential growth. Having a process in place to measure each category in sales and profit will give you the ability to plan and manage inventory levels to maximize the sales potential of each category.
7. Gross Profit: It’s not just sales that is important in your business, the profit from these sales is ultimately the most critical outcome to attain. Poor inventory management has a huge negative impact on the profitability of your business. By not being able to control Inventory, the markdowns will likely be increased and effectively erode your Gross Profit.
8. Cash Flow: Cash is King! Many circumstances can affect Cash Flow, and having excess merchandise in your business is one of the major things that will tie up cash that could better utilised in other areas. Effective Inventory Management will assist in not only controlling the amount of merchandise, but also guide you to flow it in a way that will more closely match the timing of your purchases to sales needs, resulting in a more even and manageable Cash Flow situation.
In summary, if you don’t have an Inventory Management System and Process in place, your Sales, Profit and Cash Flow could be severely disadvantaged.
So what are my Takeaways from this?
• Inventory ties up assets – your money. Doing more with less is going to make life a lot easier for you. And give you a decent return on your investment.
• Good inventory management reduces risk – I wish I had Merrill on board 32 years ago when I was trying to rescue a family retail business.
• Proper Inventory Planning can prevent many problems – I know ‘proper planning’ is an old adage, but in this area it is so true.
• Poor inventory planning will reduce Gross Margins and tie up cash, cash which should be put to better use!
To your profitability!
This may seem trivia, but it is not.
It was a brief paragraph in a newsletter that caught my eye, and my interest. Apparently the International Space Station needed a tool, specifically a ratcheting socket wrench, which they didn’t have on board. The story didn’t say whether it was urgent or not. You would hope not. Supplies get sent to the space station usually by unmanned space “freighters”.
So you would expect the request would go onto the list for the next shipment, usually months away.
But that is not what happened this time. No, they emailed it. Yes, that’s right, they emailed a tool.
You see, the International Space Station has a 3D printer on board. You may have heard of them. They lay down successive layers of material under computer control to “print” objects of almost any shape or geometry.
NASA sent the specifications to the company which made the 3D printer. They designed the tool using CAD (Computer Aided Design) and NASA just attached the file to the email. Simple really!
I think 3D printers are going to become what is called a “disruptive technology”.
A disruptive innovation is an innovation that fundamentally changes how your industry delivers value to its customers. It is usually pioneered by someone from outside your industry, someone with something you didn’t see coming. Eventually it disrupts the existing market, displacing existing business models.
The term is used to describe innovations that improve a product or service in ways that the market does not expect, typically first by designing for a different set of consumers in a new market and later by lowering prices in the existing market.
And that is the point - it is the business model the technology enables that creates the disruptive impact.
“The technological changes that can damage established businesses (like yours?) are usually not radically new or difficult from a technological point of view. They do however, have two important characteristics: First, they typically present a different package of features and benefits — ones that, at least initially, are not valued by existing customers.
Second, the features & benefits that existing customers do value improve at such a rapid rate that the new technology can later invade those established markets." Wikipedia)
Good businesses are usually aware of the innovations, but their business environment does not allow them to pursue such innovations when they first arise. Who could afford a 3D printer only as few years ago? Because they are not profitable enough at first, and because their development can take scarce resources away from that of sustaining innovations (which are needed to compete against current competition), existing operators ignore them. And we are all busy.
Take drones, or UAVs (Unmanned Aerial Vehicles), as they are also known. The Economist magazine reviewed their potential in an article on 4th December 2014.
One immediate commercial use is surveying land cheaply and effectively. A drone can photograph a road to a resolution of 2cm, compared with the 30cm that a satellite offers, and it can do so at a third of the cost. Already farmers are using them to monitor crop growth, which in turn enables modern farm machinery to deliver exactly the right amount and type of fertiliser.
Drones also improve safety: they can be used to do jobs, such as inspecting power lines, that currently require dangling a man from a helicopter.
And they can deliver goods faster: DHL, a logistics firm, already uses a “parcelcopter” to deliver medicine to Juist, a small island off the coast of Germany.
Like any disruptive technology, commercial drones will hurt existing businesses. Some pilots will lose their jobs as more farmers and logistics firms use drones instead of hiring a helicopter or aircraft.
