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Marketing 2.0: How and Why You Measure Results

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Marketing is an essential function of every business.   Smart organization leaders understand that continually reaching out to current and potential customers,  with objectives to create loyalty and trust in the company,  its products and its services and building a brand,  are integral to sustaining a healthy enterprise.  Like all business initiatives,  marketing objectives and strategies must be periodically evaluated,  to monitor and measure results and determine how to adjust and optimize the program if results do not meet expectations.  Choose your marketing activities based on your knowledge of customer behavior.

The measurement of marketing results can be broken down according to a method recommended by Joseph Raymond Roy,  a marketing consultant based in Meredith, NH,  who gives us the acronym DATA:

1. Defining,  identify the result your marketing will promote (increasing the number of potential customers)

2. Assessing,  measure the dollar value of your marketing program (look at the number of customers and gross revenue)

3. Tracking,  determine if customers came to your business as a result of your marketing activities (ask new customers how they found you, or all customers in a survey)

4. Adjusting,  if it is obvious,  do more of what produces the desired result and less of what does not produce results.  In other words,  optimize your marketing activities.

Begin the measurement by calculating the amount of money invested in your marketing activities.  Obviously there is also time involved,  which should be taken into account,  but  it is usually difficult to attach an appropriate dollar figure to one’s time.  How much is the time you spend networking worth?  What is the time spent on social media worth,  or producing your monthly newsletter?

You may develop good relationships with potential referral sources,  but it may take 5 months or 5 years to receive a referral.  Speaking engagements and webinars  are easier to evaluate.  A well-respected venue always has value,  whether or not you receive referral business or meet a future client,  because the very act adds value to your curriculum vitae.  Calculate ROI by deducting the value of resources spent on marketing activities from revenues generated by customers who have come to you as a result of marketing activities.

Tracking  (i.e., forward tracking),  the process of building an identifying mechanism into each marketing activity before it is launched,  so that you can measure the results derived.  If you present a webinar,   the registration of participants,  which includes an email address for each listener,  is a most accurate tracking mechanism.  Responding to a product offer with a special code is another excellent tracking device.   The marketer will be able to identify which customer was not only impacted by a certain activity,  but also will know if that person eventually does business with the company.

There are various types of tracking methods,   including Point-of-sale tracking,  conducted when new customers arrive by asking them how they heard about you.  You will also use point-of-sale tracking when you tally up the sales results associated with the purpose of your marketing program,  be it bigger ticket items,  referrals,  or other customer actions.   Reverse tracking  is the process of going through your customer list and documenting how current customers became your customers.

If you write a blog or newsletter,  measure your reach by counting the number of subscribers,  email forwards and followers.  Point-of-sale tracking  will let you know if demonstration of your knowledge and expertise brings customers into the door.

The ROI of PR should be measured in at least two ways:  first,  through Media impressions,  in which the marketer counts how many media outlets wrote a story or made a radio or television announcement in response to a press release that was sent (a follow-up phone call will likely boost the response rate).   Second,  through Content analysis one can evaluate the accuracy of what was broadcast as a result of the press release and the prominence of item placements in the chosen media outlets.

Online data analytics systems  will track all visits to your website,  customized to your needs.  How many potential customers abandon your website and how many follow-up with inquiries or engage by clicking on your newsletter or blog? What is the impact of your social media outlets on your marketing objectives? Here is how you’ll know.

The ultimate marketing metric is the percentage of your customer base that result from marketing activities,  or Marketing Originated Customers.

It may take a service provider 6 – 12 months to have results to measure.  Obtaining a contract from a new or returning client is a longer sales cycle than selling ice cream cones.  Metrics make it possible to know which marketing activities yield the best results and that knowledge will give you the opportunity to optimize your marketing efforts.  You will do more of what works,  perhaps launching an advertising campaign during a particular season or increasing your participation in certain business or professional groups.  Other activities may be diminished or dropped altogether.  Gross sales will give a dollar value ROI to your marketing program when compared to the pre-marketing program value.

Marketing metrics ensure that you receive a solid ROI on your marketing activities.  Appropriately chosen and implemented marketing activities that are tracked and optimized will always pay for themselves.

