This article was written by Ed Hatton, the Start Up Coach for Entrepreneur Magazine (South African edition), as the My Mentor column published in July 2014 and is posted here by their kind permission
Are you paying enough attention to this profit generator?
The difference between turnover and cost of sales is the starting point of profitability. Entrepreneurs drive their sales aggressively and manage operational costs tightly, but seldom pay as much attention to the crucial issue of margin. This is missing an opportunity to increase profit substantially with a little additional work.
Margin (or gross profit) is the difference between turnover and cost of sales, and it often comes from a simple percentage mark-up on all cost prices. This is a lazy way of setting the amount of gross profit your business will secure, and ultimately the net profit. You can do a lot better than that.
There are at least four opportunities to increase the total gross profit: More sales, higher prices, lower cost of sales and changing the product mix to increase the percentage of high margin products or services sold. Naturally this last one only works if you do not have a one-margin-fits-all lazy margin strategy. A tip to sell more is to increase the average number of items sold per order. Even a tiny percentage increase can make a significant difference to total margin. Look at the example of burger franchises which invite you to add a slice of cheese to the burger. If just 10% of all customers buy that very high margin slice of cheese they make significant extra profit with minimal effort, and it is so simple. What can you do to increase the items per order? Extended warranties, service contracts and training all offer opportunities. Continue reading
This article was written by Ed Hatton, the Start Up Coach for Entrepreneur Magazine (South African edition), as the My Mentor column published in April 2014 and is posted here by their kind permission
A seriously valuable marketing tool – and it is free
Good customer information held in a structured system will tell you whether customers are growing with you or reducing purchases. It will have a record of every meeting, sales order, complaint, compliment, reference given, products purchased, payment history, budget cycle, nature of their business, basic credit information and key contacts. All of these are stored somewhere in your company records anyway, but are they accessible in an effective customer information system?
If you have a good system you can research target markets, make individualised tempting offers to customers, cross sell products and plan campaigns in target market niches with a high likelihood of success. What a great marketing tool, and its free.
Using the information
One way of using this information would be to list of all customers in a particular line of business, and list which products all or most of them are buying. Now you could do a survey among them to find out how they are using the products, their degree of satisfaction with those products, and any needs which are not being fully satisfied by the products. With this information you can: Continue reading
This article was written by Ed Hatton, the Start Up Coach for Entrepreneur Magazine (South African edition), as the My Mentor column published in October 2013 and is posted here by their kind permission
Remember how fanatical you were when you opened your doors?
The plateau phase can happen when a business stabilises after the initial survival struggle, and growth becomes static. The company may be at break even or making a small profit; it falls short of its sales forecast and cash is tight. The entrepreneur is frustrated, customers pay late and suppliers are demanding. All of this has a bad effect on the staff.
If you are in this position or have been there you will know about searching for ways to solve the problem. How-to books, mentors, motivating speakers and training will be considered. Salespeople will come under pressure and some will succumb and leave. Some entrepreneurs will blame the economy, the government, the banks, trade unions or suppliers, and become helpless.
There is a simple answer to the problem. Cast your mind back to when the business launched, when making the next sale was a life and death issue for the business. You would have walked on hot coals to satisfy a potential customer, you would have tried desperately to anticipate their needs. Carelessness or laziness affecting a prospective customer would see the perpetrator in real trouble. A mistake in an order or a telephone that was not answered promptly would have been cause for a tantrum. You would celebrate with the entire company when you got orders that today seem trivial, and the enthusiasm would have spread. Continue reading
This article was written by Ed Hatton, the Start Up Coach for the South African edition of Entrepreneur magazine, as the My Mentor column published in July 2013 and is posted here by their kind permission
What makes your business the supplier of choice for your customers?
I occasionally ask groups of entrepreneurs why they think their customers buy from them. After an awkward silence some in the group will give answers about product uniqueness, price advantage or better location, or easily copied ones like good quality and better service. At least some entrepreneurs in the group will really not know.
Entrepreneurs who do not know why customers buy take a huge risk of customers drifting away for unknown reasons. The question is even more important for start ups. Anyone who plans to open a business and does not identify clear reasons why customers would buy risks opening a business which will make no sales.
Why customers buy
There is a huge body of research about buyer motivations which is good to study. In my view the most important business differentiators are uniqueness or competitiveness
Uniqueness may mean innovative products or services, but can also be the uniqueness of the business principal. Products like trousers, perfumes, sporting equipment and coffee bars have thrived from being driven by a famous sports or entertainment star. For the average entrepreneur who is not famous or an inventor there are still options to be unique. Businesses which use a unique pricing model will rent when others sell, offer last minute sales at incredible discounts, or develop other pricing innovations. They will not simply sell at lower prices. Continue reading
How to negotiate difficult market conditions
“It’s tough out there” a veteran entrepreneur said to me recently, “this is the worst I have seen in 30 years of trading in this market”. Many businesses are really feeling the pinch as the long lasting effects of the global economic downturn slash budgets and postpone new developments. The phrase about tough conditions is heard frequently.