For more than a year, I’ve been urging a niece who owns a very successful helicopter business with her husband, to have a look at the opportunities, and the threat, from drones. Customers want the result, not how it is delivered. And while there are many problems which can only be solved by a helicopter, there are many others, as the Economist’s article points out, which can be delivered just as effectively, and much more cheaply, by a drone.
Another example in the news is Uber. Uber’s is disrupting the viability of the regulated taxi industry cartels. Uber connects consumers directly with the service provider, the owner-driver.
“The drivers are self-employed. Unlike taxi drivers, Uber small-business drivers choose their jobs and the price they charge. Uber drivers aren’t forced to accept fares.
Consumers pick the driver they want at the price they are prepared to pay, displayed on the Uber mobile app. In contrast, the price for taxi services is decided by a Big Brother regulator.
It’s pure free market. Uber doesn’t provide transport services. It’s a free-market facilitator, like a stockmarket for personal transport services with an array of checks and balances.” (The Australian, 5th January, 2015)
And this is the key to all disruptive technologies; It’s the power of disruption that delivers benefits to individuals. For example, if the Uber service did not satisfy the needs of its customers and drivers, and do it better than many taxi services, it would have no influence and would die.
AirBnB is doing the same thing in the Bed and Breakfast market. The internet provides the ability for the customer to see reviews of the facilities, and, equally importantly, like Uber, for the proprietor to check out the customer.
Bricks and mortar retail is another industry that is being disrupted by technology, again the internet. Anything you are able to buy at a retail outlet can now be found online in seconds.
The internet has caused many brick and mortar retailers like video shops to go down in flames. Don’t be surprised if many more begin disappearing, unable to compete with the low overhead of online companies.
Digital cameras have essentially destroyed the camera film industry, and seen long standing companies such as Kodak disappear.
In music, tapes displaced LP and 45 analogue records, and in turn were displaced by CD’s but the real disruption was caused by online retailers such as iTunes and Amazon which drove so many music retailers out of business.
The same thing happened with books. It is so easy to order a book online, and have it delivered to your doorstep. Why bother going to a bookshop? And with the advent of Amazon’s Kindle, all barriers for self-publishing have been removed. There is a lot of rubbish published, but rather than rely on the editors in the traditional publishing houses, consumers are deciding what is good and bad for themselves.
Whatever the product is, you have access to much more variety online than you do in your local retail outlet.
Coming back to 3D printing, McKinsey suggests that until now, 3D printing has largely been used by product designers and hobbyists and for a few select manufacturing applications. However, the performance of additive manufacturing machinery is improving, the range of materials is expanding, and prices (for both printers and materials) are declining rapidly — bringing 3D printing to a point where it could see rapid adoption by consumers and even for more manufacturing uses.
With 3D printing, an idea can go directly from a 3D design file to a finished part or product, potentially skipping many traditional manufacturing steps. Importantly, 3D printing enables on-demand production, which has interesting implications for supply chains and for stocking spare parts — a major cost for manufacturers. 3D printing can also reduce the amount of material wasted in manufacturing and create objects that are difficult or impossible to produce with traditional techniques.
And then there is computing power; according to American think-tank McKinsey & Co. the price of the fastest super computer in 1975 was about $5 million. Today, an iPhone 4, costing $500, has equal performance.
Have you considered “the cloud”? The cloud can enable entirely new business models, including all kinds of pay-as-you-go service models.
I’d be willing to bet your most effective form of promotion is WoM (Word-of-Mouth). It is for most small businesses. People are more willing to listen to a relative or friend who has tried your product or service than any glossy ad or sales message.
There are of course any number of approaches you can take to make WoM happen than to leave it to chance. But even here disruptive technologies are taking over.
If you find a book that sounds interesting on Amazon’s website, you can look at the reviews, where sometimes hundreds of people have given their opinion. You can see how many gave ratings of 1,5 and each ranking in-between, their comments, and make a guided decision.
My wife won’t book accommodation without reading the reviews. Many online retailers offer the opportunity for people to submit a review.
There are now apps for your smart phone you can find out what restaurants are near to you and get countless opinions from complete strangers reviewing their experience there.
WoM is now a whole new ball game. All those opinions can be positive, or negative.
The pace of change is so rapid that you might feel overwhelmed. But standing still is one thing you can’t do.
There are of course many opportunities being created by new technologies; improved communication with clients, the ability to more specifically target clients through mining the data in your business, the ability to measure responses to specific initiatives and promotions, to improve your processes and systems, to provide better efficiencies in your business, and improved value to your customers.
