profitability

Struggling Business Fail to Spend Money on These 3 Things

There are characteristics of successful business and also for struggling businesses. It is almost as if they do the exact opposite of each other. Three areas that struggling business owners tend to ignore because they see them as costs instead of improvements to support and grow their business are technology, people, and infrastructure/equipment. Let’s take a look at each to see the importance of each one.

Technology: Technology can help an organize with scheduling activities, taking orders, processing information, performing work, communicating with customers, collecting customer payments, financial activities and reporting, and assisting with an unlimited number of tasks. Technology must be implemented and used properly for a business to see a return on its investment. Additionally, it can take some time to get it up and running before you start reaping the benefits.

People: People are the life of an organization. Making sure that you have the right people will help your business run smoothly. Don’t be afraid to hire and train people to support the growth of your business, but you must make sure that they have the right resources, training and direction so that they can succeed. Can you imagine how a business can be transformed if it just hires one sales person that brings in 10 times the cost of their salary?

Infrastructure/Equipment: Have you ever been to a restaurant that looked like it hasn’t been updated since the 1970’s? It starts to lose its appeal and then the disturbing thought of what the kitchen must look like comes to mind. Have you noticed that franchises tend to be updated more often (generally they are required to), and their success rates far outpace non-franchised restaurants? The same can be said for equipment that can help virtually any industry to serve their customers better.

When a business ignores these investments they tend to suffer and their profitability goes way down, eventually leading to the demise of their business. The wise business owner will count the costs before making these investments and predict how the business will benefit. The struggling business will just see costs and never invest anything.

Do You Have Too Many Customers?

What do you think is better, 100 customers or 200 customers? It might actually be the lower number, and I’ll explain why.

Let’s say that a small business provides landscaping and maintenance services for both businesses and for residential customers. Most of the customers are within a reasonable driving distance from the main office, and the total amount of customers they have is 200 (50 businesses and 150 residential customers). In order to serve their customers the business has 10 employees and several business vehicles.

After reviewing the amount of services provided to each customer, the owner realizes that it is either unprofitable or only slightly profitable to service a small residential customer, especially if they are more than 15 miles away.

Furthermore, the owner realizes that if an employee performs work for a business customer it tends to be much more profitable because only several are being serviced in one day for a total of eight hours of service performed. For residential customers, only four hours of service is performed after factoring in travel time, plus there are additional costs of travel. Also, the work for business customers tends to be steadier and provides overall higher revenue.

What is one possible solution? The owner may decide that it makes sense to only service business customers. By decreasing the number of customers from 200 to 100, it means that 50 more business customers were acquired, while discontinuing service to 150 residential customers. If each business customer usually receives $5,000 of services per year while each residential customer receives only $1,000, then revenues will actually increase by 25%, while actually decreasing costs.

All you have to do is substitute the type of business with your own, such as computer consulting, printing, medical practices, all types of contractors, and you will get the same results. I believe that serving too many customers even leads business owners to feel that they are busy all of the time without having anything to show for it.