Does your business ?

If your equipment requires regular maintenance to run properly do you also need to regularly maintain your business?

You operate equipment in your business, from vehicles to computers, and for many businesses, much more and complex equipment. And you know that without proper maintenance the equipment will not run efficiently. You also know the longer you leave maintenance the more likely something is to go really wrong and end up costing you real money.

A recent article brought to mind the parallels with a business.

"Improper maintenance can erode the bottom line of an energy management program. Dirty air filters add load to fan motors, and compressed air systems can develop leaks over time. Improperly tensioned and aligned V-belts can reduce transfer efficiency from 97% to 88% (5%).

While it's helpful to divide energy management programs into six basic elements, it's impossible for them not to be intertwined - and the benefits are cumulative. In the end, successful programs will drive all the elements with authority, and with the knowledge that the best return will come from a coordinated and sustained effort."

What would be the effect on your Nett Profit if your Gross Profit crept down by 5%? Or if your overheads crept up by 5%? The effect is considerable, disastrous in fact. It would come straight out of your bottom line. If you don't know see "Don't increase Sales - Increase Gross Profits".

So how can you maintain your business? Where are the "dirty filters", "leaking compressed air systems" and "improperly tensioned belts" to be found leaking profits from your business?

Here are just some areas that might need regular maintenance in your business:

Poor communication of your product or service's unique benefits - if you can't clearly and simply say how brilliant and different your offer to customers is you will be seen as a commodity and have to charge commodity prices. My experience of many companies is that there is a great offer that could charge both higher prices and drive more volume if it was communicated more clearly and more compellingly.

Poor selling skills - sales are the lifeblood of business, and those who can get great win-win deals will do better over the long run than those who "settle" too early. Are you leaving money on the table because you are over anxious to get to 'yes'?

Poor procedures, processes and systems - if you don't have good efficient systems and procedures, then chances are you're leaking profits somewhere along the line. Could yours be better?

Lots of waste in the office or factory floor - where there's waste there's a profit leak, and that also applies to all businesses. Can you say there is no waste in your business?

Did you nod and say yes to any of these? A little regular maintenance will make a significant difference to your nett profit.

BTW the last four newsletters to subscribers have been providing tips on improving the selling process. Subscribe, send me an email and I will forward you copies.

© Copyright 2009 Adam Gordon, Profits Leak Detective

Misguided measurements misinform

Sometimes you just wonder. The following comment appeared in a recent UK trade magazine, referring to a particular promotional campaign for packaged goods brands: "by the measure that matters most, sales, the campaign appeared to pay off nicely. It produced $1.28 million in offline sales."

The promotional campaign referred to cost $1 million.

It went on to say "outlays on (this form of promotion) by package-goods brands can result in offline sales impact and deliver positive return on investment."

So what do you think? Do you think an advertising spend of $1 million that gets $1.28 million in retail sales is a positive investment?
There are a couple of issues here.
The first is that comment "by the measure that matters most, sales, ....".

Sure sales are important, critical in fact, but it is the Gross Profit from those sales that pays the overheads and delivers the profit at the end of the day.

It seems to me they must have a funny way of calculating their Cost of Sales and the resulting Gross Profits. After all there must have been a few trivial costs in manufacturing the packaged goods, packaging them, distributing them, getting them on the shelf and selling them.

You wouldn't make that kind of mistake, would you? Now I'm sure that you don't spend $1 million on your promotional material such as your brochures, Yellow Pages ad, newspaper ad or radio/television commercial. But whatever you spend it probably totals around 3-5% of your overall sales for the year, not 78% (100/128) on one promotion.

And leads to the second issue. At least this mob measured their results, despite their misguided interpretation. Do you know what return you get from your promotional efforts, from any or all of them? Can you specifically identify the sales (and Gross Profits) that resulted from any one of your promotional tools?

And if you can't, how do you know whether your promotion is "paying off nicely", or whether you are wasting your money.

BTW the source of this little titbit was "The Drayton Bird Blog" and the trade Magazine was AdAge.
© Copyright 2009 Adam Gordon, Profits Leak Detective

Uncertainty causes fear

Recent events bought an earlier Profits Leak blog to mind. I wrote of the typical small business who concentrated on the job in hand, getting it right to make sure they make a profit, then moving on to the next job. They believed that's all that is required to build a business. After all, there will always be a job on hand, and one to follow it. Life goes on. Nothing much changes.

They couldn't see the risk their lack of marketing placed on their business. They relied almost entirely on word-of-mouth and repeat business to sustain them.