But these are not disruptive, just opportunities for continual improvement. No, I’m more concerned about your business model being completely destroyed.
You might think this could not happen in your industry, but most of the industries above are pretty humdrum; taxies, B & Bs, book shops, music shops, even helicopter businesses, owned by people just like you.
There are a lot of disruptive technologies out there. Perhaps retailers, and other businesses, have to change their business model, rather than hide behind it.
Disruption has become the new rule. And that is what I wanted you to have a think about, to have tucked away in the back of your mind so that you are not taken by surprise and have your business model destroyed.
And this is even before we get to what can happen in the economy and the money available in our marketplace.
What could totally disrupt the way you do business over the next 3-5 years?
You need to keep your business strategies continually updated in the face of these ever-evolving technologies, and ensure your business continues to look ahead.
Don’t let someone from left field find a better way to deliver value to your customers.
© Copyright 2015 Adam Gordon, The Profits Leak Detective
So many of the small businesses I’ve worked with over the last 25 years have been winning the sales they need, but not bringing in the cash and profits they deserve. Is that you as well?
Does your business require you work hard, 6 or even 7 days a week, yet you still find cash difficult to come by!
You know you can win more business, but more business means more work, and you are already working flat out – all of the time.
There is no time for you, no time for the family, and no cash to make life easier.
Why is this happening to you? You and your team are no doubt very good at your job. You do good work - that’s why the work keeps coming i
So why is there no cash, no profits or free time? You didn’t start your business for this grind.
I’m sure you hoped for a prosperous, profitable business, one that rewarded your effort with both a comfortable level of cash in the bank, time with your family and the ability to take holidays when, and where you wanted.
I’ve seen this problem so often, clients with dashed dreams and drudgery, battling profit leaks they don’t know they had.
Are profit leaks a problem you may have in your business? Profit leaks are like a leaking tap. Sometimes the leaking tap is pretty obvious. A particular line or activity is obviously costing you money. If you can see it, you can do something about it.
But what about the times when you don't know profits are leaking; when you don’t see the problem. You don't know until you get the quarterly, or half yearly or, even worse, the annual figures revealing there are few, or no, profits left in your business. Because by then it is too late. The profits and your cash have drained away.
Sure, you might then plug the leak, but what is gone is gone.
So maybe you need to be a profits leak detective to find out if there is a leak, hidden leaks, and to do something about it
The system I’ve developed over many years, working with clients, learning from their mistakes, and successes, will help you too.
Of course I don't know your business as well you do; nobody does and it would be impertinent of me to suggest otherwise. What we do bring is knowledge of particular techniques and principles that can be applied widely to small businesses. I have successfully worked with businesses across a wide range of industries, from tourism to real estate, IT, engineering and manufacturing. And every time I have been able to identify some opportunities for improvement which had a positive impact on the business.
Many years of practical experience in business, from senior management positions in big companies to hands-on direct management experience running a small business - enables me to bring you a deep understanding of how business operates and the pressures you face.
And I specialise in working with small and medium businesses because I understand the issues they face, the need to have greater control over their business and to improve their quality of life.
In essence, decisions are so often made “in the dark”, not in the light of the actual situation. They are uninformed decisions.
Think about this: all action is determined by decisions and that the quality of decision making is a direct function of the knowledge you apply to it.
Without the right knowledge it is pretty hard to take appropriate and timely action.
My approach is to try and throw some light on the dark recesses of businesses where the profit leaking demons lurk. That light comes from good information, knowledge of what is happening in your business, where the profits are being made, or not being made, where there are hidden costs, and unrecovered costs; informed decision making.
It is not just financial indicators that you should report on. There are others that reflect productivity, efficiency and risk. And there are some key performance indicators (KPIs) that every business should report on, while others will be more specific to different types of industries or businesses.
Informed decision making is the building block for successful businesses.
The road to success is paved with good information, such as your profitability, value added per employee, customer satisfaction, your 10 most profitable customers, your 10 least profitable customers, the profitability of old products compared to new customers.
PS As the old saying goes, “sink or swim”. You don’t have to wait until your business has gone down the gurgler because profits have been draining away. You can find the leaks, and plug them - NOW!