Thanks for reading,

Kim

 

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Marketing 2.0 : How and Why You Do It

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All those with a product or service to sell must institute a marketing program that promotes those products and services to target customers.  Marketing programs consist of strategies and activities that derive from promotional objectives you would like to achieve for your products,  services,  or the company overall.  Advertising;  writing a blog, newsletter, or book;  speaking at business associations;  teaching a subject that showcases your expertise;  making an in-kind donation to a local charity event;  presenting a webinar;  nominating yourself for (and winning!) a business award;  writing a press release to announce to local media that you are presenting a webinar,  have won a business award or published a book;  networking to meet new colleagues or reconnect and build relationships; and presence on social media are examples of activities that carry out your marketing strategies and have the potential to ensure the achievement of marketing objectives.

For most,  the goal of marketing is to increase sales  (that is, revenue)  by increasing awareness and trust in the company and its products and services and in that way increasing the number of its potential customers.  Marketing is a way to fill the sales pipeline,  as is prospecting for potential customers  (wear your sales hat when prospecting,  although prospecting is not quite selling in the same way that marketing is not exactly selling).  Generally,  marketing strategies are created to produce one or more of these results:

1. Awareness,  so that target customer groups will learn of the existence of your company and its products and services.

2. Perception,  so that target customer groups will think of your company and its offerings in a certain way.  This is the core of brand development; trust and confidence are the primary attributes that you must persuade customers to associate with your company and its products and services.  Depending on your business,  other attributes you may want to attach to the brand are luxury,  practicality,  innovativation or quirkiness.  Reputation management and crisis PR are under this heading.

3. Behavior,  so that target customers will be persuaded to take action.  Your objectives may include attracting new customers;  encouraging repeat business from existing customers;  encouraging sales of higher-ticket items or premium services;  or stimulating referrals by persuading customers to recommend your products and services to others.

Because time and money are limited resources for business ventures large and small,  it is a big advantage to know which of your marketing activities works and if possible,  to also know which activities are effective for certain customers.  Further, it is essential to know how many customers come to your business as a result of marketing activities.

To measure the return on investment ROI of your marketing program,  one must venture into the realm of marketing metrics,  from data analytics to Big Data.  Next week,  we will look at simple yet revealing marketing metrics that will evaluate the effectiveness of your marketing and guide your future marketing activities.

Thanks for reading,

Kim

Sales, Survival Strategies , , Leave a comment

Avoiding Exploitation: How Much Free Advice?

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You’ve seen this movie before.  You are excited by an invitation to visit the office of a promising prospect.  There is a great discussion about the business and where your services would fit.  Serious questions are asked and,  anxious to demonstrate your understanding of the your  (almost)  clients’ needs,   you supply straightforward and practical answers.  The prospect seems impressed with your business acumen;  the energy in the room feels good;  you can visualize your first day on the job.  At the meeting’s end,  there is talk of bringing you in to specify the details of a working relationship.

A week slips by and then two.  Your email or phone call is either unanswered,  or the answer you receive is that your prospect is unable to move forward at this time.  Can you call back next month? Ten days into the new month you call and realize,  with much regret,  that the trail has gone cold.  Who you thought would become a new client was just an imposter,  who robbed the stagecoach of your expertise and disappeared.

That scenario is repeated more than one would think at for-profit and not-for-profit institutions alike.  The fact is,  unless a consulting professional works at Bain,  McKinsey,  or some other big consulting group,   rip-off artists may conspire to defraud you of actionable business information without paying you a dime.  I’ve been invited to two or three interviews where in hindsight I came to realize that the  “prospect”  was merely fishing for free ideas that would resolve a dilemma that would be handled in-house.

Certain salaried predators find it very clever to pretend that there is a nice project available,  call in a few Freelance consultants and pepper us with questions that we answer because we neither eat nor pay the rent or mortgage unless we obtain clients.   The schemers take copious notes and laugh as we walk out of the door,  filled with false hope and visions of paid-off credit cards.

The business press occasionally takes this subject on and presents an article that provides strategies that Freelancers might use to protect ourselves,  but I have little faith in the proposed remedies.  Reading them,  I’ve seen almost nothing that I would expect to work in real-time.  The prospective client asks questions about a project.  How do you avoid providing answers and demonstrating your ability to do the job? Giving a wonderful sales presentation only means there will be better quality information to steal from you.  Recommendations to find out who will be in the meeting and searching for common ground that will allow you to connect on a personal level with at least one person on the team  (oh, you grow roses, too?)  means nothing to someone whose agenda is to exploit.  Knowing when to try to close the deal means nothing because there is nothing to close,  except the door in your face.

