Making your business resilient to economic downswings is certainly not a new thing for SME business owners in South Africa. Working out what to do to survive and thrive, no matter what the economy is like, is a key priority for most business owners.
However, the difference between a prepared response and a knee-jerk reaction, is normally because of deliberate preparation, prior planning, and intentional action.
At ActionCOACH-Inspire our Quarterly Business Planning workshops or GrowthCLUB is one of the main reasons why business owners, who coach with us are better prepared and more resilient in their thinking and action plans.
Why you may ask? I believe it has a lot to do with spending enough time in the planning process, developing scenarios or alternate plans of action and thinking them through properly. Understanding the risks and alternatives will give you a strategic advantage over other players in the market.
So how do you protect the profit in your business?
One way could be to ensure that we have "The Four M's of Profit" in place in our business. Even a brilliant business will fail without creating and preserving profits when economic conditions aren't good.
I believe that adhering to the "Four M's of Profit" could go a long way to help guarantee success even when times are tough.
The 4 M's are:
Management must Manage
Profitable companies are well managed and as Harold Geneen stated in his book on Management, "Management Must Manage" Managing a business effectively requires a well-constructed budget and strong accounting practices, on-time reporting and skillful use of time and resources. Holding your team accountable to delivering the budgeted numbers, following up, training and guiding the employees to reach maximum performance is essential.
Intelligent managers know how to systemize routine procedures while humanizing the exceptions. As an example, while customer service systems should be consistent and follow written guidelines and rules, customer service also depends upon motivated, well-trained individuals who will spontaneously solve the problems that are unexpected or out of the ordinary.
Your team must understand your company's core values and must internalize them to beneficially represent the business under all circumstances.
Clear roles and responsibilities must be established and ensure you know who is accountable. Establish a clear action plan with a record of who must deliver what by when and why!
Remember, if everybody is responsible then nobody really is?
Yes, money is what matters and you need the best strategies for dealing with money matters as it could make or break profitability. A successful strategy for managing money includes proper auditing of your numbers, setting budgets that are understood and followed by everyone in the business and the proper management of Gross and Net Profit. Remember always, only profit is the real bottom line!
Your business should not absorb inflationary cost price increases such as higher taxes, more expensive fuel and salary and wage increases. Doing so will seriously impact your businesses profitability.
I believe the best approach is to proactively raise prices and to concentrate on superior customer service to justify the increases and in so doing boost net profits without alienating customers.
Most business owners learn to discount before they can count. Discounts and freebies should be discontinued as far as possible. Look at establishing alternate ways of payment i.e. credit card facilities to make it easier for customers to buy and pay for their purchases.
Remember, growth sucks capital and it might just be that you need to consolidate to weather the storms. Set clear financial metrics for new projects and reduce the financial risks through well-established accounts receivable practices.
Marketing your CVP
Marketing is about creating your unique Customer Value Proposition and then believing it and ensuring that your marketing message is consistent in everything you do. It should not be so much about selling or price, but more about buying or the benefits achieved.
I believe that marketing in SME's is too often done solely from the perspective of the seller. Take a good look at your marketing strategy, ensure that it addresses the need or pain point of the buyer or customer. At ActionCOACH-Inspire we have developed a marketing audit that is a unique way of understanding the status quo and identifying the gaps. Is your marketing spend delivering the same results as any other investment in your business?
You don't know …? Well perhaps it's time to talk to us and get a clear picture if you can change it from an expense to an investment.
We know that businesses that focus on marketing and customer service will tap into the needs and desires of their targeted market in a way that translates more easily into increased business revenue and profits. Being customer-centric, marketing revolves around offering real value, but it also involves strategies like "upselling" to customers.
A further example is "down-selling," which works well when a customer might otherwise not buy anything. Understand and accommodate their budgetary constraints and in so doing make a customer for life. Don't try selling them what they can't afford and losing them to a competitor.
Marketing is about delivering on what you promise and re-innovating your products and services to prevent commoditization thereof. Marketing is math, use this fact to measure and reduce your lead to customer ratios and your cost of acquisition.
Merchandise – your product and service offering
Taking a high-level view of your business's product and service offering can be a valuable exercise for any business owner. Remember that your products and services offering define the entire business model as well as guide the direction of sales and revenue. Evaluate your different offerings. Compare and look at the potential and current profit margins and choose the one that delivers the most money.
Identify which products and services are profitable and focus on selling only those. Other ways to manage merchandise includes selling exclusive lines that others don't offer and carrying own label merchandise. Selling only quality merchandise – and making that part of an overall brand identity – is always a wise approach, and it can generally deliver higher margins because people pay more for prestige, status, and excellence.
Remember you want to safeguard and protect your income, having the right marketing, products and services your customer wants to buy a great marketing strategy to attract new customers is essential. Don't forget to maximize the sales to existing customers and take full advantage of each opportunity each customer represents.
Be Inspired – Be Awesome