Marketing

Are You Keeping Track of the Right Metrics?

Financial information tends to bore most people except for accountants, accountants, and accountants. Even though the thought of looking through and analyzing numbers may scare you, there are some metrics that drive your financial results and should be measured carefully. They are usually more exciting to keep track of because they can also help predict your results. Here are some examples:

Customer Metrics

Volume: Examples of customer metrics can include: the number of patients, clients, or customers seen/visits per day, week, or month. An increase in this number will increase your sales, however, there may be a delay in actual cash received.

Sales per customer: Are your customers purchasing more or less from you? An easy way to increase sales is to increase the amount of sales to each customer.

Multiple Location Metrics

Same store sales or sales by location: If you have multiple locations, you must keep track of your sales by location. Ideally, you want to keep financials by location, but sales per location is a good starting point. You should compare the sales versus the same period last year and also with other locations.

Net profit by location: It’s great if your sales are doing well in one location, but if the profitability is poor, then you need to know this to make improvements or to shut down that location. Time and resources need to be spent at locations that will achieve the highest return.

Sales or Billings per Employee or by Employee

Sales results: Which employees are performing well, and which are not? What if you operate a real estate office and do not know which agents are your top performers and which are not performing?

Billings: For non-sales positions, especially professional services firms, a crucial number is billings per employee. A low amount may mean that you are over staffed or have inefficient operations. It is also critical to know billings per individual employee.

Leads & Sales Generation

# of leads: Are you receiving more inquiries or less inquiries compared to last month or last year at this time? An increase in leads should result in an increase of sales, but this is just the starting point.

Appointments scheduled: What is the percentage of inquiries that set appointments? You need to make sure that you are able to schedule appointments from your leads.

Appointments closed: A high closing ratio is the ultimate goal and a sign of sales productivity.

Customer acquisition cost: Ideally, you want to obtain customers at the lowest cost possible with the least amount of effort. The longer you retain a customer then the more you can spend trying to acquire them, but if you spend too much money on obtaining one-time customers then your profitability will suffer greatly.

The Metrics are Endless

There is an endless amount of metrics, and each industry has their own set of metrics that are measured, but sometimes metrics can be borrowed from outside your industry to make your own business more profitable. Review your situation to see which metrics will have the most impact to keep your success moving forward.

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How to Destroy Your Business Success in 6 Steps

Sometimes to be successful means to avoid doing the things that will destroy your success. It’s easy to go down the wrong path and it’s important to be aware of this.

Step #1: Saddling Your Business with Debt

Conventional wisdom states that there is smart debt vs. dumb debt or a similar description of two kinds of debt. Although there is some truth to this, the bottom line is that large amounts of debt will cause a huge handicap to your business, especially a start-up. Even if you are doing well it will not feel like it when you have massive debt payments each month or sometimes on a daily or weekly basis if you took out a predatory lender loan. When you have easy access to large amounts of debt it numbs your sense of being financially cautious, prudence, and allows you to spend your money on things that can easily be justified but are not necessary.

Step #2: Poor People Management

See what happens if you constantly treat your employees, vendors, and customers disrespectfully. The end result will be high turnover, sabotage, lack of a sense of shared purpose, losing customers, and everything else negative. It is amazing to see how little attention is paid to the management of people in a poor performing business.

Step #3: Over Working Yourself

There are times when you need to work more or work more rigorously, but if done for too long, then your productivity will decline, decision making becomes worse, and you may find yourself in the hospital for stress induced health reasons.

Step #4: Not Listening to the Right Advisors

Unemployed Uncle Jimmy with a string of failed businesses will not provide you with the advice you need, and if he does provide you with advice, then do the opposite. Or, which is also very commonplace, is to seek the advice of the wrong professional. Make sure the professional that you confide in is an expert with the advice you are looking for.

Step #5: Personal Issues

This is somewhat related to step #2, but more on a personal level. If you are going through difficult times on a personal level, then this will ultimately translate into poor business performance.  A common example is taking care of a sick family member that needs you. If you need to focus more fully on your family situation, then delay starting a business, or for an existing business try to delegate more of your business responsibilities to trusted employees.