There are few effective solutions for this troubling occurrence.  To date,  the best I’ve read was contributed by Grant Cardone,  sales guru and best-selling author of Sell to Survive  (2008)  and Sell or Be Sold  (2012): “I would like to work with you on this issue and I have a few ideas on how we might proceed,  but at this time I don’t know your company well enough to give you answers that either of us could trust to be correct”.

The beauty of this response is that it’s true and it can most likely stop the ” client ” from continuing to press for free consulting advice.  Brazen types may threaten to snatch the  “opportunity”  away from you but if that does occur,  take it as a clear sign that there never was an intention to hire you or anyone else.  Graciously and immediately end the meeting.  If by some miracle the client is real,  your statement will be respected and taken as a sign of integrity.  Your candor might even win you the contract.

Good luck and Happy Easter,

Kim

Technology / Office , , , Leave a comment

Pictures Spice Your Presentations

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When it comes to Power Point presentations,  a good picture really is worth 1,000 words.  The importance of the images that accompany your presentation is not to be underestimated.  Images help tell your story by highlighting key concepts that complement your topic and helping to maintain audience attention.   Additionally,  a good structure is elemental to your presentation.  The architecture of the talk aids audience understanding and has the added benefit of leading you from point to point,  helping you remember what you want to say.

Construct your talk

Your presentation is shaped by what you must communicate and achieve.  You may be asked to inspire a group to support a particular cause and call to action.  When in a sales process,  your job is to persuade the prospective client of the value of your product or service.  Storytelling is appropriate in both scenarios.  Your story will help the audience connect to you and the goal you aim to achieve and portray you as authentic and trustworthy.  The story will fit within your presentation and both will have a beginning,  middle and end and will be easy to follow and concise.

Motivational talks fit easily into a Past – Present – Future  structure,  which is ideal for allowing the speaker to first provide the history of the situation,  then describe the current state of affairs and finally culminate with a rally of enthusiasm and support for the call to action that will bring about the preferred future  (outcome).  A Compare – Contrast  structure works well for sales presentations,  as it allows the speaker to communicate the advantages of the products or services as compared to competitors’.   A Cause – Effect  structure is useful in either scenario,  as it allows the speaker to describe the underlying logic of his/her position.

Speak,  do not read

Text-heavy slides cause audience members to instinctively read the text and tune out the speaker,  a detriment to the talk.  Master presenter Steve Jobs was famous for the one word slide.  It is a daring act.  I tried it once,  found it effective and I will do it again.  In order to make the tactic work,  rehearse the talk and rehearse some more,  until you know your material cold.  Too much text on the slides,  even bullet points,  draws attention away from you,  the star of the show.   Yet a few well-chosen words serve to focus audience attention and draw them into the subject.  Think large font and few words.Success Starts Here Freeway Style Desert Landscape

Quality images complement your talk

Images used in your presentation should complement your topic and be of good quality.  There are websites that have thousands of free images available for upload.  The free images used here are from MorgueFile  http://morguefile.com.  Attractive images help to maintain audience interest and illustrate relevant themes.

 

 

Charts and graphs

Charts,  graphs and diagrams are an excellent way to illustrate statistical and financial data and demonstrate trends that occur over a period of time.   A colorful bar graph,  pie chart or flow chart helps the audience grasp information that may otherwise seem too complex.  A visual interpretation can be very helpful and,  as noted above,  help to maintain audience interest as it facilitates comprehension.

8-03-2Start with an eye-opener

Grab audience attention when you open the presentation with an unexpected fact that speaks to their priorities,  values or concerns and advances your purpose.  The speaker must quickly lead the audience to focus on the topic because time is finite.   You may want to open your talk with a one-word slide  (it worked for me).  Build the rest of your presentation to answer and address that fact,  following your chosen structure.

People attending a Congress

 

 

 

 

 

 

 

 

End with an ask

At the conclusion of your presentation,  give a brief summary to tie together your main points and help the audience remember what is important.   Next,  make your call to action and ask the audience to do something.  In a motivational talk,  you may ask the audience to support a certain strategy or vote in a certain way.   In a sales presentation,  you will ask the prospective client to hire you or purchase your product or service and to do so now,  rather than later.