Because as you now well know, things do change. And the change can be dramatic. That earlier article pointed out that lack of marketing caused problems such as a lack of control over the future direction of your business. You are completely dependent on what comes through the door.

What bought this to mind was the sudden conversion of two clients, clients who in many ways typify small business operators. They are good at what they do, have good reputations, and for much of the time business has kept coming through the door. Life goes on.

Now, suddenly, both want a marketing strategy, they want to know their Sustainable Competitive Advantage (SCA) or Unique Selling Proposition (USP). They want to know the best promotional tool for them to use. Above all they want a web page. Now that's a change!

So what changed? Well, that doesn't take much guessing. The economic conditions, Global Financial Crisis, call it what you will. It is not just the conditions but the publicity given by our politicians and media. And torrent of doom and gloom is creating UNCERTAINTY. No decision maker, whether they are in large or small business, likes uncertainty

Uncertainty causes fear, and fear can lead to freezing. Like a rabbit in a squat, don't move until the danger has passed.

Now that is all very well if you are a rabbit, but it won't do much for your business. If there are customers around, you want them to be your customers, not the competition's. But they won't be if they can't find you, and find out about you, and what you can do to solve their problem.

And that means you must develop a marketing message, sharpen the message so that it means something to your target market, and get it out via the most effective media for that market.

One of those media could, or really should, be a website. Many businesses are now venturing online as it is a cost-effective way to promote their business and target new customers. You probably realise yourself how often you look for a business's website when you want to find out about it. Yet a recent report released by MYOB has shown that 60 percent of small businesses do not have their own website. Maybe they haven't looked out of their squat.

Interestingly the two clients I'm mentioned are in a relatively untouched part of Australia as far as the downturn goes yet they feel the uncertainty. The positive thing is that they are going to do something about it, which is just what we suggested in a recent blog.

Don't let uncertainty cause you to freeze in your squat. You don't have to get it right, you just have to get it going.

PS You will notice a small "add comment" icon in above the header for this blog. This is your chance to agree or disagree. Whichever, your comments are very welcome.

© Copyright 2009 Adam Gordon, Profits Leak Detective

Are you trying to educate everyone?

Having written on this subject in the last blog I then read an article which lead me to think that I should come back and clarify some aspects of the blog, just in case I had you busy trying to educate everyone in your sales efforts.

Education to assist customers see the solution to their problem is a powerful and effective sales tool, but trying to educate everyone puts you on the road to failure.

But just in case you were, the clues were in the blog:

  • Note "your customer" - it is not everyone you are trying to educate, just your customer.
  • And I quoted a bloke called Doug D'Anna "The best salespeople aren't trying to sell you anything. They are trying to help you get what you want in relation to what you're looking for." Note the "what you are looking for". In other words, they're likely to be a customer

The article I read was by a bloke called Gary Bencivenga. Now you are not likely to have heard of Gary. He works in the field of copywriting, which is writing direct response sales material such as sales letters and advertorials. I'm not talking of your common or garden type advertising here but someone who understands that copywriting is salesmanship in print.

As he put it, the ultimate secret of how to sell anything is "Find out what others want and help them get it." He then made the point that you can't educate someone in to realising that they have a problem. You can't motivate them to want something they don't already want. If you have to do that, you're already losing the battle.

And that means you have to listen before you can educate, and find out if they are a potential customer. Otherwise you are wasting your breath, and the potential customer's time.

To reinforce this, a bloke in a workshop on Customer Management I was running recently commented that a problem many sales people have is that they try and present their solution before they've heard what your problem is.

In fact that is the perfect way to lose the sale. Either the customer will decide that they are not being listened to, and walk out. Or the product or service being offered will not solve the customer's problem. Both situations could have been resolved had the salesman listened.

If you are the one making the sale, and as a reader of this blog you probably are, then your job is to find out what is motivating your potential customer, why has he or she come to you, what is their problem.

And that is where the education comes in. The customer is not likely to know as much about your area of expertise as you. Sometimes they will have no idea of the best way to solve their problem, so need to understand the options available. Sometimes they will have already decided on a solution, the wrong solution.

Either way, your job is to educate them and show them how they can solve their problem through your product or service. Only then will they buy.

But if you have to educate them to understand that that they have a problem, then they are not your customer. You are not trying to educate everyone, just your customer.



The power of educating your customer

As I packed up from the workshop I'd just delivered, an attendee came up to me and said, "I've been coming to these workshops for two years, and that was by far the best I have attended".

