How do you sum up business prospects for 2009?
Probably the most challenging business conditions since the 1930's
Many businesses are facing tough market conditions because of the downturn in the economy? How many will survive? How many could thrive if only they knew how to prepare themselves…? There’s no doubt that many businesses will fail due to being poorly prepared for whatever the next 12 to 24 months brings.
Your challenge as a business owner is to ensure your company’s business fundamentals are sound, that you fully understand your market and your customer needs; finally and possibly most importantly you honestly identify weakness in your skills and those of your employees and do something about it.
You might consider working with a business advisor a cost in the current economic climate, however, consider the real cost to you if your business fails simply because you didn’t prepare - New Mindset has the experience to help to prepare your business whatever the next 12 to 24 months brings.
December’s Viewpoint summarizes the salient points from our Viewpoints over the 2nd half 2008:
Twelve Christmas Business Points For Success
Keep your existing customers happy
5% increase in customer retention can boost profits by 85%. Some studies suggest that it’s 10 times more expensive to acquire a customer than selling to your existing ones and you might not see them become profitable from anywhere between 1 – 5 years.
Improve your cash flow by minimise costs
It’s not unusual for your costs to have crept up unnoticed each year. Analysis your costs to establish which can be reduced the savings immediately improve your bottom line. But don’t cut your sales and marketing budget without reviewing each element ensuring that you only reduce or cut those that don’t generate the maximise sales return.
Minimise debtor days
It sounds simple but make sure that your invoices go out on time, confirm they arrived and there are not any issues which will delay payment. If you are finding it difficult to obtain payment then you might want to consider outsourcing your invoicing activities, it will cost but this should be offset by you not having to finance your customer’s which is tough if the banks will not extend your overdraft facility.
Identify customers that are financially vulnerable
It’s critical to review your customer base to identify which customers might be struggling financially. It’s better to introduce tougher payment terms now to minimise your payment default exposure than become creditor when they go bankrupt.
Are customers aware of all your complete product range Tell your customers about everything you do? They might only buy one item from you but if they are aware what else you sell they potentially may buy these additional items from you. It’s a more profitable sales technique than selling to new customers.
Encourage customers to repeat buy
It less costly and more profitable to sell more to your existing customers so do have incentives to encourage buying more from you on a more regular basis which also enhances customer loyalty. Boost profitability offering items that compliment the main item being bought Profit margins on these complimentary items can be in many case can be high boosting profits per sales without little effort.
Sell benefits not features
Customers are only interested in the benefits your product or service can do for them. When you buy a drill what you really buying is a hole! So they want a drill that does it cost effectively, quickly, accurately and cleanly.
Allow customers to buy when they want to buy
Invest in a website that attracts visitors which your website site converts to a buyer. Don’t make the mistake of thinking that the web is not important to your business, it probably more important that investing in promotional brochures. Invest your money wisely when developing a website the design matters less than the content and understanding how your customers search for you.
Understand your market
Do you really know your customers needs as well as you think you do?, do you understand how customers want to buy from you?, could you expand your routes to market to increase sales?, have you got the most appropriate pricing strategy?, do you have the right product or service range?, do you know who your competitors are today and in the future?, are there new technologies being developed that might impact your product or service which are cheaper, more efficient, require less support or just make your product obsolete?.
Understand why customers buy from you
What makes you different or unique to your competitors? Developing a unique selling proposition (USP) enables you to differentiate yourself from your competitors. It allows you state why customers should buy from you.
Don’t sell on price add value to the proposition
Selling on price alone potentially makes your product or service into a commodity, you need to consider adding value to the proposition that makes it difficult for the customer just to consider price as the sole reason for buying from you. It attracts customers whose loyalty lasts as long your price is lowest. Low customer loyalty means having to invest in attracting new customers to replace the ones you have lost.
Learn more how New Mindset can help you to prepare your business to increase sales and improve profitability even in current economic climate - call now on 01276 537 282 or email.
Merry Christmas & Happy New Year
Thursday, 11 December 2008
Tuesday, 2 December 2008
November 08 Customer retention is the key to long term profitability not customer acquisition……….
Research has shown:
• Increasing customer retention by 5% can boost profits by up to 85% in the medium term, through reduced costs of repeat purchases and up/cross selling.
• Customers are not always profitable from day one, in some industries it can take 2 or more years to generate a positive cash flow.
• It can cost up your business up to 30 times more to win new customers - if you consider acquisition costs such as advertising, direct mail, pr, sales force, account set-up
Companies, particularly in the financial services sector, have long recognised that customers represent a major investment and have adopted a long term view of customer relationships and associated cash flows. They do not think in terms of single orders but the long term value of the customer in the form of multiple repeat purchases. This philosophy can be adopted by most organisations by taking a wider view of their business and possible product portfolio.