OLYMPUS DIGITAL CAMERAThanks for reading,

Kim

Marketing , , , , 1 Comment

12 Sample Customer Survey Questions

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In numerous posts over the years,  I’ve recommended that you conduct customer service surveys to guide your decision-making as you refresh your brand,  update your business model,  promote client retention,  stimulate referrals or initiate any other changes in your business practices.  Customer surveys can unearth all sorts of interesting and actionable data.  A dozen well-written questions can  give revealing insights into what drives the need for your services,  what persuades decision-makers to choose you instead of a competitor and customer expectations that may not be immediately apparent.  Surveys help you learn how your operation stacks up against the competition and can identify business strengths and weaknesses.

To give you inspiration,  I hereby provide a few sample questions.  Send your customer survey along with the final invoice of a project.  Include it on your website,  Facebook, Google + or LinkedIn page.  Announce it on your Twitter feed.

  1. What service did (the company) provide for you?
  2. What factors made you decide to hire (the company) for this project?
  3. Do you feel that your project contact/manager acted in your best interests and your organization’s?
  4. How closely did (the company) adhere to the agreed-upon project timeline?
  5. Do you feel that your project contact/manager responded to your requests for information and other inquiries in a timely fashion?
  6. Considering the value of this project to your organization,  how do you feel about the amount paid as compared to the value received?
  7. If you feel that you received poor value,  please describe the problem (s).  How do you feel about the process of providing resolution?
  8. Would you be willing to invite (the company) to work with you on another project?
  9. Are there additional services that you wish (the company) would provide?
  10. How often do you typically hire outside project-specific workers?
  11. Based on the experience of working with (the company) would you be willing to recommend to a friend or colleague?
  12. Do you have any suggestions for improving the services provided,  or related administrative matters?

Thank you for your feedback. Your honest opinions are sincerely appreciated.

A big part of growing a successful business is through referrals and repeat business.  Clients only return to you or recommend your services when they are extremely satisfied with your performance and have a high degree of confidence in your operation.  Your clients possess a wealth of information that may not only give you the opportunity to bring solutions to their problems and increase your revenues as a result,  but may also give you ideas about how you might attract new business.  The only way to access this information is to ask your clients and listen to their answers.

Thanks for reading,

Kim

Professional Development , , Leave a comment

Personal Brand: Create Your Story and Control Your Image

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Your personal brand is your reputation: the impression you leave with people with whom you interact,  their perception of you.  The personal brand reflects the aura and impact of the choices you’ve made in life and how you present yourself to the world: mode of dress,  communication style,  profession,  educational level,  values and priorities,  how and with whom you socialize.

Primarily for professional reasons,  it is a smart idea to connect selected dots that you wish to emphasize and create a narrative that will communicate to prospective clients or employers,  VIPs and colleagues that you bring value and relevance and that professional or social affiliations with you are worthwhile.

Fail to proactively build and develop a personal brand that conveys integrity and competence and you risk being denied numerous opportunities in life.  Take control of the professional and social aspects of your personal brand and do whatever possible to create a destiny and legacy that have a positive impact.   Create a story that succinctly communicates your story,  or brand narrative,   to the world.  Portions of your brand narrative will be included in your curriculum vitae,  bio,  website,  press kit,  LinkedIn and Facebook pages.   As you write your brand narrative,  keep in mind three attributes that form the pillars of an excellent personal brand:

Authentic

The self you present to the world must reflect your expertise and experience,  core values and beliefs.   Have the courage to be your best self.   Emphasize the relevant.   Acknowledge your expertise and what you enjoy doing.  Be compassionate.  Pay it forward.  Keep it real.

Consistent

People want to know what to expect when they plan to interact with someone.  We trust that which is dependable and reliable.  Meet or exceed client expectations.   Keep your promises.  Monitor your choices,  for at some point you’ll need to respectfully decline certain offers because they do not appropriately reflect your brand.   As the late,  great Diana Vreeland,  former editor-in-chief at both Harper’s Bazaar and Vogue Magazines once said,  “Elegance is refusal.”

Coherent

In line with Ms. Vreeland’s famous quote,   choose to live your brand and that means you must learn to say no.  Your lifestyle: the associations that you join,  social comrades,  causes with which you align and skill sets that you promote must all reflect your brand and fit within the narrative.   Surround yourself with people who respect and support your life choices and who do not undermine your goals and values.   Carefully manage your time and resources in ways that will open the door and welcome your preferred future.