That's nice to hear, and if she had been coming to them for two years, she must have been getting something out of the others as well to keep coming back for more.

Now this is not a pitch for our workshops. It led me to think about you and your business. You see, the workshops we run are designed to assist small business owners and managers develop and grow, to give them something they can use in their business to make their businesses better businesses. Obviously this repeat customer thought she was getting just that.

You will know that the most effective tool you have in winning sales is to educate and assist your customer. We discussed just that in a previous blog. Customers don't buy because they have been bludgeoned into handing over their money. They buy because you are solving a problem for them, removing an itch that has been troubling them, overcoming a roadblock, making them feel better. In short, your offer is of benefit and value.

As a bloke called Doug D'Anna said "The best salespeople aren't trying to sell you anything. They are trying to help you get what you want in relation to what you're looking for."

And the education and assistance you offer helps them see the solution to their problem. They will be better, have gained, because of your solution. When you provide valuable information and confirm a belief that the prospective customer already has, it transforms you from being a salesman to being an ally. You will have given every sensible reason to buy, answered all the obvious questions, and overcome all reasonable objections, and the sale is yours.

If that customer walks out of the door of your business feeling like they have gained from the education and assistance you have provided, that you did have the solution to their problem, feeling relieved, do you think your customer is likely to come back?

Even better, do you think that customer is likely to tell someone else about how helpful you have been? The ones who tell others about you are those customers that you have delighted. So if you think about it solving the customer's problem not only gets you the sale, it gets you the long term customer. And long term customers are the most profitable.

This is why smart businesses make initial sales to acquire customers. Dumb businesses make initial sales to make a profit.

Educating and assisting your customers is the most powerful sales tool you have.



Would you trust a fast talking sales pitch?

It's a common tale, but true. And there is a marketing lesson in it.

Recently we needed to have a new driveway for our home. There were a number of options available and, after some research, we settled on the type of driveway we wanted. So then we needed to get some quotes for the work.

And that's where the sale was lost and won. Why oh why do sales people think they can, or should, talk you into an order. One of the prospective contractors was garrulous, to say the least of things. We couldn't get a word in edgeways, let alone explain the issues from our viewpoint. A constant stream of opinions, views and self-confessed expertise swamped us, rolling in on an unstoppable tide of words.

On and on and on it went. He had all the answers. It was if we were expected to crumble under the sheer weight of verbiage, and gratefully sign on the dotted line.

Is that how your sales people operate? Because if your customers are anything like us, all the onslaught does is get their backs up. And they stop listening.

The reality is that most sales are not made on one call or presentation. Customers like to be comfortable, like to evaluate both the offer and the options. And in these times, particularly if your customer is another business, decision making is even slower. More people are involved in the decision, and approval is taken up the line.

One study suggested that in downturns business procurement decisions take up to 2.5 times longer to be made.

There is another way of course, several in fact. And about the only fast step is to follow up. The others require you to slow down. So what might you do?

1. Listen - there's an old sales saying that you should listen twice as long as you talk - ""We have two ears and one tongue so that we would listen more and talk less." Some people are slow learners. That saying is so old that it goes back to an old Greek bloke called Diogenes a couple of thousand of years ago. Of course you need to listen as well as hear.

2. Don't offer a solution until you have understood the problem. So many companies proudly proclaim that they offer a "solution". A solution to what? People don't want to hear about your solution until they know you are talking to them about their problem. Slow down to listen, and understand. Craft a solution for their problem. A solution to everybody's problem is a solution to nobody's problem.

3. Cut the verbiage. People can spot B.S. a mile away. They are cynical. They've heard it all before. So when unsupported grandiose claims (unique, leading edge, leaders in the field) are made the barriers start to come up. Having judged many a business award I can't tell you how many businesses claim they are unique. They can't all be unique, and the very rare demonstrations of why they are gives lie to the claim. Slow down and cut the crap.

4. Keep it simple. If you inundate your prospect with too many choices their eyes will glaze over. It all becomes too hard and the easiest decision to make is not to make a decision.

Slow down, allow the client to talk, and they'll talk themselves, and you, into the sale.



They can't all be wrong

There seems to be a consistent message coming from many sources about how small business should be responding to the current economic situation.

A recent newsletter from John Forde of CRT picked up some suggestions from US Business Week. The tips seem pretty sensible, probably because, as I say, many others have been saying it and, says he modestly, I've been saying similar things in this blog and my newsletters.

