Marketing

Want a Better Business? Focus on Recurring Revenues!

There are more ways to make money in business that can be listed. However, one mostly overlooked business model by a majority of small businesses is the recurring revenue model. Larger businesses already know this and are taking advantage of the benefits. Here are some pros and cons and how to implement the recurring business model:

Pros: Recurring revenues, specifically monthly recurring revenues, provide a steady stream of predictable cash flow. Since you can easily predict your income you can plan ahead for the amount of expenses needed to support your revenues, such as employees, technology, supplies, inventory, etc. This will in turn significantly lower your expenses and help to increase your profit margin. Additionally, a business with recurring revenues has a much higher value than one-shot deals. Think homebuilder (one-shot) vs. a subscription service like Netflix (monthly revenues).

Cons: Many small business owners love the large payments that they receive when they land a one-time or short-term project, which do not exist with the recurring revenue model for the most part. It can take time to build a recurring revenue business, but an existing business should realistically be able to see a massive change with a one year period.

How to Implement: Take a look at the services and/or products that you provide, and determine which ones can be modified to fit the recurring revenue model. For example, a marketing company that helps clients with social media can develop a package to perform certain tasks each month in exchange for a recurring monthly fee.  Virtually any business can turn at least a portion of their business into recurring revenues

The recurring business model is not costly or difficult to implement, but rather a low-risk, high-reward activity. It takes courage and openness to change your business, but it will be worth it.

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Small Business, Large Profits

All small business owners want to increase sales, open new locations, obtain more customers, add employees and grow, grow, and grow some more. It sounds good, but is it really necessary? Is there an alternative?

Necessity: It is necessary to grow your business as the alternative isn’t too appealing. You have financial obligations and people that depend upon you, such as family, employees, and customers. So, yes, it is necessary, however, here is a different view on growth.

Focus on profitability: If you double your profit margin then this has the same impact as doubling the sales of your business. Even if you increase the profit margin by several percentage points then it has the same impact as increasing sales. It sounds too easy, but here are some ways to do this:

  1. Decrease the number of services/products. Spreading yourself too thin usually decreases your profitability because it is hard to do everything well.
  2. Service the proper clients by targeting a more defined niche.
  3. Use marketing methods that only target the customers that you want to serve.
  4. Plan ahead for large purchases or investments, including space requirements, people, vendors, equipment, and technology.
  5. Price your products and services properly.

The interesting fact is that when you are more profitable, then each additional dollar of business is worth more to you, which makes it easier to actually grow further.

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How to Successfully Start a Second Business

Quite often entrepreneurs want to start a second business or even possibly a third, fourth and so on. What are the ways to make this successful, especially without selling or potentially harming your existing business(s), and what are some alternatives?

Similar or complementary business: Instead of say, an attorney, starting a restaurant, they may consider developing software to help other attorneys manage their practice better. Since they already have the experience of being a practicing attorney, they can transfer this knowledge into helping other attorneys and ideally use it in their own law practice.

Business with similar customers: Some businesses also serve your customers with a different product or service. To determine the other business that your customers use, observe which products or service providers your customers are also using and see if there is a pattern. Also, look to see who you are referring your customers to. For example, a landscaper may constantly refer their clients to a lawn sprinkler company, pest control business, or tree removal service.

Have a foundation in place: Make sure that you have a foundation in place for your existing business(s) so that they do not suffer as you develop other businesses. This usually takes years, but the main goal is to make your current business less dependent on you with everyday tasks. If your business suffers when you are not there for a few days then you are not ready.

Alternatives to starting another business:

Add a location: If you are successful in one location and have a good business model, then it is much easier to repeat this with another location. This can include second or third offices for a medical or professional practice, additional restaurants, and additional sales offices.

Purchase an existing business in the same industry: Having a strong foundation is important because you can easily absorb another business in the same industry as long as you have all of the infrastructure in place. This can include capital, space, employees, technology, and operating procedures.

Operate a business within your existing business: Instead of creating a distinctly separate business you can operate the additional business within your own business as a separate service offering or division. This can work well if the service offering is very similar to your existing business. Legal and tax implications should always be considered.

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3 Ways to Turn Around a Struggling Business

After the Great Recession there are still some businesses that may be struggling and don’t know what to do about it. Here are a few ways to turn around a struggling business:

Upgrade: The rate of change nowadays seems to be accelerating at a pace that has not existed in the past. This includes technology, competition, lifestyles, behaviors, and preferences. Although business principals never change, everything else around us does. Questions to ask are:

  1. Is my service or product still relevant and in demand? A perfect example is Blockbuster and department stores.
  2. Are delivery methods of your product or service in sync with customer preferences, lifestyles, and behaviors? Another closely related question is, “How easy is it to do business with you?”
  3. Have demographics changed?

Your business may need to upgrade/change any of the following: location, technology, including website capabilities, payment processing, scheduling, and communications with customers, turnaround times, product and service offerings, the type of customer you are servicing, and so on.

