Category Archives: Improving Profits in a Small Business

A Calculation to Help Determine Potential Profits

A Calculation to Help Determine Potential Profits

A calculation for small business profit improvementThe Pareto Principle (also known as the 80-20 rule) is named after an Italian economist named Vilfredo Pareto. It is an interesting concept which can be applied to help determine insights for potential profit improvement.

Let’s look at two possible applications for a small business:

Possibility 1) 80% of your profits come from the top 20% of your customer base.

Possibility 2) 80% of your customer frustrations come from the top 20% most frustrating customers (better known as the bottom 20% of your customer base).

If the second possibility exists in your business, the reality is that your bottom 20% of customers provide you with no profit at all and in fact are likely costing you time and money.

How can you determine the your most profitable customers?

Do a Pareto Analysis on your customer base.  Here is a simple step by step process:

Step 1) Make a list of your current customers.

Step 2) Determine a ranking system for your customers.  A sample system would be to score each customer from 1 to 5 on the following attributes:

  •      Payment history – 1 for a quick payer to a 5 for a delinquent.
  •      Hassle factor – 1 for never a problem to a 5 for continuous hassle.
  •      Likability – 1 for we really like working with them to a 5 for we’d prefer not to work with them.
  •      Value for price fit – Score a 1 if they appreciate and really value what you do for them and to a 5 for no appreciation and less desire to pay for your value.
  •      Risk – Evaluate the business risk of doing business with each customer – 1 is for lowest risk and 5 would be the highest.

The above are just examples. You decide the correct attributes of a good or bad customer.

Step 3) Rank the customers according to the ranking scheme

Step 4) Consider the top 20% of the customer ranking.  If Pareto was right, the top 20% of your customers are where you make most of your profits. Don’t forget to thank these customers!

Step 5) Review the bottom 20% of the customer ranking. Ask your accountant, bookkeeper or business advisor to help you determine your profit from these customers.

Even without applying this principle to your specific business, we know there is not only the potential for profit improvement, there will be quality of life improvement to be enjoyed by you and your employees who won’t have to deal with as many frustrations anymore!

4 Simple Ways to Grow Your Business

4 Simple Ways to Grow Your Business

Simple tips to grow your business - Hyatt Lassaline Windsor Ontario

Get back to business basics! 

Many business owners spend much of their time working in their business, often spinning their wheels just trying to stay in business.

Let’s stand back, take a good look and get back to business basics.

1)    Referrals

  • Do you ask for referral business? Do you ask every time in a systematic way or just when you think of it?
  • Do you thank current customers for referrals when you receive them?
  • Do you act like you want more business? If you give the impression that you’re too busy to handle more customers, your existing customers won’t refer you more business. Why would they if it appears you are struggling with the customers you have now?

2)    Customer Retention

  • Do you know when customers ‘drop off’ your customer list? Do you know why they ‘drop off’? Is there any area for improvement?
  • Do you calculate your ‘attrition rate’? This is the number of customers that stop doing business with you over a certain period.  If you have 1,000 customers at the start of the year and only 800 of these customers are left at the end of the year, then the 200 that left represents a 20% attrition rate.
  • Reducing your attrition rate by one customer is better than adding a new customer due to marketing and other costs of acquisition.

3) Employees

  • Are your employees fully knowledgeable about all of your business’s service or product offerings? If they are lacking, it might be affecting your bottom line.
  • Are you employees equipped to work productively? Do they have the right tools to do so? If you’re unsure, you should ask them!
  • Are you employees active and engaged in your business? Does your business embrace a culture of respect?

4) First Impressions

  • First impressions can go a long way. Is your storefront clean and inviting? Are your trucks in good repair? Does your website’s landing page pass the 5 second rule?
  • Look at businesses you frequent, what are they doing right? How can your business emulate their positive first impressions?

Getting back to business basics is an excellent strategy for profit improvement. All businesses have areas of improvement they can focus on.

What is Holding Your Business Back?

What is Holding Your Business Back?

It just might be you. It might be a self-imposed barrier that’s holding you and your business back.  

A self-imposed barrier is a thought or belief you have that is blocking you from seeing an opportunity.

A common example is when the business owner believes all their current customers are aware of every product or service the business offers, but in reality the customers do not.

Are you confident that all your current customers are aware of your complete business offerings?

Business advice to quickly improve profitsOne simple way to test this assumption is to assemble in a simple document a list of all the products or services your business provides. Politely ask your customers for a few minutes of their time to discuss your business’s offerings. You may uncover that your customers were unaware of many of your products or services.

The self-limiting belief described above limits potential sales to these customers. If you can open yourself to new possibilities, you might learn something new about your customer’s needs and frustrations.

You won’t know unless you start the conversation with your customers.

