Sales

Increase Price –v- Increase Sales – what to think about.

"David Balwin

CPA | Accountant | Business Advisor

Pouring over margins and gross and net profit, a common theme is a belief that  the way to salvation is through an increase in sales.  However, in reality, profitability is driven by the ability to vary price and maintain control over costs.

No matter how hard a business tries, if it has increasing costs and is not able to increase price, then no amount of increased sales will lead to increase profitability – in fact, the business maybe simply increasing its loss.

But alas, I hear you say, “we cannot afford to increase our prices because then we won’t be competitive with our competition down the road”.

If this is really the case then some serious research needs to be done into the competitors to see how they are maintaining profitability.  It maybe they are managing their costs better or else they maybe in the process of going out of business.

So, businesses need to differentiate themselves from their competitors so they are not governed by others’ price but by their ability to influence the market that they have a better product or service or something else that they cannot get from the competitors (competitive edge/competitive advantage).

One way of going about this is to  develop a simple list of all the reasons why a customer would want to buy from your business.  That is, what makes your business unique?

Alas again I hear you say, “but we sell the same goods as the guy down the road”.  True, however, the answer may lie in exactly what you are selling – and that could be a million things:-

  • the quality of your service;
  • the after sales service;
  • the way the store looks;
  • the attitude of staff;
  • the way the goods are presented and packaged;
  • the quality of advice given by staff;
  • the knowledge of products sold;
  • product range; and so on.

Next, you do the same for the competitors ie. what are their strongest selling points?  Once this is worked out, a business is in a position to play to its strengths and eliminate or reduce weaknesses while at this same time developing ways to counter the competitors’ strengths.

For most businesses, if this is done well, two things will happen.  The business will be able to increase prices based on the product differentiation and if through this process generate repeat business then the controlling of costs will be easier.

Why will costs be easier to control?  Simply put, the least costly way of getting customers through the door is by repeat business.  They have already experienced the business and don’t need to be convinced to come back and what’s more they will recommend the business to friends and associates (the second cheapest way of getting customers).

Let’s have a look at this by way of example.  If a business has a 30% margin and it increases its price by 10%, then sales can decline by 25 % before gross profit is reduced.  Whereas, if it discounts price by 10% on the basis that increased sales will help and the business is running on the same 30% margin it needs to increase sales by 50% to produce the same gross profit.

So, when the business has its price and cost structure right, remember, “Cash is King”.  Even with high volume sales at the right price, and  costs reduced, a business will fail if it does not have good cash-flow and is unable to pay suppliers and staff when due.

Now is a good time for businesses to have a critical look at how they are operating.  Reviews need to focus on all aspects of the business including customer analysis and the finances.  Questions to consider are – do you know:

  • who your customers are and what their spending behaviour is?
  • how often do you review this-weekly/fortnightly/monthly?
  • when is the last time your bank and credit statements were reconciled?
  • the breakdown percentage of your costs?
  • your gross profit margin and overheads?  and so on.

If you think this is the role of the bookkeeper, think again.  Business owners need to keep an eye on the ball, making sure the business stays financial and trends are regularly identified and monitored before you have any significant detrimental impact or conversely so you can’t be taken advantage of.

Of course your bookkeeper and/or business advisor can assist with gathering this information.

Need help or more information – contact us – we can help!

balanixsolutions.com.au/contact-us

Listen – You Might Hear (5 Tips to Better Customer Relationships)

"Sally Balwin"

Recruitment | HR | Business Development

One of the shortest distances between success and shut down involves listening – listening to customer wants and needs – listening to competitors’ approaches and changes – listening to learnings of other business owners and trying not to repeat the mistakes – listening to the market environment and staying in front of the ball – and listening for opportunities that may or may not lead somewhere.

Many times we hear information without actually listening to what is really being said.  We interpret what we hear through personal perceptions and filters which can result in the speaker’s message being lost in translation.

To reach the goal of an effective listener:

Be Present:  make a conscious decision to listen. Focus on the speaker and their message and block out all distractions.

Be Involved:  demonstrate interest and encouragement using both verbal and nonverbal cues (eg, prompting the speaker to continue; nodding).

Be Restrained:  exercise patience and suspend judgement about the speaker and what is being said.  Be aware of your personal biases and filters and try to hear what is being said not evaluate it.  Ask for clarification or for more information if necessary without accusing, blaming, debating or demanding.

Connect:  find connections to the speaker’s ideas, intent and what, if anything, they want in return.  Listen for the action the speaker is trying to communicate.

Learn:  be open to new ideas, views and opinions even if they differ to your own.  Explore the possibilities of the new information through asking questions and discussing further with the speaker and with others.

If you listen with engagement and purpose you will hear valuable information for your business.  This information could strengthen your competitive edge and increase your business in the market place.

Balanix Solutions-Business Advisory

One Easy Way to Harm Your Brand

"Sally Balwin"

Recruitment | HR | Business Development

I received a phone call the other day from a person wishing to speak with my Business Partner, David.  “I’m sorry, he is in a meeting” I said.  “Can I help?”  The person advised me they were a HR consultancy business and had spoken to my Partner a month or so ago who discussed with them the fact that we were experiencing recruitment and retention difficulties in our business.  The person on the other end of the phone suggested they could help and was following up to arrange assistance.  After I obtained their name, business name and a contact number, they asked if in fact we were experiencing difficulties.

“No” I said.  “In fact, we are an Accounting and Business Advisory business which has a HR and Recruitment arm”.  “Oh” they laughed,” then you probably don’t need our services”.

Clearly this person had not researched who they were cold calling and also chose to, dare I say, fabricate information in an attempt to establish familiarity and progress things with us.  This strategy and encounter has not left me with a good impression of this business.

Cold calling has its place in the world of marketing strategies.  But like everything we business owners and managers do, we need to make sure it is enhancing our brand and not harming it.

Balanix Recruitment & HR