In the local marketplace labour unrest which often turns violent, energy cost and availability concerns, high inflation, increasing red tape and low labour productivity add to the problem. During the good times competition increased with more companies being launched or expanded. This means a shrunken market is being contested by too many suppliers with high and increasing costs. Buyers become more demanding because they can – there is always someone who will shave the margins to the bone just to keep the factory ticking over and some staff employed.
Good entrepreneurs react to situations like this; they do not simply accept that times are tough and that their businesses will underperform. The business needs to win more of the scarce business, effectively denying this slice to competitors, and it needs to compensate for increased costs by increasing efficiencies. Continue reading
This article was written by Ed Hatton for the column the Start up Coach and published by the South African edition of Entrepreneur magazine in February 2012 and is posted here by their kind permission.
Having one large customer is wonderful – until something bad happens
This entrepreneur has printed training manuals for a large national company for 18 months. He purchased additional machinery for their work, although there was no contract in place. Recently the orders have dwindled and the new machinery stands idle. The buyer now places orders with a friend. The entrepreneur asks if there is any way he can complain about cronyism.
Most small businesses dream of having at least one really large company as a customer. Big orders mean rapid growth and the cost of sale is lower than dealing with many small businesses. But there are disadvantages – entrepreneurs entering deals with very large organisations should consider Porter’s ‘Five Forces’ model, where the power of customer is identified as a competitive force. Continue reading
This article was first published as a Sanlam Cobalt Business Tips article. Sanlam great resources for entrepreneurs – I suggest you subscribe.
Take this light-hearted, but important test to see how your business is doing in providing great customer care.
This article was written by Ed Hatton and appeared in the October November edition of Destiny Man magazine
The economy is uncertain, business is slow and your competitors have slashed prices. Should you follow suit?
The simple answer is yes if that increases profit or improves cash flow through more sales. Also yes as a defensive move to retain irreplaceable market share and that retention is worth sacrificing profit for. Be careful of emotions here. Clinging to things that should go can kill your business.
No if your products are price inelastic, so a price reduction does not materially increase sales. Also no if it would be more profitable to reposition and increase prices and value to your customers, and take higher margins for lower sales. Continue reading
Start ups must respond to aggressive and bullying tactics to survive
By Ed Hatton
A small concrete pipe manufacturer with great customer service opened a factory in East London to support the local demand from local contractors and government. This reduced the cost and delays in transporting pipes and was an immediate success; turnover increased rapidly. The large and powerful manufacturers in this industry lost market share and reacted by slashing prices dramatically, absorbing reduced or negative margins with their substantial resources to attack the upstart. The new factory cannot match these prices and there is no product differentiation. Their question: how do they compete?
Voltaire wrote that “God is on the side of the big battalions”, but I wonder if the Almighty would want to be associated with some competitive practices of large and predatory organisations. Entrepreneurs starting new ventures in competition with powerful organisation often face the kind of threats experienced by this questioner. The competition may be price based as in this case or it could be massive increases in marketing spend, cornering the raw materials supply, buying key staff from the start up and others. Many believe that free competition and entrepreneurship are the best routes to more employment, but sadly practices on the ground are often very different.
How can this entrepreneur compete? Continue reading
Humble shopkeepers can give lessons in marketing strategy
I recently read an article about the lives of Somali shop owners operating in a Cape Town township. They lived a very stressful life, with the continual fear of xenophobic attacks from community members, and the criminals who used the simmering xenophobia to provoke attacks and loot their stores. Insurance is not an option for them.
They described how they chose their location in the poorest sections of the communities. Residents have almost no income, and so travelling to a distant shop consumed too much of their discretionary spend, and they wanted the lowest prices for staples. Unit sales were small values, and at times a shopper would appear with a single coin. All he could buy with that would be one cigarette or a sweet. And he made the most of his purchase – choosing a sweet then changing his mind for a cigarette then rejecting the cigarette and choosing some gum.
The Somali shopkeepers treated him with dignity and patience, knowing that shopping was a rare treat for him. Many local shopowners would have chased him away. Going to a supermarket was simply not possible for this customer.
They chose their target market location carefully, selecting areas which put them in considerable danger and not very pleasant circumstances, but free of competition, and better able to service their customers. And then they gave wonderful customer service to even the least significant customer, treating him like a millionaire. How many entrepreneurs have been as visionary, and how many can say hand on heart that they treat all customers with equal respect and service? Continue reading
Moving a business to a new location can be like starting all over again. By Ed Hatton
An entrepreneur moved his event management and wedding planner business to a new province where no-one knows his business. He needs to attract clients but isn’t sure where to begin. He has been distributing pamphlets, but so far no-one has gotten back to him.
This entrepreneur had a thriving business doing wedding planning, parties and corporate event management and then he moved to a different province. When he started operations in his new location he realised just how much personal reputation and word of mouth had meant. In the new location he is unknown and potential clients are wary of entrusting important events to him.