The concept of profit leaks is near and dear to me as those of you who have taken my book “Picture the Profits – 27 Practical Tips” (hint, its currently available at no cost on my website . In this article from Smart Company Grant Field, chairman of accounting firm MGI, spells out how waste in your business can impact on all five of areas I specify to improve the profitability for your business.
Prices and Margins
Cost of Sales
Just like in our own households, waste costs the average family business tens of thousands of dollars every year, if not hundreds of thousands of dollars. However, the business owner doesn’t just incur the yearly cost, but the multiple of that cost when a business is sold.
Let’s assume that through a waste audit we can identify $100,000 in yearly cost savings in your business. Let’s also assume that you’re getting close to selling your business. As businesses are generally sold for a multiple of earnings (i.e. profit), it follows that if you can cut $100,000 in costs, then you’ll increase profits by the same amount. If the business is sold for say five times profit, then that’s a cool half a million dollars in your back pocket – certainly nothing to be sneezed at!
Reducing waste may not sound overly exciting, but it can pay real dividends. And a point to remember: this is money that is coming straight out of your pocket!
I use activity based costing (ABC) as a means to explain what I mean by waste. ABC is a simple concept. In any business, people do things, whether this is loading a truck, operating a machine, or using a computer. This is called 'activity'.
In the course of “doing things” scarce resources are consumed e.g. the person’s time, the cost of the machine, etc. Each of these has a cost, whether it be the wages of the employee or the operating costs (or amortisation) of the equipment. ABC is about allocating the cost of those resources to cost objects. This could be a particular product or service.
So, whether we like it or not, these costs are embedded in what products or services businesses sell or they are coming out of the business owner’s pocket.
If the cost of your product or service is not competitive in the marketplace, think about undertaking a waste audit. It may enable you to reduce your costs and become more competitive.
Many years ago, Toyota identified seven prominent waste areas:
1. Overproduction – don’t produce ‘stuff’ for the ‘just in case’ scenario. Produce it ‘just in time’. Producing without the guarantee of sales is waste.
2. Waiting – this occurs whenever time is not being used efficiently. This might include lead time waiting for the next stage in the production cycle. Some estimates suggest that it is not unusual for a product or service to spend 99% of its time waiting. Any time you have a product “waiting” at any stage of the production cycle, and after it (e.g. holding stock) you have waste.
3. Transporting – customers don’t want to pay for the cost of transportation between internal business processes and hence a clear source of non-valued cost. Look at your stock layout. Is your workplace set up efficiently for each stage of the production process or is there unnecessary transporting of raw materials and finished goods?
4. Inappropriate processing – this occurs whenever a business is processing ‘stuff’ using the wrong equipment or people. Do you have highly qualified people handling tasks that others could handle? Are you using a “Rolls-Royce” machine to do a job that can be done by a much cheaper machine?
5. Unnecessary inventory – I’m continually amazed when I go into a business and the owner proudly shows me all the stock they are holding, as if this is somehow a sign of how strong the business is. When I see large amounts of stock, I think of one thing – dollars! If we imagine piles of cash where we see stock, maybe it would be easier to understand it as waste – piles of cash sitting on the shelf making absolutely no return. This is the case whether it is raw materials waiting to be converted to finished product or the finished product itself.
6. Motion – this might be as simple as having an inefficient office or factory layout, with products or services being passed through multiple sets of hands, certainly more than is required.
7. Defects – this is a “no brainer”. Everyone knows that re-work or replacing a product or service costs money. Find out the cause – is it a system, process or human error? – and put in place actions to prevent it happening again.
Over the years I’ve worked with many businesses to identify waste. I work through a process to identify and quantify waste in each of the above areas. We then assess this against the ease of fixing the problem. We start with the bigger potential cost savings that are the easiest to fix.
In my experience, it is only once you get on the “waste train” and embrace it, that it stands out and becomes easier to identify. It’s as if a light bulb goes on in the mind of the business owner. The “penny drops” and a whole new mindset takes hold.
Thank you Grant
So what are my take-aways?
• Notice six of the seven impact on your Cost of Goods Sold (COG/COS) and hence reduce your Gross Profit. Remember it is the volume of Gross Profits you generate, not the volume of Sales which are the key to your profitability and available cash.
• Reducing unnecessary inventory is also a no-brainer to free up cash in your business. And if it is stock waiting to be sold it will inevitably need to be discounted to clear.
• In a recent blog I discussed how to use the 80/20 tool to identify the most serious causes of waste in your business.
To your profitability.