This long term view of customer relationships underlies Customer Relationship Management (CRM). At New Mindset we consider CRM to be:
“…a strategic program driving a universal approach to creating and developing long term profitable customer relationships through routine activities.”
Embedded within this definition are some key concepts:
Strategic program CRM does not just happen. It requires a clear directive and the assignment of resources and organisation priorities.
Universal approach CRM extends across the entire organisation. Every department is involved in the ‘supply chain’ and impacts on the product or service delivered to the end-customer. Each department must look to focus on its customers, i.e. next in the supply chain, seeking opportunities to-add value.
Profitable Some customers will never be profitable and will, in fact, be a constant drain on resources. Such customers should be released and the saved resources diverted to developing revenues with more lucrative ones, through segmentation and adaptations to the marketing mix for each group.
Create and develop relationships Strong relationships form when you understand and adapt to the needs, motives, and behaviours of the other. The organisation must build this understanding and shape its proposition to fit customer needs – even to the extent of spotting changes and providing a solution before the customer even realises they have a different need.
Routine activity Implement the processes, routines and systems to ensure that customers are contacted at regular and appropriate times, for example subscription renewals or information on new offers. Also ensure that information relating to their needs, drivers and purchase patterns is recorded for analysis and action. Without building this customer focus into day-to-day operations CRM will not happen.
Many organisations introducing CRM fail, however, to capitalise on its ability to generate increased profit. Traditionally, emphasis has been on tracking satisfaction levels and monitoring levels/reasons underlying defection. This approach has serious limitations in managing customer relationships, profitability and revenues.
• Monitoring satisfaction levels often fail to identify customer’s whose expenditures are changing, i.e. migrating, until it’s too late and the customer defects to another supplier.
• Understanding the reasons underlying customer defection to undertake remedial changes is useful. Unfortunately, though, you’ve still lost the customer and associated revenues and have to go through the costly process of recruiting a replacement.
Customer retention and expenditure is determined by their service experiences and loyalty to you. Where competition is low, active dissatisfaction with individual suppliers is prime in driving customer defection or migration. As competition increases, with suppliers delivering increased choice and minimum levels of satisfaction, other factors come to play in determining customer loyalty towards individual suppliers. These factors include; changes to personal circumstances, your company offer and your competitor offer.
Understanding these factors and interaction allows you to develop loyalty profiles. These can be used to segment and classify your customer base. A number of segmentation models been developed in an attempt to categorise the individual customer groups and develop the individual objectives and action plan for the individual segments. Mckinsey’s, a leading international consultancy, analysed customer across 12 separate industries and developed the structure below.
Downward Migrators Loyalists
Dissatisfied Deliberative Lifestyle Deliberative Inertial Emotive
3%* 7% 4% 42% 20% 23%
Actively Dissatisfied
May re-evaluate spend because of experience Freq. reassess spend decisions
Choose alt. brand on rationale criteria Re-assesses decisions because of changing needs Freq review spend decisions
Reaffirm brand on rationale criteria Infreq. reassess decisions
Don’t generally consider change Rarely asses decisions
Strongly feel chosen brand is best for them
Spend more than average
* Percentiles represent number of customers in each category, across an average customer base, and are a weighted average of Mckinsey statistics drawn from 5000 organisations across 12 industry sectors.
Segmenting the customer base, helps understand:
1. Which groups of customers are most likely to defect, reduce expenditure and what value of revenue is under threat
2. What alternate strategies, tactics and appeals should be adopted for each of the individual segments to safeguard revenues by reducing defection and migration. Individual initiatives will not appeal to all of the sectors.
3. Which customers are positioned to purchase additional higher value products.
Customer defections and migrations can be reduced by up to 30% by active management, with massive impact on underlying profitability . Customer expenditures change (migrate) over time, for a variety of reasons. Monitoring expenditure patterns and taking action permits:
• Rebuilding revenues with customers who reduce spend, for whatever reason
• Recovery of customers before they defect to another supplier
• Up-selling higher volumes and cross selling other products.
CRM in summary
• CRM as we have defined is key to building medium/long term profit and value in your business. It forms the core of the business strategy and its revenue development programs and is NOT simply an IT ‘customer database’ initiative.
• A stand-alone ‘customer database’ can become an expensive white elephant if it is not built into an organisation’s ongoing operations.
• Whilst customer acquisition must be undertaken, to offset natural customer churn, precedence should be given to customer retention. Selling to existing customers is significantly cheaper and more profitable than winning new customers.
• In reality, you are ‘standing still’ and losing money if you lose customers as fast as you win them.
Want to know more about how New Mindset can help you to improve profitability by increasing customer retention - call now on 01276 537 282 or email andy.hamer@new-mindset.com .
• Increasing customer retention by 5% can boost profits by up to 85% in the medium term, through reduced costs of repeat purchases and up/cross selling.
• Customers are not always profitable from day one, in some industries it can take 2 or more years to generate a positive cash flow.