Thanks for reading,

Kim

Marketing , , , , Leave a comment

What Business Are You Really In?

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Every business starts with a proposal to deliver certain products or services to those would be their customers.  The business model encompasses operations processes,  sales distribution and early stage marketing messages.  But over time,  the business owner or marketing team must achieve a more sophisticated knowledge of target customers and use that understanding to advance from exclusively dwelling on the functional aspects of items sold and the obvious benefits.

Successful products or services become  “brands”  by marketing the intangible essence that is associated with what they sell.  Brands connect with an unspoken motive of the customer and promote reputation,  image and aspirations.  Luxury brands like Neiman Marcus,  Chanel and Jaguar sell the image of wealth and status.  Nike sells the image of the focused,  independent,  athletic ideal self.  Puma,  another athletic shoe company,  avoids the athletic angle and sells urban cool along with their sneakers and other apparel.  Harvard Business School professor Theodore Levitt  (1925 – 2006)  described this phenomenon and its implications in  “Marketing Myopia” ,  his seminal article that in 1960 appeared in the Harvard Business Review.

Brands rise above being mere purveyors of products and services,  otherwise known as commodities.   Getting a handle on the  “je ne sais quoi”  unspoken  mission of your products or services as perceived by customers is the only way to achieve break-out success.  Delivering high-quality products and services via the optimal business model is how to build a following and earn a good reputation.  Being known as trustworthy and dependable are integral elements of building a brand.  But it is only the beginning.  Consider this: a film studio does not function to merely make and promote movies.  A film studio’s real business is entertainment.

So let’s figure out how to learn what business you are really in.  Why not start by teasing out the motives for doing business with you rather than a competitor?  Were you lucky or well-connected enough to persuade a powerful person to do business with you?  Does the coolest kid in class wear the clothing you sell?  The recommendations of thought leaders and other trusted sources are worth their weight in gold.  If a VIP gives you an assignment,  others will want to emulate that VIP and do business with you,  too.  Overwhelmingly,  people are followers and want to be seen where the  “in” crowd goes.

Keep that tendency in mind as you peel back another layer and decode the self-identity of your target customer and the image that your archetypal customer wants to project.  Get your arms around the social or professional impact of your products or services.  Who do your customers aspire to be,  whom do they emulate or identify with?  What is the underlying purpose of your product or service?

When you can decipher and describe the above,  you will discover the business you are really in.   Apply that knowledge and create marketing messages that resonate;  advertising choices that deliver the desired ROI;  design product packaging that customers respond to;  institute a pricing strategy that reflects the perceived value of your products and services;  and write a tag line that reflects the self-image,  aspirations and/or unspoken motives of your archetypal customers.

FYI here is a 1975 version of Theodore Levitt’s classic article  “Marketing Myopia”  http://www.sitesuite.com.au/files/marketingmyopia.pdf

Thanks for reading,

Kim

Business Strategy , , , Leave a comment

Howdy, Partner!

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It is said that two heads are better than one and that is often true.  When two people join forces to work on an important goal,  expertise and resources are shared and the goal is reached more quickly.  Moreover,  there is someone available to help make decisions,  someone to vent frustrations and celebrate victories with.  Human beings are social animals.  Most of us have an intimate partner in our life,  or would like one.   Many aspiring business owners and entrepreneurs would like to have a partner in their enterprise,  as well.

A life or business partner can bring many advantages to a relationship,  or can bring disaster.   Most business partnerships fail and nearly 50% of marriages end in divorce.  Your marriage partner and your business partner must each be chosen with care and an eye to the future.  Opposites may attract,  but they are usually unsustainable affairs.  Shared values,  goals,  priorities,  expectations,  vision for the enterprise and complementary skills are the ties that bind.

Before you start talking partnership with your presumed intended,  catalogue the resources that the business needs to reach and sustain profitability.  Consider what you are willing to give up to obtain those resources.  If you need start-up or expansion capital,  approaching a lending institution may be the best strategy.  If your financial projections indicate that business revenues generated will allow you to repay the borrowed money within 5 years and also your credit is good,  talk to your accountant and banker and figure out a loan strategy.  If specific expertise is what the business needs,  then write-up job specs and hire employees.