Marketing: Marketing methods have changed dramatically over the last 10 years. Are you marketing your business to keep up with these changes? If you relied heavily on newspaper or phone book advertising in the past, then I would make a bet that it is not very effective anymore. Even businesses that serve very local customers need to have a strong Internet presence. The best products and services still need to get the word out. Rationally, they shouldn’t have to, but this is just not true.

Analyze and take action: Take a fresh look at your business and seriously consider hiring a consultant to point out your blind spots. Most likely you are not recognizing what needs to change or possibly you do but do not know how to go about making changes. The next step is to actually implement changes.

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Why Everyone Should Start and Run a Business Even if it’s Just Part-Time and Temporary

Why should everyone start a business? Because it will completely change the way you see the world, view people, money, and everything else. Not to mention that it will humble you.

Just to be clear, not everyone should be a business owner full-time or for the long-haul. However, by starting a part-time business or even operating it full-time it will change the following:

Appreciation: You will appreciate the skills of business owners that you know, including friends, family, local restaurants and other business owners, or even your own boss/owner if you work for a small company. There are many, many skills that are required to run a successful business that can only be appreciated if you actually are a small business owner.

Humbling: Nobody likes rejection that I know of, but it is very common in business. A small business owner is usually the head salesman and must learn how to sell their products or services. As with any sales position, you’ll quickly realize that not everyone wants to buy what you’re selling, even if you believe that it is better than chocolate fudge brownies, if that is possible. Even if you are selling your products on the Internet and do not have to sell face to face, you may wonder why nobody is visiting your website or buying your products on Amazon. Don’t take it personally. You will also experience the ups and downs of a business vs. a steady paycheck from an employer.

Direct relationship between results and income: Unless you work as a commission-based sales person, there generally is not a short-term relationship between your income and your results. For a business owner, great results equal greater income. As an employee, compensation increases tend to happen over time and you are highly dependent upon your direct boss and the company’s performance.

Complaining: You will probably laugh when a friend complains how much they have to pay towards their health insurance, retirement benefits, and their company’s paid time-off policies. Guess who fully pays for these benefits when you own your own business?

Commitment: Having a small business means being committed. As with any endeavor that you seek to achieve positive results, a strong commitment will dramatically increase your chance of success. If you can commit to a business then you can commit to other important items.

 

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Is a Franchise Right for You?

McDonald’s, Subway, and Chick-fil-A all have one thing in common – they are franchises with proven track records. But is a franchise right for you? Let’s look at the pros and cons:

Pros:

Proven model of business success: Established franchises have a proven model of success that makes it easier for you to be successful. The franchisor takes the guess work out of marketing, which items to sell, systems, and how to operate your business effectively.

Multiple locations: Because of the standardization of the franchise model, it makes it much easier to own and run multiple locations because each location is virtually identical. There may be some minor differences, such as size, but it’s almost like having twins.

Potential to be a passive business: Depending upon the franchise, you may be able to take a more passive role in a franchise business. However, some franchises do not allow this, such as Chick-fil-A, but many do.

Cons:

Capital requirements: Aside from an upfront franchise fee, many successful franchises require you to have a lot of liquid capital before purchasing a franchise. Although this is a very, very smart move on the part of the franchisor, due to the high correlation between undercapitalized businesses and business failures, this requirement makes is harder to purchase some franchises. However, there are many franchises to choose from and the capital requirements and fees vary considerably.

Independence and creativity: Due to the strict model of owning a franchise, you are less able to be “creative.” For example, if you own a McDonald’s franchise, you can’t decide to just add bison burgers to the menu without approval.

Franchises can be a good way to become an entrepreneur or to expand your entrepreneurial empire, but you must weigh the pros and cons to make sure that it is right for you.

Say “Hi” to Your Customers

When I was in college I worked at the now defunct supermarket chain, Grand Union, as a cashier. I really didn’t want to work there at first, but working there helped to pay for all of my expenses while attending college. Thinking way back, I remember that when customers came in line I usually didn’t even look at them or say “Hi” until one day after talking with my dad.

I must have been complaining about dealing with customers when he asked me one simple question.

“Do you say “Hi”i to your customers,” he asked.

“No,” I answered, thinking why should I?

“Why don’t you start saying “Hi” to your customers from now on,” he commanded.

Surprisingly, I actually listened to my dad even though I knew best as a teenager, and it transformed my work experience immediately. Instead of having disgruntled customers, they now seemed to be transformed into casual friends. It was amazing that one word changed both my experience and that of my customers.

Why was this so effective and powerful? I can only make a couple of assumptions as I’m not a psychologist, but this is what I think:

  1. It created a dialogue between the customer and myself
  2. I was viewed as a person, rather than some mindless cashier, or worse
  3. Usually people are nice to people who are nice to them
  4. Lastly, people want to be recognized, even in the smallest of ways

Were people nice each and every time? No, but it was rare that I had a bad experience with a customer from then on. Don’t forget to say “Hi” to your customers, or your local cashier. Who knows, one day they become your CPA!