• It can cost up your business up to 30 times more to win new customers - if you consider acquisition costs such as advertising, direct mail, pr, sales force, account set-up
Companies, particularly in the financial services sector, have long recognised that customers represent a major investment and have adopted a long term view of customer relationships and associated cash flows. They do not think in terms of single orders but the long term value of the customer in the form of multiple repeat purchases. This philosophy can be adopted by most organisations by taking a wider view of their business and possible product portfolio.
This long term view of customer relationships underlies Customer Relationship Management (CRM). At New Mindset we consider CRM to be:
“…a strategic program driving a universal approach to creating and developing long term profitable customer relationships through routine activities.”
Embedded within this definition are some key concepts:
Strategic program CRM does not just happen. It requires a clear directive and the assignment of resources and organisation priorities.
Universal approach CRM extends across the entire organisation. Every department is involved in the ‘supply chain’ and impacts on the product or service delivered to the end-customer. Each department must look to focus on its customers, i.e. next in the supply chain, seeking opportunities to-add value.
Profitable Some customers will never be profitable and will, in fact, be a constant drain on resources. Such customers should be released and the saved resources diverted to developing revenues with more lucrative ones, through segmentation and adaptations to the marketing mix for each group.
Create and develop relationships Strong relationships form when you understand and adapt to the needs, motives, and behaviours of the other. The organisation must build this understanding and shape its proposition to fit customer needs – even to the extent of spotting changes and providing a solution before the customer even realises they have a different need.
Routine activity Implement the processes, routines and systems to ensure that customers are contacted at regular and appropriate times, for example subscription renewals or information on new offers. Also ensure that information relating to their needs, drivers and purchase patterns is recorded for analysis and action. Without building this customer focus into day-to-day operations CRM will not happen.
Many organisations introducing CRM fail, however, to capitalise on its ability to generate increased profit. Traditionally, emphasis has been on tracking satisfaction levels and monitoring levels/reasons underlying defection. This approach has serious limitations in managing customer relationships, profitability and revenues.
• Monitoring satisfaction levels often fail to identify customer’s whose expenditures are changing, i.e. migrating, until it’s too late and the customer defects to another supplier.
• Understanding the reasons underlying customer defection to undertake remedial changes is useful. Unfortunately, though, you’ve still lost the customer and associated revenues and have to go through the costly process of recruiting a replacement.
Customer retention and expenditure is determined by their service experiences and loyalty to you. Where competition is low, active dissatisfaction with individual suppliers is prime in driving customer defection or migration. As competition increases, with suppliers delivering increased choice and minimum levels of satisfaction, other factors come to play in determining customer loyalty towards individual suppliers. These factors include; changes to personal circumstances, your company offer and your competitor offer.
Understanding these factors and interaction allows you to develop loyalty profiles. These can be used to segment and classify your customer base. A number of segmentation models been developed in an attempt to categorise the individual customer groups and develop the individual objectives and action plan for the individual segments. Mckinsey’s, a leading international consultancy, analysed customer across 12 separate industries and developed the structure below.
Downward Migrators Loyalists
Dissatisfied Deliberative Lifestyle Deliberative Inertial Emotive
3%* 7% 4% 42% 20% 23%
Actively Dissatisfied
May re-evaluate spend because of experience Freq. reassess spend decisions
Choose alt. brand on rationale criteria Re-assesses decisions because of changing needs Freq review spend decisions
Reaffirm brand on rationale criteria Infreq. reassess decisions
Don’t generally consider change Rarely asses decisions
Strongly feel chosen brand is best for them
Spend more than average
* Percentiles represent number of customers in each category, across an average customer base, and are a weighted average of Mckinsey statistics drawn from 5000 organisations across 12 industry sectors.
Segmenting the customer base, helps understand:
1. Which groups of customers are most likely to defect, reduce expenditure and what value of revenue is under threat
2. What alternate strategies, tactics and appeals should be adopted for each of the individual segments to safeguard revenues by reducing defection and migration. Individual initiatives will not appeal to all of the sectors.
3. Which customers are positioned to purchase additional higher value products.
Customer defections and migrations can be reduced by up to 30% by active management, with massive impact on underlying profitability . Customer expenditures change (migrate) over time, for a variety of reasons. Monitoring expenditure patterns and taking action permits:
• Rebuilding revenues with customers who reduce spend, for whatever reason
• Recovery of customers before they defect to another supplier
• Up-selling higher volumes and cross selling other products.
CRM in summary
• CRM as we have defined is key to building medium/long term profit and value in your business. It forms the core of the business strategy and its revenue development programs and is NOT simply an IT ‘customer database’ initiative.
• A stand-alone ‘customer database’ can become an expensive white elephant if it is not built into an organisation’s ongoing operations.