The business must be started again in the new location. As before, he has to build a client base and a solid reputation to provide a platform for growth. He has the advantage of being experienced in running events and weddings, so he does not start quite as ‘cold’ as he did originally. Against this are a number of part-time wedding planners and event managers who are established and compete with him for business. Continue reading
Securing advertising income in a massively competitive environment requires smart strategy and good delivery – by Ed Hatton
An entrepreneur wants to approach businesses to advertise on his free business listing website. He has all the stats of how many visitors he has to his site but he doesn’t know what angles to use.
This entrepreneur has chosen the online sector for his new business. One of the key issues is the speed of development; new innovations change the landscape all the time. Another risk is the extent of the competition. There are thousands of directories, and hundreds of search engines, all trying to attract people searching for information or potential suppliers.
In this heated environment it is easy to focus on the measures that the industry uses – page impressions, unique visitors and click-throughs. But these are only measurements of traffic. The entrepreneur’s business must find and address a need profitably if it is to survive and prosper. All the visitors in the world mean nothing unless visitors use the information from the directory to buy or enquire about services. Similarly companies listing on his directory are there to source new enquiries which they can turn into business opportunities.
So now the question becomes ‘how can this directory generate business opportunities for the business listed?’ This must be done in a highly competitive environment with industry giants and thousands of small competitors trying to do the same. Continue reading
This article was written by Ed Hatton for
the column the Start up Coach and published by the South African edition of
Entrepreneur magazine in February 2011 and is posted here by their kind
Growing a business in a niche market
needs a strong understanding of your clients.
A young entrepreneur has developed a personal PA service. Her company handles the
personal, social and home management aspects of her clients’ lives. She wants
to market her service to entrepreneurs, as she believes this is her ideal
target market: people who do not have time to take care of daily non-business
related chores themselves. However she is not sure how to cost-effectively
market her service to such a niche client base.
This entrepreneur has devised a service to support busy and successful people who do
not have the time to manage homes, social activities, gifts, pets, bills,
licenses and the many other activities that are a part of modern lifestyles.
She has identified her target market as successful entrepreneurs who do not have
support systems in place. As a typical start-up the company needs steady income
from contracted clients. Like many entrepreneurs she had developed a website,
and placed a couple of adverts in a lifestyle related magazine, but has had no
I wonder how often I have heard the phrase ‘and we didn’t even get ONE lead from that…’ Remember this: A single advert or
sign that describes your business is highly unlikely to bring sales leads.
Advertising is great at generating enquiries from prospective clients, but only
as a part of a campaign. Start-ups with limited marketing budgets usually need
to find alternate ways of finding prospects. Continue reading
This article was written by Ed Hatton and first appeared in January 2011 Shop sa, the official magazine of the Stationery, Home and office products Association. The Association is fortunate to have a journal of this quality serving its members; it is a great and informative read.
Developing the sales team to gain a major competitive advantage
When you evaluate your business, listing your competitive advantages, or the even more specific Unique Selling Propositions (USPs), are they all price, product or service related? Are they sustainable?
About now some readers of this article may be thinking “Oops, I know I should look at that one day…” or “In my business everyone is the same, price on the day is the only difference…” If either of these thoughts reflects your position I suggest you stop reading and examine why your customers buy from you. If you really are a me-too business with no differentiation in the eyes of your customers, and yet you are still making sales, you are taking huge risks. If you don’t know why customers buy from you, then a change of circumstances outside your control, and perhaps even outside your awareness could have catastrophic consequences for your business.
Most competitive advantage positions relate to a product or a particular type of service. FedEx’s famous “When it absolutely positively has to be there overnight” or Debonairs “If it’s cold you don’t pay” are examples or service differentiators and Pastel’s “Nine out of ten Accountants recommend Pastel” or Audi’s “Vorsprung durch Tecknik” suggests product excellence. Price is often used – “Lowest price or we will refund the difference” is the essence of many price based differentiators. Commentators have used these slogans to show examples of USPs, and if your company can find a real and sustainable USP or two it will be in an exceptionally powerful position. Many companies have to settle for a more limited competitive advantage – being noticeably better than the competition even if that advantage is not unique.
How about developing the sales force to deliver a competitive advantage?
A team so professional, so knowledgeable and so able to solve customer needs that customers choose this company primarily to secure the services of the sales team. Services can be copied, product advantage is usually fleeting and the lowest price is the hardest of all to sustain, but the best sales force in a sector is a USP in the true sense of the word. What needs to be done to get to that position? Continue reading
….the simple plan
That they should take who have the power
And they should keep who can – Wordsworth
Will you be the growing business taking more market share? A defender of your customer base? Or one of those that lose ground to better planned and organised competitors? Do you have a plan to guide your business? Does it work for you?
Eisenhower famously said, “Plans are nothing, planning is everything”. The process of developing a good business plan will force you to think about your customers, competitors and the resources you need, and that thinking should drive your business in the future.
Assume you want to develop a plan for 2011 to defend your market share, or take new business. You may be tempted to download one of the excellent business planning templates and then concentrate on filling in the blocks. Some entrepreneurs, especially those starting out, will engage a cut-and-paste business plan developer. But there is a much better way: Simply follow Eisenhower’s advice and focus on the process of planning. Continue reading