© Copyright 2014 Adam Gordon, The Profits Leak Detective (except for the bits by Grant Field)
Every now and then I come across really useful articles, something that can add value to your business. This is one of them.
There are always some marketing tools that businesses use frequently, because they are easy to implement. You are having problems with sales, so temptation waves its allure across your eyes. There’s a problem with temptation; it rarely delivers.
It may take you a little while to get into this article by noted marketer Drayton Bird but it is worthwhile. It delivers a really important message about a trap most businesses fall into at some time or other.
Now I’ve written about this danger a number of times. There are two reasons I’m passing it on to you, one is that it reinforces the dangers but suggest the results can be more catastrophic than I have suggested, and secondly, he backs the danger with research.
I’ll give you my “learnings” in a minute. Let me know if you agree.
Take it away Drayton ….
The mistake that almost killed some of the world’s biggest brands……and is killing one now, I suspect.
As I predicted when I wrote in 2010, Dell has fallen off its perch. And more recently Groupon’s shares have slumped 80%.
Life is strange. I am one of the most disorganised jokers you’ll ever meet but a book by one of the world’s best organised people influenced me hugely … even if it didn’t do much good.
It was “My years with General Motors” by Alfred P. Sloan. Sloan led General Motors to become the world’s largest motor manufacturer. It was so important to the U.S. economy that they used to say “What’s good for General Motors is good for the USA.”
But General Motors – and Ford and Chrysler – got into terrible trouble and had to be bailed out, barely surviving.
There were many reasons why, but one was their marketing. Besides their ads all tending to be boastful and dull, they fell into a habit I see as the marketing equivalent of crack cocaine addiction: heavy discounting.
This gives an immediate boost to sales, but you become addicted to it. And you get nasty after-effects – as with crack.
• The people who buy most from a promotion are your best customers, who would have bought anyhow.
• People bring forward their buying so there is a slump afterwards.
• You are training your customers to expect bribes.
To explain more why this is so dangerous, I must take you back 25 years.
Ogilvy and Mather had a unit called the Ogilvy Centre for Research in San Francisco. The Director, Alex Biehl, worked on a project called PIMS – which stood (I think) for Profit Impact of Marketing Strategies.
The aim: to discover how different marketing weapons affect profits.
Over 200 firms in the U.S. and Europe took part, and the project was run in partnership with Professor Andrew Ehrenberg and various associates – I think at The London Business School. David Ogilvy said Andrew had the best mind in marketing.
One thing the project revealed was very simple, very important – yet is news to almost all marketers.
Firms that spend more money on discounting than advertising are far less profitable than those that spend more on advertising than discounting.
The project divided firms into four quartiles.
• Those in the top quartile spent most on advertising and least on discounting.
• Those in the bottom quartile did it the other way round.
The ones in the top quartile were on average twice as profitable as those in the bottom one.
When you spend more on offering deals than explaining why people should want to buy your stuff, you are perilously close to saying “Our stuff is not good enough to sell on its merits at full price”.
To go back to where I started, today General Motors is no longer the world’s biggest automotive firm. Toyota is.
Another brand once led its market but no longer does. It is Dell. And guess what? Every single email Dell sends me offers a deal. They have been overtaken by Hewlett Packard and Acer.
I am not saying never discount. I offer discounts all the time. Nor am I saying traditional advertising is the answer to your problems.
What I am saying is that messages through whatever medium, that give people reasons, emotional or rational, for buying are the key to building your business and brand.
I also suggest that when you discount, give a reason for doing so. Two good reasons are to get a new customer or to thank someone for being a customer.
Thank you Drayton.
So what are my learnings;
√ Firms that spend more money on discounting than advertising are far less profitable than those that spend more on advertising than discounting.
√ When you discount, GIVE A REASON for doing so
√ Good reasons are firstly, to gain a new customer, or secondly to thank a customer
√ The people who buy most from a promotion are your best customers, who would have bought anyhow.
√ People bring forward their buying so there is a slump afterwards.
√ Discounting trains your customers to expect bribes.
Let me know what your experience has been.
To your profitability.
© Copyright 2014 Adam Gordon, The Profits Leak Detective (except for the bits by Drayton Bird)
Some profit losses are pretty obvious - so you fix them.
BUT, what if you don't know profits are leaking, cash out the door?
Possible leaks could be anywhere.
Are there some clues or symptoms that are tell-tales?