• Whilst customer acquisition must be undertaken, to offset natural customer churn, precedence should be given to customer retention. Selling to existing customers is significantly cheaper and more profitable than winning new customers.
• In reality, you are ‘standing still’ and losing money if you lose customers as fast as you win them.
Want to know more about how New Mindset can help you to improve profitability by increasing customer retention - call now on 01276 537 282 or email andy.hamer@new-mindset.com .
Monday, 8 September 2008
Does Your Expensive "Well Designed" Website Work ?
Your web site, in conjunction with other internet tools, is now an essential part of the marketing mix as customers become increasingly resistant to the traditional invasive forms of promotion. But does it cut the mustard………….?
Customer “resistance” to traditional marketing programmes derives from the bombardment of promotional contacts to which individuals are subjected - estimated to be up to 3,000 hits per day from various sources. Consequently, your messages are likely to be lost in the ‘noise’ or even rejected. Customers want relevant information when (and only when) they need it!
The widespread use of the internet to promote organisations and their offerings has created millions of sites and pages. Cyberspace is a new battleground, with organisations vying for top billing - this is a war with NO prizes for runners-up!
You’ve developed your website and thousands of people are now racing to it!! Unfortunately, for many, we suspect not! How do you, therefore, develop an effective website?
Key considerations when developing your web site:
• The internet is potentially the ultimate tool for segmenting and targeting specific market niches and generating warm in-bound sales leads. This contrasts with relatively undifferentiated marketing and sterile out-bound cold prospecting of yesteryear.
• If your website does not appear in the first two pages (top 20 entries) of leading Search Engines [SEs] such as Google, Yahoo then it will be rarely found or accessed.
• The sole objective of SEs is to provide relevant content to user enquiries. To do so they continuously trawl the net for pages and their content, using programs called spiders.
• Indications are that SEs increasingly set rankings based on (i) themes across the site (rather than key words on individual pages) and (ii) links with other sites.
• SEs can identify many search engine optimisation [SEO] scams, such as word stuffing, and you risk being shut out if detected.
• Web-sites must quickly establish interest with the user – the next site is only a ‘click-away’ and users are very brutal in exercising their power. ‘Interest’ is gained by providing useful and meaningful information.
• Site traffic will only be retained long term if the site provides consistent quality and relevant information.
• Traffic will only be built if marketing programmes continuously promote the site.
Developing a successful web-site, therefore, is not a discrete design or copy writing exercise, but an integrated and ongoing programme, which must:
• Appeal to the Internet, ie SEs which determine your market exposure.
• Appeal to users with interesting, up-dated and useful content which causes them to repeatedly return to your site and recommend it to others.
• Undertake long term site development and promotion, both across the internet and in traditional marketing programs.
To make your website the ultimate marketing tool in maximising revenue earning potential, New Mindset recommends:
Develop Internet appeal:
• A themed site of up to 25 pages (maximum) focusing on a common subject, rather than producing a number of pages containing disparate topics. SEs are increasingly looking for sites with common “themes”. SEs will ‘mark-up’ sites which have consistency and ‘mark-down’ sites with a ‘hotch-potch’ of ideas. It is, therefore, recommended that multiple themes should be on separate sites.
• Use key words or phrases, on your site, which are not main-stream but niche-market. ‘Main-stream’ words will result in you to competing with millions of other sites, whilst less commonly used words will position you in niches which you can dominate. It is possible to determine the ‘profitability’ of key words by comparing the number of sites for individual words against the instances they are used in search queries. The aim is to find words with high query and low site availability.
• Proactively submit the web site for inclusion on the SEs directory – will save days and weeks rather than waiting for the SEs to locate and register your site.
• Use appropriate name and structure for your web site and pages. This is instrumental in affecting SEs assessment of content and thus your ranking – (i) the domain name for the site should ideally align with theme, whilst (ii) the titling, meta tags, key words and main text should be positioned to align with the sequence that the SE programs read the ‘page’.
Ensure User attractiveness:
• Establish (within a few seconds) the “what’s in it for me” about your site and your unique selling points (USP). Corporate babble, propaganda, vague and verbose statements will not cut it!
• Provide an easily readable and navigable site - where key information is readily identifiable and not lost amongst worthless text/graphics or buried on underlying pages.
• Minimise site loading time by cutting out complicated moving graphics - customers are interested in information rather than flashy graphics with questionable added-value.
• Regularly update the content – users will quickly stop using your site if they perceive it is unchanging and/or out-of-date.
Active site development and promotion is essential for achieving high SE rankings and traffic. Having initially established your site on the net by registering with the SEs, you must move to build your presence and traffic:
• Refine your site - adjust content, structure and use of keywords and monitor how the rankings and volume of hits changes. Re-iterate to gain higher rankings/hits.
• Increase the number of theme related pages which will improve your ‘ranking score’.