Focus on These 3 Areas to Multiply Your Business Success

Having a business is not easy, and even successful business owners know this. But what is the secret to running a successful business and multiplying your results? You must focus on these 3 areas:

Operations: Operations is a very broad category, but it can be viewed as any activity that supports or creates and delivers the services or products that you are selling from start to finish.  Many small business owners are very good with providing their service or selling their product. However, there are usually great improvements that can be made with efficiencies, employees, and using time and resources wisely.

Marketing & Sales: Surprisingly, some small business owners perform almost no marketing activities, but are actually marketing their business by their reputation, the way they deliver their services, the characteristics of their products, and the overall customer experience. Virtually all must sell to some degree as many interactions are sales opportunities. Think of restaurants that try to “upsell” a larger size or additional items, such as much needed desserts! Smart marketing and effective sales can help you to multiply your revenues, and it does not have to be expensive.

Financial: This is all of the boring stuff, such as accounting systems, cash flow, internal controls (to ensure more reliable financials and to reduce fraud), and managing receivables and payables. I have yet to see a business that does not either have cash flow issues or tax issues if they ignore this part of their business. Finances are a crucial part of every business and are mistakenly ignored or paid very little attention to. With proper attention to finances, a business can easily become more profitable, have greater cash flow, pay less taxes and interest, reduce stress levels, and have a greater sense of control.

An interesting observation is that all three areas are very interdependent upon each other. An improvement in one are will help the others, but on the flip side, if one are is lacking, then the others will suffer as well. If you need help with any of these, then please let me know.

Increase Sales or Cut Expenses?

What should be the focus? Should we increase our sales or cut our expenses? All of the marketing and self-development gurus tend to focus on increasing our sales, but other financial experts want us to focus on cutting costs and debts. Who is right and what should we do? Let’s look at the pros and cons of each:

Cut your expenses and debt: Being aware of our expenses and cutting unnecessary expenses is a smart move, along with reducing debts. However, cutting expenses will only go so far because you need to incur expenses to support your business operations. Reducing debts is also a smart move, but this should not be done to the detriment of using up all of your cash, otherwise you will go right back to increasing your debts.

Increase your sales: Every business should look for ways to grow their sales, as a business tends to naturally deteriorate over time. An increase of sales can and should lead to an increase of profits, but not always. Many times, a business will increase sales activity, but their profits may actually decrease, stay flat, or only increase incrementally. The main reason for this is due to the fact that a business needs to spend money on marketing, people, technology, and infrastructure to be able to support higher sales.

The optimum solution: Instead of focusing on either or, you should focus on both to some degree, which is what the most successful companies do. Instead of just growing your sales haphazardly, you should focus on growing your sales profitably. To accomplish this you will need to perform some simple math to make sure that you are focusing on profitable services and products and delivering them in a profitable way as not every dollar of sales is equal. Better profitability will also allow a business to have excess cash to help pay down debts and not get into more debt. Without a focus on profitability, a fast growing company will tend to have cash flow issues, and companies that focus on cutting expenses tend to cut themselves into irrelevancy.

9 Ways to Reduce Your Money Worries

When we lack money it creates a lot of stress and anxiety, and can be a source of tension in relationships. But how can we make our money work for us? Here are several ways we can take more control of our money to reduce our stresses:

  1. Change your thoughts: Reframe the way you think about money from being worried about it to being non-emotional about it. Nothing changes if you are worried about it, but worries may cause you to make worse financial decisions. This doesn’t mean that you should not care about money or be reckless.
  2. Be a good steward: If you think of your money not as your own, then you will manage it differently. It is a resource, no matter how great or how small, that we are given to be responsible with. Don’t be foolish with how you spend your money or the way you invest it.
  3. Save it first: Save your money first before you pay anyone else. Even if you start with saving 1 % of your income, it will create a habit that will last you a lifetime, and over time you can increase the percentage to more meaningful amounts. Although 1% may only amount to $20, $50 or so a week so there is almost no excuse to save this small amount, even if you are struggling. I like percentages because you save more when your income is higher and less when it is lower.
  4. Delay large purchases: Houses and cars are our largest expenses, but usually there is not a lot of thought put into these purchases. More time should be spent discerning larger purchases then small ones.
  5. Minimize useless debts: It seems as though anything can be financed today, from cell phones to plastic surgery. If your cell phone bill is $500 a month because you financed 5 iphones then you probably couldn’t afford the phones in the first place.
  6. Make more money: If your income is not high enough and your spending is not an issue, then figure out ways to make more money. If you need to switch jobs or hire a consultant for your business then do it.
  7. Give it away: I’m not sure if there are studies on this, but anecdotally, people who are more charitable seem to be happier than those who are not.
  8. Be timely: Pay your bills in a timely manner by being more systematic. Late fees and threatening notices are never enjoyable.
  9. Do something different: As with any problem, you need to change what you are doing because obviously it is not working. Yes, we are all stubborn.

By the way, it doesn’t matter if you make $50,000, $500,000 or $5,000,000, as you will have the same issues, with different variations. And, more money doesn’t mean fewer problems.