If money is the primary issue and you prefer to finance privately,  then some form of partnership is your money-raising strategy.  Calculate the optimal amount of capital investment required and ask your accountant or business attorney to estimate how much ownership you will likely have to relinquish to your investing partner.   If it appears that you cannot afford to keep at least 51%,   then consider taking on two partners and giving yourself controlling interest.  Never split 50 – 50,  to avoid becoming deadlocked on important decisions.  In my business plan writing workshop,  I emphasize that you have to know yourself when you’re in business.  Think objectively about how much of a presence of others in your business you can tolerate.  Your personality type may lead you to seek a limited or silent partner arrangement,  a partner who mostly wants to make money and believes in your ability to operate the business wisely.

However,  you may conclude that you need a general partner,  one who makes both a monetary investment and contributes expertise and business acumen.   You will then have to accept that there is more than one way to view challenges,  opportunities and risks and that decision-making will be shared.   Those realities are always big adjustments for the founding partner.  Additionally,  you and the partner must carve out your respective roles and responsibilities in the business.  Be sure also to address the amount of time the partner plans to contribute weekly.  Can you live with that?  The division of labor must be established and written into the partner agreement.   Check also the presumed partner’s financial history.   Do not form a partnership with one who carries heavy debt.

Finally,  include an exit strategy in the partner agreement.  Sometimes things don’t work out and someone wants out.  Protect the business and yourself with a partner buy-out option and provisions for the divorce,  illness,  or death of a partner.  Make sure you don’t wind up in business with an ex-spouse,  surviving spouse,  or the partner’s children.

Thanks for reading,

Kim

Marketing , , , , Leave a comment

ID Your Target Customers

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Step One in evaluating the prospects of a business venture requires that you know who is likely to become a customer.  Here are 8 smart questions that will help you gauge whether you have a viable target market for your enterprise:

1.  Who will pay a premium price for my products or services?

  • Investigate how much business those who would be your closest competitors are doing and learn what motivates their customers to do business with them and find also pricing info,  if possible.
  • Assess your competitive advantages: do you possess a  “secret sauce”  that will make customers do business regularly and pay a little more?
  • Assess the value of your personal brand: who will do business with you because they value what you represent and do?

2.  Who has already done business with me?

  •  If your business is up and running,  growing your business often means persuading those who are already customers to do more business with you.  Which upgrades and extras to your service line might your current customers buy?
  • Speak with customers you know well and ask what adjustments in service,  features or delivery system would make their lives easier.
  • Design a survey and send it out to your mailing list and also add to your website and social media,  so that you can get more opinions and validate the findings of the customer Q & A.
  • Beta test new products and services with current customers,  to gauge their acceptance and refine the concept,  packaging,  marketing message,  delivery system,  price point, etc.

3.  Am I overestimating potential demand for my products and services?

  • Hire a marketing research firm to run a focus group to estimate the size of the market for your product or service.
  • Smaller budget holders should refer to numbers 1 and 2 and figure out how much business competitors are doing and if applicable,   ask current customers which new offerings would be useful to their organizations.

4.  Am I assuming that everyone values what I value?

  • Reality test your take on the priorities of your target market by asking them,  in face to face meetings or via surveys.  Read industry blogs to confirm how customers use similar products and services.
  • Find the thought leaders and listen to what they say about the need for what you plan to sell.  Without revealing your motive,  you can write in and ask questions.

5.  Does my business model match my target customers?

  • The business model is the blueprint for positioning your venture to make a profit.
  •  The ideal customer groups for your products and services must receive the right marketing message in the right way.  Products and services must be sold in the right way at the right price,  using the method of payment that customers expect.
  •  Design a business model that inspires trust and confidence and is user-friendly convenient.

6.  Who are my main competitors and how did they get started?

  • Study three or four close competitors and learn the back story of the founders.  What competitive advantages do they possess?
  • How long have those competitors been in business and what may have changed,  or remained constant,  in the business environment that allowed them to find success?
  • Define critical success factors for your venture.

7.  How will potential customers and I find each other?

  • Hair dressers,  manicurists and employees of consulting firms have the great advantage of being able to steal future clients from their former employers.  If you are employed in the industry in which you plan to open a business,  start now to strengthen relationships with those customers who might jump ship and go with you.
  • Learn how to reach your target customers.  Which organizations do they join,   which conferences do they attend,  which blogs or newsletters do they read,  does social media for business resonate with them and where should you advertise.