• Register with “Pay-Per-Click” [PPC] SEs as the number of pages on your site grows towards 20. It could cost-effective for higher margin products and services. The expenditure can be controlled by setting a budget with the respective SE organisation.
• Register with internet directories.
• Establish links with complementary websites. SEs see this a proxy for site quality.
• Promote your site on-line and off-line using web-logs (blogs), email, e-zines and more traditional marketing communications.
• Move into larger ‘internet-keyword’ sectors by using ‘mainstream’ words with higher search volumes. Your earlier efforts in building traffic, links and promotional activities will propel you up the rankings rather than leaving you floundering at the bottom.
As your traffic builds you can also build secondary revenue streams through either selling advertising or complementary products and services through affinity marketing programmes.
In summary - A well designed website, by itself, does not guarantee internet success. It is only one element of a wider programme which must be implemented to make your site stand out from the crowd!
In other words ….a website without internet appeal and subsequent promotion is akin to developing a creative and costly advert which is then place in your desk drawer rather communicated to your customers……No-one will see it!! Of course no one would do that, would they??
Customer “resistance” to traditional marketing programmes derives from the bombardment of promotional contacts to which individuals are subjected - estimated to be up to 3,000 hits per day from various sources. Consequently, your messages are likely to be lost in the ‘noise’ or even rejected. Customers want relevant information when (and only when) they need it!
The widespread use of the internet to promote organisations and their offerings has created millions of sites and pages. Cyberspace is a new battleground, with organisations vying for top billing - this is a war with NO prizes for runners-up!
You’ve developed your website and thousands of people are now racing to it!! Unfortunately, for many, we suspect not! How do you, therefore, develop an effective website?
Key considerations when developing your web site:
• The internet is potentially the ultimate tool for segmenting and targeting specific market niches and generating warm in-bound sales leads. This contrasts with relatively undifferentiated marketing and sterile out-bound cold prospecting of yesteryear.
• If your website does not appear in the first two pages (top 20 entries) of leading Search Engines [SEs] such as Google, Yahoo then it will be rarely found or accessed.
• The sole objective of SEs is to provide relevant content to user enquiries. To do so they continuously trawl the net for pages and their content, using programs called spiders.
• Indications are that SEs increasingly set rankings based on (i) themes across the site (rather than key words on individual pages) and (ii) links with other sites.
• SEs can identify many search engine optimisation [SEO] scams, such as word stuffing, and you risk being shut out if detected.
• Web-sites must quickly establish interest with the user – the next site is only a ‘click-away’ and users are very brutal in exercising their power. ‘Interest’ is gained by providing useful and meaningful information.
• Site traffic will only be retained long term if the site provides consistent quality and relevant information.
• Traffic will only be built if marketing programmes continuously promote the site.
Developing a successful web-site, therefore, is not a discrete design or copy writing exercise, but an integrated and ongoing programme, which must:
• Appeal to the Internet, ie SEs which determine your market exposure.
• Appeal to users with interesting, up-dated and useful content which causes them to repeatedly return to your site and recommend it to others.
• Undertake long term site development and promotion, both across the internet and in traditional marketing programs.
To make your website the ultimate marketing tool in maximising revenue earning potential, New Mindset recommends:
Develop Internet appeal:
• A themed site of up to 25 pages (maximum) focusing on a common subject, rather than producing a number of pages containing disparate topics. SEs are increasingly looking for sites with common “themes”. SEs will ‘mark-up’ sites which have consistency and ‘mark-down’ sites with a ‘hotch-potch’ of ideas. It is, therefore, recommended that multiple themes should be on separate sites.
• Use key words or phrases, on your site, which are not main-stream but niche-market. ‘Main-stream’ words will result in you to competing with millions of other sites, whilst less commonly used words will position you in niches which you can dominate. It is possible to determine the ‘profitability’ of key words by comparing the number of sites for individual words against the instances they are used in search queries. The aim is to find words with high query and low site availability.
• Proactively submit the web site for inclusion on the SEs directory – will save days and weeks rather than waiting for the SEs to locate and register your site.
• Use appropriate name and structure for your web site and pages. This is instrumental in affecting SEs assessment of content and thus your ranking – (i) the domain name for the site should ideally align with theme, whilst (ii) the titling, meta tags, key words and main text should be positioned to align with the sequence that the SE programs read the ‘page’.
Ensure User attractiveness:
• Establish (within a few seconds) the “what’s in it for me” about your site and your unique selling points (USP). Corporate babble, propaganda, vague and verbose statements will not cut it!
• Provide an easily readable and navigable site - where key information is readily identifiable and not lost amongst worthless text/graphics or buried on underlying pages.
• Minimise site loading time by cutting out complicated moving graphics - customers are interested in information rather than flashy graphics with questionable added-value.
• Regularly update the content – users will quickly stop using your site if they perceive it is unchanging and/or out-of-date.