Step #6: Ignore Marketing and Sales

Many years ago, I met with a brand new business owner to discuss his business and try to help him out. During our discussion, I asked what he was doing for marketing, and he said that he did very little because he didn’t want to spend money on marketing because marketing costs money. I’m not sure of my exact reply, but he was no longer in business within a few months’ time.

Summing it Up

Some of these steps may seem obvious, but they are common due to the fact that it is hard to take a step back, access a situation, swallow your pride, and say to yourself, “Hey, I need some help because I am not always right.” We should probably all say that more often.

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The 3 Pillars

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A business has many moving parts that must all be coordinated to ensure smooth and profitable operations. Usually, there are aspects of a business that are either completely ignored or not given the time, energy and focus that they need. These moving parts can be broken down into 3 major areas: operations, marketing, and financial.

Operations: Most businesses focus all of their time and energy on the operations of their business, and with good reason. Without operations there would be no business. Aspects of operations that are usually overlooked are: developing and managing employees, delegation, scheduling, and technology. It’s easy to get lost in all of the details of delivering your product and service that improvements to your business get pushed aside for the sake of just getting through the day.

Marketing: Marketing is the promotion of your business and is the key to growth opportunities. This can include old-fashioned networking, social media and Internet marketing, and many other forms of getting the word out. There are even indirect ways of marketing your product or service based upon visual interactions and use of technology.

Financial: Financial matters are like a middle child that tends to get ignored. Anecdotally, I have yet to see a business that does not have either cash flow problems or tax issues if they ignore their finances. Practically speaking this is the least interesting aspect of running a business, which is probably why it is ignored. However, operations, marketing and financial are all thoroughly intertwined, and if you ignore the financial aspect of your business then it will negatively impact all of the others.

These three pillars create the foundation of a business, and by strengthening them you will create lasting success.

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Why Does a Fast Growing Company Bleed Cash?

The irony of growing a company quickly is that it tends to bleed cash, and a lot of it. Why is this so and what can you do to prevent a cash crunch to keep the momentum going?

A fast Growing company is likely to spend more money to feed the growth of the business then a mature, slow-growing business in such areas as marketing, employees, technology, equipment, improvements, rent, and so on. The key to not going broke is to manage the process to keep the cash inflows consistent and much greater than the cash outflows. For example:

Accounts receivable: Sales growth without receiving money coming in will be awfully painful. Make sure you have billing and collection procedures in place to keep the cash coming in timely.

Marketing: There are different thoughts on how much should be spent on marketing as a percentage of sales. However, instead of thinking about percentages, think about effectiveness of your marketing so that your cash is not wasted.

Improvements & equipment: Building out a new location can be very costly, but there are several ways to minimize the risk of setting up an additional location. First, make sure that your first location is profitable and producing excess cash flow, second, build up a cash cushion, and third, obtain favorable financing or use a combination of cash and financing.

Employees: As sales increase there is a temptation to quickly hire more employees, which is necessary. However, if you hire too quickly, then the productivity of each employee will be too low for you to make a profit. A good strategy is to create metrics, that if met, will let you know that it is time to hire another employee or employees.

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How Long Will it Take to Double Your Sales?

Doubling your sales is an ambitious goal for most business owners, but is this practical and if so, how long will it take?

It is not as difficult as it seems if you break it down into smaller components, such as the average percent increase that is needed each year to double your sales. Here are examples of how long it will take in years to double your sales based on your compounded growth rate percentage:

Growth Rate      Years to Double

5%                          14.2 Years

10%                        7.2 Years

15%                        5 Years

20%                        3.8 Years

25%                        3.1 Years

30%                        2.6 Years

40%                        2.1 Years

50%                        1.7 Years

 

Even a modest 15% growth rate will double your sales within 5 years, which is very reasonable. If you are able to keep your growth consistent for another 5 years, then you will double your sales again, which translates to a quadrupling of sales from your base. For example, a company with $1M in sales will double to $2M in 5 years and in another 5 years will double again to $4M.