Here's the summary courtesy of CRT:

1) Don't panic. You can't sit still, but you also don't want to swerve like a drunk on ice skates. Cycles happen. Sometimes they happen hard, but we'll come back around eventually.

2) Cut fat, not muscle. And, says the article wisely, marketing is muscle. Slow downs are THE ideal time to snatch up market share.

3) Don't water down your message to "go wide." Desperate for customers, it's easy to try to widen your market appeal. Stick to your focus instead. Just get better at it.

4) Watch out for "discount training." If you keep offering "special deals," eventually the deals are no longer special... and customers learn to wait for the next deal instead of buying right now.

5) Don't ignore the facts, just have a plan. You can't wish the crisis by ignoring it. Mention it, but do so in the context of showing leadership on how to get past it.

It was interesting to note recently that the major Australian retail chain, Myers, is increasing, not decreasing their marketing budget this year. They are obviously hoping to ‘snatch up market share' from their competitors. Mind you, I'm not suggesting that small business should launch into a major general advertising campaign.

Increase your promotional efforts by all means, but there are more effective ways for small business to increase their promotional efforts which will give them a better return on their promotional investment than general advertising.

The late Peter Drucker said that "The perfect advertisement is one of which the reader can say, 'This is for me, and me alone'." And what is wide about that. Mass advertising simply cannot be that personal and relevant, which helps explain why direct marketing - online or off - has overtaken it. More particularly, it helps explain why the database is so important. If you would like to discuss how you might go about this, This email address is being protected from spambots. You need JavaScript enabled to view it..

Another recent webinar suggested that small business should be spending 75% of their efforts developing and growing their relationships with their existing customers, and only 25% of their efforts on developing new business. You will always get more sales and better profits from your existing customers than new customers, provided of course you look after them.

In other words, don't go wide!

As for discounting, reread the article "Don't increase sales, increase Gross Profits" , or read it if you haven't. Small business, because they have low overheads, are more likely to improve their profits more by magnifying their margins than chasing sales through reducing their margins.

And I know you have a plan, as we talked about a couple of blogs ago.

The message is consistent. Can you be?



A lot of pain

As Nelson Burr (he has a real name) kept telling me, he'd been a, well it doesn't matter what his trade was, for 30 years. I think he was trying to tell me that he knew all there was to know about his trade. Certainly there was nothing wrong with his workmanship. But you couldn't say the same thing about his business.

Nelson had a problem. He always needed money, money to pay his suppliers, money to pay his sub-contractors, and probably money to feed himself.

His problem in getting money from his job was that he didn't plan things out, other than in his head. There was no project plan, no schedule and no checklist. So things weren't finished on time, and that delayed progress payments. Things were forgotten and had to be chased after he had started for the day. That took time, time that could have been more productively spent.

Lack of time lead to short cuts, to things not being done properly which, when spotted, had to be redone. More time! Lack of money lead to cheap solutions outside the specification which, like the short cuts, had to be reworked.

Lack of money, trying to catch up, trying not to be caught out, lead to frayed nerves, and inevitably a short temper. And a short temper lead to strained relationships with, well, almost everybody, suppliers, sub-contractors, even the customer.
In a word - a lot of PAIN.

Of course there was a solution, but having been in his trade for 30 years he knew it all. . The solution was a little planning, a little preparation, some documentation to go with the job. So let's look at what he could have had:
  • A simple project plan in the form of a bar chart. It didn't need to be software based, but that would help. Something that laid down on paper (not in the head) all the major tasks in the job, the sub-tasks within those tasks, and when they were to start and finish.
  • Some clearly established milestones before the commencement of the project - when he could get paid.
  • A checklist of the resources required: people, raw materials, parts, equipment, and supplies would certainly help.
  • A plan for co-ordination and review of progress.
  • Some contingency planning - what risks could delay or cost more.

As a colleague used to say: "Slow down up front to speed up delivery". Taking the time for a little planning at the beginning of any job prevents a lot of pain along the way.

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You just have to get it going

What are your plans for 2009? Are you waiting for some magical opportunity to arrive, one that will give you the big break for the year, one that you've been waiting for? Wishing and hoping?

Maybe you are waiting to see what will happen with the economy, and where it is going to take you. After all, there has been so much talk of doom and gloom in the media that waiting for the dust to settle may feel like the best thing to do. The problem with procrastinating forever is that eventually the mere fact that you've not made a decision actually becomes your decision.