Active site development and promotion is essential for achieving high SE rankings and traffic. Having initially established your site on the net by registering with the SEs, you must move to build your presence and traffic:
• Refine your site - adjust content, structure and use of keywords and monitor how the rankings and volume of hits changes. Re-iterate to gain higher rankings/hits.
• Increase the number of theme related pages which will improve your ‘ranking score’.
• Register with “Pay-Per-Click” [PPC] SEs as the number of pages on your site grows towards 20. It could cost-effective for higher margin products and services. The expenditure can be controlled by setting a budget with the respective SE organisation.
• Register with internet directories.
• Establish links with complementary websites. SEs see this a proxy for site quality.
• Promote your site on-line and off-line using web-logs (blogs), email, e-zines and more traditional marketing communications.
• Move into larger ‘internet-keyword’ sectors by using ‘mainstream’ words with higher search volumes. Your earlier efforts in building traffic, links and promotional activities will propel you up the rankings rather than leaving you floundering at the bottom.
As your traffic builds you can also build secondary revenue streams through either selling advertising or complementary products and services through affinity marketing programmes.
In summary - A well designed website, by itself, does not guarantee internet success. It is only one element of a wider programme which must be implemented to make your site stand out from the crowd!
In other words ….a website without internet appeal and subsequent promotion is akin to developing a creative and costly advert which is then place in your desk drawer rather communicated to your customers……No-one will see it!! Of course no one would do that, would they??
Friday, 8 August 2008
What businesses shouldn't do in the current economic climate
‘Eight keys for a strong commercial foundation’
The current uncertain economic climate represents an unknown world for many business managers and owners given 15 years of economic growth. Many businesses have not had to face the challenges and uncertainties associated with a trading environment where there is either declining, little or no growth.
The real question for businesses is “…what not to do in the face of uncertain economic conditions..”?
It’s tempting to slash costs, such as sales and marketing, and hunker down in an attempt to wait it out. Whilst ‘cost slashing’ may improve the short term future of the company through preserving cash, it can seriously damage the medium to long term prospects of your company, due to;
(a) lost prospects/customers who are poached by other, more ambitious, suppliers.
(b) revenue erosion from ‘churn’ whereby existing customers are lost due to bankruptcy, for example, but not replaced.
(c) lost workforce expertise due to redundancy or who leave for fear of job-cuts or de-motivation from working in a struggling organisation.
(d) forgoing opportunities to grow, that arise during periods of market flux.
Indeed, these factors can combine to create a vicious downwards spiral, resulting in collapse of the organisation or leaving it too weak to compete during the upturn. This is particularly poignant given that many economic forecasters are uncertain how long this period of economic uncertainty will last.
Until recently, it has been possible to borrow from financial institutions underpinned by burgeoning sales/ order books or collateral such as property. In recent months, however, institutions have cut lending in attempt to balance their own books. Where borrowing is available the terms and interest could shackle the organisation for years to come.
Borrowing to survive, rather than invest, is questionable. It should only be contemplated where the risk is understood and plans exist on how to manage it and allow the organisation to regain profitability in the upturn. Without planning, it stops being a risk and becomes a gamble!
It is important, therefore, to implement plans to cope with the changing environment – in short the organisation should be put onto a sound commercial footing. The objective of the exercise is to take a strategic or macro view of the company over the next 5 years, rather than taking a reflex short term action in response to an immediate crisis. Inappropriate action can quickly unravel an organisation which has taken years to build.
The ‘eight keys for a strong commercial foundation’, below, should strictly be ‘business-as-usual”. However, they are often dismissed during good-times. When times become harder they become imperatives for survival.
(i) Review business costs and seek cost savings with existing or new suppliers - focus on the high usage/high cost areas. With a ‘squeeze’ you are in a strong position to negotiate better deals. Use these savings to create a ‘financial buffer’ or invest in operational areas, such as sales/ marketing and customer acquisition/retention.
(ii) Review your markets/customers and product portfolio - determine which are running at a loss or minimal profit and which have low strategic importance. Those which cannot be improved you should consider dropping as they represent a drain on resources.
(iii) Review your customer base for opportunities to increase revenues - by offering additional services/products for which you could offer a package deal.
(iv) Review your capabilities and identify NEW markets/sales opportunities - which could be targeted with minimal additional investment (markets under stress or in a state of flux represent golden opportunities for ambitious entrepreneurs).
(v) Review major customers to determine which are either struggling or which might quickly come under financial threat (poor/worsening payment cycles are a good indicator). Reduce your financial exposure to these customers by either re-negotiating payment terms or dropping them as you actively seek/acquire new customers.
(vi) Review your workforce and identify those individuals who are ‘stars’ for your business – the ‘time-watchers’ could be let go with minimal impact to your business.
(vii) In conjunction with the ‘stars’ identify any operational improvements/savings - publicly acknowledging their input and offers of bonuses, as appropriate.