Always do the math when figuring out how to achieve your sales goals to make sure you are on track.

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Follow Your Emotions and Go Broke

According to dictionary.com, one definition of emotion is “an affective state of consciousness in which joy, sorrow, fear, hate, or the like, is experienced, as distinguished from cognitive and volitional states of consciousness.” Emotions can be complex and if you make business and financial decisions based solely on how you feel at the moment without considering facts then this can be a disaster. Here are a few examples and ways to prevent you from making decisions based upon emotions:

Investment decisions: When the stock market tanks and the economy is in a recession, you may be strongly tempted to sell all of your investments, which is most likely the worst decision ever. If you have a good financial advisor then hopefully they can temper your emotions.

Too excited over expected results: A perfect example is when a sales person tells you how much money you will make by placing an ad in their publication because thousands of people will see your ad. It may be true that thousands of people will see your ad, but if they aren’t your target market then your results will be dismal.

Conflicts with customers and employees: If you have a performance issue with an employee, first determine if this is a recurring problem before you pounce on them. Maybe the issue just needs a gentle correction versus more severe actions. What about a customer complaint? Even if you are right, try not to reactive emotionally so as not to let the situation escalate out of control.

There are several techniques that you can use to prevent poor, emotionally-based decisions:

Wait: Don’t be reactive to another person or situation. If the situation requires you to speak or deal with it immediately, then pause, even if just for a moment, before speaking. For other decisions, take a day or more to make a decision. The time spent making a decision should coincide with its importance.

Look at the facts: What you think is true based upon how you feel and what actually is the truth are two different things. Separate feelings from facts.

Seek advice: Speak to a trusted professional, friend, or colleague about your decision. Sometimes just speaking to a third party before making a decision can put things into perspective.

Don’t let your emotions get in the way of your decision making.

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5 Traps to Avoid When Growing Your Business Rapidly

Growing your business, especially growing rapidly, can be a really great accomplishment, but there are dangers when growing too quickly. Here are several traps to avoid to ensure successful growth:

Cash flow: Quite often, a small business will have cash flow issues when growing too rapidly. This is due to a delay of getting paid, while expenses need to be paid for upfront or before getting paid. There are 3 solutions that can help depending upon your situation. The first is to see if you can obtain terms with your suppliers to delay expenditures, second is to obtain a line of credit to support your receivables, and third, which tends to be the hardest, is to build up a cash cushion first.

Finances: As you grow your business, the financial aspect becomes even more crucial to your success. This entails a focus on investing in more robust accounting software, accounting staff and/or accounting services, streamlined processes and procedures, and internal controls, to name a few.

Employees and management structure: Unless you enjoy working 24/7, you need capable managers to manage your employees (you have been hiring more employees, right?). It is easier to have a few people reporting directly to you then several dozen. Also, make sure to acknowledge and reward the loyal employees that helped you to obtain your success.

Personal time and wellness: It is very easy to put in excessive hours to handle the massive growth of your business. There will be times when you need to work extra, but if this becomes the norm then it is easy for your personal relationships to suffer, along with a decline of healthy habits.

Infrastructure and organization: This applies not only to the physical nature of your business, but especially your operations. Have you outgrown the physical space that you occupy? Are you using equipment, technology, or IT that is not keeping up? Are your vendors and advisors able to handle the growth of your business? What about marketing and marketing staff? These are all areas to consider; otherwise, they will act as barriers to your growth.

Growth needs to be profitable, stable, and smart; otherwise, your results can easily go in the opposite direction that you intended. Think long-term, strategically, and surround yourself with the appropriate advisors to help you along your journey.

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Old School Marketing that Still Works

Google AdWords, Facebook ads, Instagram, and email marketing, are just some of the modern ways to market your business. We are told by social media experts that traditional, old-school marketing does not work anymore. Let’s take a closer look, especially as some digital marketing methods have become overly saturated.