Many businesses will do just that, looking for a saviour to come charging down through the clouds on a magical chariot to tell them what to do. Such businesses are usually looking for someone else to solve their problem. You know the old refrain, "They should do something about it!" whoever "they" may be.

But smart business owners, as I'm sure you are, will thrive in times such as these. Smart business owners will not be waiting for "them". They will already be making their plans, looking for opportunities in their market place, tweaking their marketing message, improving their systems, and plugging any profit leaks. They will be taking a positive approach, not a negative approach.

Taking a positive approach, taking action will lead to success. So what are some of the positive actions you can take?

  • Look for the opportunities. The chances are that your competitors are going to be slower to move than you. This is a very good year for smart businesses to grab more market share, or to find new emerging markets.
  • Look behind the day-to-day news, and work out what exactly is happening in your part of the economy. There's more to the market place than is published in the media.
  • Know your customers - Really knowing and understanding your customers is one key to surviving and thriving during this period of uncertainty. It's more critical than ever for you to understand exactly who they are... where they're coming from... their interests, goals, and desires.
  • Sharpen your sales message - you may think that you have the best sales message in the world, but your prospects will always understand it through the prism of their own emotions, preconceptions, prejudices, and pre-existing beliefs - not yours. You need to speak to them in their terms and their language.
  • Maintain your margins - the tendency in tough times is to cut prices, without any empirical evidence that doing so increases profits, and without carefully calculating the impact on nett profit. Work out just how much you need to increase the volume of your sales to cover the impact of the lower margin on your nett profit. Sacrificing margin for volume, even preserving volume, can be a losing proposition.

Success is very, very rarely accident. Failure's no accident either. You don't have to get it right, you just have to get it going.



How to "smarten up" your business

At some stage in your youth your parents may well have admonished you "Smarten up, you must work harder and spend less". And it is quite possible your bank manager is finding other words to say the same thing, managing the relationship in these troubled times. After all, when times are tough, businesses need to be a little sharper.

So let's look at some of the positive steps you can take to smarten up over the next few months.

Increase sales - as the previous blog discussed, make sure that your promotional efforts are clearly focussed on your target market. If they are not your promotions will not be making effective use of scarce funds. Remember that existing customers are the most likely to buy from you. And because they know and trust you they are more likely to buy more often and in larger amounts than a customer with whom you are yet to develop a relationship.

Protect and improve your gross profit margins - cutting prices is not the only way to get sales, and it can severely damage your bottom line. If the only reason people buy from you is price then you have done little to differentiate your product or service from the competition. A better alternative to discounts is to put together bonus offers, adding value to the basic offer.

If you know and understand your key customers you will be more likely to be able to develop a value package that suits those customers. A trick I have found useful is to write a couple of paragraphs about your ideal customer, a profile of their likes and dislikes, buying patterns, preferences, demographics, education, entertainment requirements etc. You'll soon identify points you on which can build value for them.

Reduce Cost of Sales - in times such as these look to negotiate better terms with your suppliers. They may be willing to offer discounts to win sales (even though you will be protecting your gross margin) or offer prompt settlement discounts.

It may also be time to give your business to a few key suppliers only. That will both give you the opportunity to negotiate better deals, and reduce your administrative costs.

If your business involves labour which you charge out either directly for services, repairs and maintenance, or manufacturing, look for better ways of doing things such as reducing cycle time or process improvement.

Reduce Overheads- Reducing overheads is often the first thing businesses turn to when they seek to reduce costs. It can also be less effective than the suggestions above, but that does not mean it should not be examined. Be careful you don't end up cutting the very things you should be concentrating on, such as marketing.

Turn the Working Capital Wheel - better management of the working capital wheel will reduce the amount of cash you need to run the business. Three ‘cogs' in the wheel can tie up precious cash; stock (inventory), Work in Progress (WIP), and debtors.

Improving your stock turn will enable you to achieve the same sales with less money tied up in stock. Funds tied up in WIP can be reduced by better scheduling, improved processes, and progress payments. Debtors can be reduced by encouraging customers to use their own credit, shortening your terms of trade, and actively managing your debtor list.

I'm sure your bank manager, or other advisor, is finding better ways of saying to you that you need to smarten up in these times. If she does, you'll be able to tell her that your are already taking some positive steps.

If you need further assistance or guidance, contact the This email address is being protected from spambots. You need JavaScript enabled to view it..This e-mail address is being protected from spam bots, you need JavaScript enabled to view it <!-- document.write( '</' ); document.write( 'span>' ); //-->



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