(viii) Ensure management reporting processes are working delivering accurate and timely data on operational areas – this will allow you to quickly identify problems and take corrective action. Areas include: (i) financial management information,
(ii) operational data [WIP, stockholding], (iii) credit checks on major/new customers
Want to know more about how New Mindset can ensure that your business navigates safely through current period of economic uncertainty - call now on 01276 537 282 or email andy.hamer@new-mindset.com
The current uncertain economic climate represents an unknown world for many business managers and owners given 15 years of economic growth. Many businesses have not had to face the challenges and uncertainties associated with a trading environment where there is either declining, little or no growth.
The real question for businesses is “…what not to do in the face of uncertain economic conditions..”?
It’s tempting to slash costs, such as sales and marketing, and hunker down in an attempt to wait it out. Whilst ‘cost slashing’ may improve the short term future of the company through preserving cash, it can seriously damage the medium to long term prospects of your company, due to;
(a) lost prospects/customers who are poached by other, more ambitious, suppliers.
(b) revenue erosion from ‘churn’ whereby existing customers are lost due to bankruptcy, for example, but not replaced.
(c) lost workforce expertise due to redundancy or who leave for fear of job-cuts or de-motivation from working in a struggling organisation.
(d) forgoing opportunities to grow, that arise during periods of market flux.
Indeed, these factors can combine to create a vicious downwards spiral, resulting in collapse of the organisation or leaving it too weak to compete during the upturn. This is particularly poignant given that many economic forecasters are uncertain how long this period of economic uncertainty will last.
Until recently, it has been possible to borrow from financial institutions underpinned by burgeoning sales/ order books or collateral such as property. In recent months, however, institutions have cut lending in attempt to balance their own books. Where borrowing is available the terms and interest could shackle the organisation for years to come.
Borrowing to survive, rather than invest, is questionable. It should only be contemplated where the risk is understood and plans exist on how to manage it and allow the organisation to regain profitability in the upturn. Without planning, it stops being a risk and becomes a gamble!
It is important, therefore, to implement plans to cope with the changing environment – in short the organisation should be put onto a sound commercial footing. The objective of the exercise is to take a strategic or macro view of the company over the next 5 years, rather than taking a reflex short term action in response to an immediate crisis. Inappropriate action can quickly unravel an organisation which has taken years to build.
The ‘eight keys for a strong commercial foundation’, below, should strictly be ‘business-as-usual”. However, they are often dismissed during good-times. When times become harder they become imperatives for survival.
(i) Review business costs and seek cost savings with existing or new suppliers - focus on the high usage/high cost areas. With a ‘squeeze’ you are in a strong position to negotiate better deals. Use these savings to create a ‘financial buffer’ or invest in operational areas, such as sales/ marketing and customer acquisition/retention.
(ii) Review your markets/customers and product portfolio - determine which are running at a loss or minimal profit and which have low strategic importance. Those which cannot be improved you should consider dropping as they represent a drain on resources.
(iii) Review your customer base for opportunities to increase revenues - by offering additional services/products for which you could offer a package deal.
(iv) Review your capabilities and identify NEW markets/sales opportunities - which could be targeted with minimal additional investment (markets under stress or in a state of flux represent golden opportunities for ambitious entrepreneurs).
(v) Review major customers to determine which are either struggling or which might quickly come under financial threat (poor/worsening payment cycles are a good indicator). Reduce your financial exposure to these customers by either re-negotiating payment terms or dropping them as you actively seek/acquire new customers.
(vi) Review your workforce and identify those individuals who are ‘stars’ for your business – the ‘time-watchers’ could be let go with minimal impact to your business.
(vii) In conjunction with the ‘stars’ identify any operational improvements/savings - publicly acknowledging their input and offers of bonuses, as appropriate.
(viii) Ensure management reporting processes are working delivering accurate and timely data on operational areas – this will allow you to quickly identify problems and take corrective action. Areas include: (i) financial management information,
(ii) operational data [WIP, stockholding], (iii) credit checks on major/new customers
Want to know more about how New Mindset can ensure that your business navigates safely through current period of economic uncertainty - call now on 01276 537 282 or email andy.hamer@new-mindset.com
Tuesday, 1 July 2008
IS YOUR BUSINESS VULNERABLE …………….?
Think what would happen to your business if your largest customer cancelled its orders or demanded a 20% price reduction?”
When Marks and Spencer’s switched production out of the UK a few years ago, several large companies collapsed within weeks. Many businesses fall into the trap of developing an operation overly dependent on one customer. Whilst this seems advantageous when everything is running smoothly this could lead to failure if the ‘big’ customer pulls the plug.
Companies stop trading with suppliers for a variety of reasons: (a) liquidation; (b) acquisition by another company; (c) a change in strategy or (d) a cheaper deal somewhere else. Whilst you may believe you are protected because of a contract, it may in practice be difficult to enforce. The net result is that a gaping chasm suddenly appears in your cash flow – usually when you can least afford it.