Some traditional marketing methods work better than others, which is the case for any type of marketing techniques. Methods, such as phone book advertising, may be dead because no one receives phone books anymore, but here are 4 old school methods that are still alive:

Networking: Developing a network of referral sources by going to networking events, lunches, dinners, etc. and developing strong, trusted, relationships, still works. People always like to do business with and refer their customers to someone they know, like, and trust. It may take some time though.

Pounding the pavement: If you are selling a service or product to restaurants, as an example, then make an effort to visit them. Make sure to know when it is a convenient time to stop by plus it is beneficial to have information to provide to the business owner.

Direct mail: I’ve heard it being said that direct mail is dead. It’s not true. If you are going to commit to direct mail, which can be very costly, make sure that your efforts are very focused and get noticed.

Speaking engagements: What better way to come into contact with people who actually want to hear and know more about your expertise? Even a small group of attendees can produce a significant return on your time and investment, especially if you make it easy to get in touch with you and obtain contact information from those willing to share this information.

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Instead of Taking out More Debt, Do This Instead

One of the first ways most people try to cover a financial shortfall is to incur more debt. Whether this is to support a struggling business or even on a personal level. This may be a solution in some cases or may be used in conjunction with other financial methods. However, there is another solution that may work to solve your shortfall.

Reason for shortfall: Simply put, there will be a shortfall when your income is less than your expenses. Sometimes this is temporary or seasonal and you may be able to predict a shortfall based on business patterns.

The debt solution: Usually, most businesses turn to debt to smooth out the shortfalls. While this may be a viable solution, it should be well though-out and other options should be explored.

Alternative solutions: Aside from needing funds to support a large purchase, if your income is not enough to cover your expenses then instead of first choosing debt, here are a few other options:

Sales: Focus on increasing your sales. An increase in sales will help to increase your bottom line results. Will your expenses increase as a result? Most likely yes, but so should your profit. Aside from industries that have a poor cash conversion cycle, which is a topic all by itself, the additional business activity should help to offset your financial shortfalls.

Expenses: Small businesses should always be conscious of what they are spending their money on. Based on observation, small businesses do not usually spend their money excessively, but they may spend allocate it to areas of their business that do not generate a benefit, such as poorly spent advertising dollars.

Profitability by service/product/client: It may come as a surprise, but most likely there are several aspects of your business that are really not that profitable or may not be profitable at all. If that is the case, then by eliminating these activities your profits will increase as you can focus on increasing sales of higher profit services.

Don’t always go for the “easy” solution, but perhaps a simple, more sweat-producing, long-term solution to help the finances of your business.

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Should You Market to Existing Customers or Search for New Ones?

Much of the marketing advice today focuses on marketing to obtain new customers, which is full of excitement and challenges. While you should always be seeking new customers, what about your existing ones? What is most effective?

New customers: It is especially important to market to new customers when you are just starting up and also when trying to grow your business. The benefits are new customers to develop and grow your customer base, to replace ex-customers (there is always natural attrition that is not your fault), and increase cash flows.

There are also several downsides to marketing to new customers. The first downside is that it is much more expensive and time-consuming to obtain new customers. Some studies show that it is about five times more expensive to obtain a new customer than to retain an existing customer. Additionally, depending upon your business, a new customer may be less profitable than an existing customer, which means that your profits will not keep up with your sales growth.

Existing: There are two types of marketing that should be performed for your existing customers. The first should be to develop stronger relationships, loyalty, and ultimately higher customer retention. Unfortunately, many small businesses and professionals greatly lack a plan to keep in touch with their customers and wait until they are contacted by their customers for an urgent need. The second type of marketing should be to increase sales of existing products or services, and also to provide additional products and services to their existing customer base. Studies also show that existing customers are much more likely to purchase from you vs. new customers.

When I was in high school I learned this lesson from my dad after finding out that I needed to sell magazines as a fundraiser. He told me to go see the customers from my old paper route that I had several years back, which I reluctantly did even though I thought that he was wrong. It turns out that I was the one who was wrong and met the sales quota with very little effort.

Hybrid: The older and greyer I become I realize that most things in life are not either or, but are a combination of both. The wisest approach is to market to new customers, make efforts to retain your existing customers, and to offer new products or services to your existing customers.

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