8.  Do you see opportunities to expand your target market?

  •  Eventually, it will become necessary to find ways to expand your business either vertically or horizontally. Stay abreast of happenings in the industry and maintain good communications with your customers to understand what you might offer in the future.
  • Can you create a niche market or two by tweaking what you have,  or offering it under another name and advertising in different media?

Thanks for reading,

Kim

Administrative , , Leave a comment

Cash-Flow Woes and Antidotes

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Lucky you.  Your sales pitch to prospects is working and clients are stacked up like planes landing at O’Hare.  Receivables are numerous and the balance sheet rocks.  So how can it be that you almost didn’t make payroll  (again)?  How can you come up short on cash,  with all the business you’ve created?

Like so many business owners,  especially those who are new or who suddenly acquire a competitive advantage that creates a tidal wave of business,  you did not recognize the signs that a cash-flow crash was impending,  regardless of how much money was scheduled to flow into your coffers.  You placed your primary focus on creating business (which is vital),  but neglected to monitor the ebb and flow of revenues and expenses (which are vital).  Every business owner must keep an eye on the money ball and take corrective actions as needed,  if we want to keep the business alive and thriving because quite perversely,  as sales go up,  cash can go down.

Here is one example of how a cash-flow crash might happen.   As business expands,  staying on top of accounts receivable becomes more time-consuming.  Those in service businesses  (like website design or public relations) may find that clients,  oftentimes larger businesses whose names we crave for our client list,  may unilaterally decide to pay receivables in 60 days,  instead of 30 days.   Meanwhile,  you have payroll,  office rent,  phone bills,  auto insurance and numerous other operating expenses that are due somewhere between right now and 30 days.

Another cause of cash-flow crashes is improper pricing.  You may sell a ton of T-shirts but if the profit margin is too thin,  you’ll find that excellent sales volume as demonstrated by number of items sold does not overcome an inadequate mark-up.  Revenues generated will not cover expenses.  It will be necessary to either acquire the product less expensively,  or raise the price.

A growing business brings up still more issues that keep its owner awake at night: capital expenditures.  You will need to decide whether or not and when  (or not)  to upgrade office equipment,  open a new office or move to larger quarters,  or hire more workers to keep up with the growing number of customers.

Fail to invest in capacity and you leave money on the table,  plus dissatisfied customers who are likely to kill you on social media.  Get fooled by the romantic delusion of further growth,  invest in demand that never materializes and you are stuck with potentially crippling debt that can bankrupt the business.

That is quite the dilemma and only the best fortune-teller can give the right answer.  John Terry,  of Churchill Terry business advisers in Dallas, TX,  recommends that the business owner focus on one question only when evaluating the possibility of making large capital investments:  will it bring money in the door?  If not,  find a less expensive alternative or learn to make do without it.  Successful business owners learn to preserve and protect liquidity.  Here is an effective antidote:

  • Hire a savvy bookkeeper or accountant to function as the business controller ( full or part-time)
  • Each week,  collect the data on key financial indicators: accounts payable,  accounts receivable,  available cash and the quick ratio (cash + receivables / current liabilities + payables) to monitor that all-important liquidity
  • Each month,  collect the data on these indicators: accounts receivable turnover ratio (how long does it take to get paid?),  the operating cash-flow ratio (cash-flow from operations / current liabilities)  and the pre-tax net profit margin

It is imperative that you are able to pay obligations when they are due and for that you need cash in hand.  Analyze the above indicators weekly and monthly and learn what is really happening behind the scenes of your business.  Track the available cash trends over time.

Seasonal variations may become evident.   You may have to step up collections of receivables or approach certain clients about speeding up payments.  You may have to request more money up-front before taking on certain projects,  so money will come in faster.  You may need to trim expenses.  You may need to raise prices.  The decision of whether to invest in capital upgrades will become clearer.

There are software programs that will track important data and help business owners resolve problems and set priorities.  Accounts receivable,  cash,  inventory and liquidity can be monitored,  along with confirmation on whether the business is on target to meet budget and revenue goals.  For those businesses that get a lot of repeat business,  it is also possible to track the profitability margins of key clients.

Thanks for reading,

Kim