There are various reasons for falling into the cash flow trap: lack of a clear business strategy, lack of sales and commercial skills or that the current trading arrangements are trouble free and secure because of long standing relationships. Sounds familiar??
A policy adopted by many successful organisations - no single customer should constitute more than 20-25% of sales. Whilst the loss of such a customer would be painful it would not necessarily be fatal. A bigger customer base provides a buffer against individual customer whims, who after all are in business to produce profits for themselves NOT support you.
Your customer base can be developed in 3 common ways:
(i) identify similar customers and offer them a similar product or service
(ii) use your core strengths and produce a new offering for customers in similar business sectors
(iii) diversify into entirely new product and market sectors
Benefits to your business of this approach: (i) you understand the business, market prices and quality requirements. You still face a risk, however, if the entire customer sector faces a cyclical downturn; (ii) as you go up the ‘stack’ you are, however, moving further into the unknown but are also reducing your long term exposure to business downturn from an individual customer or sector; (iii) reducing the risk of entering into new business can be achieved through proper market research and business planning. Understanding customer requirements and the strengths/weaknesses of your new competitors will allow you to understand the opportunity and plan how to be successful.
New Mindset consultants helped a company supplying market research and information develop and implement a strategic plan which restructured its customer base and increased revenues by over 400%.
Over 10 years the ‘company’ had built sales to £750k pa, although recently growth had been stagnant. One customer accounted for approximately 40% of sales which were retained through ongoing annual contact. The underlying target market, however, was consolidating due to the merger of smaller companies. Even revenues from the clients largest customer were under threat due to the potential acquisition by a global competitor which performed the research services, provide by the client, in-house.
Following a structural review of the market the consultant formulated a business strategy and through ongoing support established an in-house sales and marketing team, re-branded the business, extended/deepened the product portfolio, formed new channel alliances and launched a direct marketing program to win new customers in North America, Europe, Middle East and Asia Pacific.
Want to know more about how New Mindset can ensure that your business is not vulnerable - call now on 01276 537 282 or email andy.hamer@new-mindset.com
When Marks and Spencer’s switched production out of the UK a few years ago, several large companies collapsed within weeks. Many businesses fall into the trap of developing an operation overly dependent on one customer. Whilst this seems advantageous when everything is running smoothly this could lead to failure if the ‘big’ customer pulls the plug.
Companies stop trading with suppliers for a variety of reasons: (a) liquidation; (b) acquisition by another company; (c) a change in strategy or (d) a cheaper deal somewhere else. Whilst you may believe you are protected because of a contract, it may in practice be difficult to enforce. The net result is that a gaping chasm suddenly appears in your cash flow – usually when you can least afford it.
There are various reasons for falling into the cash flow trap: lack of a clear business strategy, lack of sales and commercial skills or that the current trading arrangements are trouble free and secure because of long standing relationships. Sounds familiar??
A policy adopted by many successful organisations - no single customer should constitute more than 20-25% of sales. Whilst the loss of such a customer would be painful it would not necessarily be fatal. A bigger customer base provides a buffer against individual customer whims, who after all are in business to produce profits for themselves NOT support you.
Your customer base can be developed in 3 common ways:
(i) identify similar customers and offer them a similar product or service
(ii) use your core strengths and produce a new offering for customers in similar business sectors
(iii) diversify into entirely new product and market sectors
Benefits to your business of this approach: (i) you understand the business, market prices and quality requirements. You still face a risk, however, if the entire customer sector faces a cyclical downturn; (ii) as you go up the ‘stack’ you are, however, moving further into the unknown but are also reducing your long term exposure to business downturn from an individual customer or sector; (iii) reducing the risk of entering into new business can be achieved through proper market research and business planning. Understanding customer requirements and the strengths/weaknesses of your new competitors will allow you to understand the opportunity and plan how to be successful.
New Mindset consultants helped a company supplying market research and information develop and implement a strategic plan which restructured its customer base and increased revenues by over 400%.
Over 10 years the ‘company’ had built sales to £750k pa, although recently growth had been stagnant. One customer accounted for approximately 40% of sales which were retained through ongoing annual contact. The underlying target market, however, was consolidating due to the merger of smaller companies. Even revenues from the clients largest customer were under threat due to the potential acquisition by a global competitor which performed the research services, provide by the client, in-house.
Following a structural review of the market the consultant formulated a business strategy and through ongoing support established an in-house sales and marketing team, re-branded the business, extended/deepened the product portfolio, formed new channel alliances and launched a direct marketing program to win new customers in North America, Europe, Middle East and Asia Pacific.
Want to know more about how New Mindset can ensure that your business is not vulnerable - call now on 01276 537 282 or email andy.hamer@new-mindset.com
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