The Importance of First Impressions

The Importance of First Impressions

Are there areas of your business that are a little less than 100%? If we are focused on growing a business and besting the competition, we have to ensure that we are covering the basics -so let’s start with first impressions.

Potential customers may quickly make a purchase decision from your business, based on the following first impressions:

  • Hyatt - Lassaline - The Importance of First Impressions - Business TipsIs the exterior of the business neat and tidy?
  • Are the customers greeted in a friendly manner?
  • Are the trucks clean?
  • Do the employees have a nice and clean appearance?
  • Are the bathrooms clean?
  • Are the employees focused on business or on personal matters?

First impressions can make all the difference and just might be the deciding factor in a purchase or establishing loyalty with your business.

Are Your Employees Equipped For Productivity?

Are Your Employees Equipped For Productivity?

One of my favourite expressions is, “You need to spend a quarter to make a dollar”. This is very true when it comes to equipping your employees to be productive. Here are some real life situations I have experienced as a small business advisor:

Equip your employees with the right tools to increase productivity - Accountants Windsor OntarioProblem #1 – Two work crews but only one saw – Every morning before each crew went in different directions there was a discussion to determine who needed the saw most. One crew had lost the second saw and the owner did not want to pay for another. In fact, there were quite a few tools and basic equipment that were lost. From a financial standpoint the payroll for the two crews was about $200 per hour. The new saw cost less than $200.

The solution – I convinced the owner to restock the crews with everything they needed at a cost of around $1,000. We then set up a $500 tool fund. If the crew lost or broke a tool it was replaced and paid for from the tool fund cash. If at the end of the season they didn’t spend all of the money, the crew got to keep the remainder of the tool fund cash.

Problem #2 – Employees sharing computers – The  version of the software program that three employees used  was only licensed for one user and wasn’t set up to run on a network. The employees took turns using the computer which was located in an inconvenient place for two of them. From a financial standpoint, the three employees produced a total revenue of $210 per hour when productive.

The solution – We determined productivity would increase at least an hour a day with two new computers added. On an annual basis that’s $52,500 more revenue! That is a good return for roughly a $3,000 investment in two computers networked together and 2 more users on the license. (We didn’t even calculate the uplift from much happier employees!)

In both of the above examples, by spending a quarter, the business made far more than a dollar!

My suggestion is to talk to your teams about what tools they need to be more productive. When you evaluate the investment, calculate the value of the lost revenues from downtime and the payroll costs of unproductive employees, I suspect every business has an opportunity to spend a quarter to make a dollar.

Does Your Business Offer a Guarantee?

Does Your Business Offer a Guarantee?

Business advice - Hyatt Lassaline Chartered Accountants Windsor Essex OntarioWhen a potential customer considers purchasing from your business, are there a number of risks to completing the purchase?

When you provide a guarantee, you remove the risks to the potential purchaser and make it easier for them to buy from you.

It is reasonable to assume that if you reduce the risks and make it easy to buy, more of your potential customers will convert to actual customers and make the purchase.

Here are 5 tips to developing a great guarantee:

1)      Position it clearly and boldly to potential customers: The worst guarantee is one that customers don’t know about. This may sound ridiculous, but as a small business advisor I often discover businesses that have a guarantee but didn’t tell their customers about it at the time of the purchase decision. This means the guarantee was not needed for the purchase decision of the customers that bought because they didn’t even know about it. The potential customers that didn’t buy could have been a customer, but they didn’t know about the guarantee and decided it was too risky to make the purchase.

2)      The stronger and bolder the guarantee – the better – a watered-down guarantee just doesn’t work. Make it big and bold. The idea is to get more customers to buy confidently, so big and bold gets more attention in the marketplace.  Often there is resistance to offering a bold guarantee. This is business owners may fear the market will take advantage of the guarantee. The reality is that a very small percentage probably will, but the percentage is typically less than 1%. The profits from the other 99% of new customers will be more than the cost of dealing with the unsatisfied 1%.

3)      Be specific how you define the ‘claim’ – As the business that is developing the guarantee, you get to determine the rules for a claim. While the guarantee needs to have some meat and be easy to use, you control the details. Make it ‘if this, then that’. For example, ‘If this tree doesn’t live for one year from purchase for any reason, then we will replace it for no charge.’ In this example, the claim was not cash but a free replacement which costs less to the business that a full refund.

4)      Test it first – If you are worried about how the guarantee will work and if anyone will abuse it, then test it in a controlled manner. You can offer it to a limited group of potential customers to see how it works. Then you can tweak it based on how the test works out.

5)      Research the existing guarantees in other industries – The design of a great guarantee does not have to come from your industry. There is no need to re-invent the wheel. If you just focus on the current purchase decisions you may be making yourself, you can experience how and if a guarantee affects your risks of making a purchase.

Successfully Converting Leads into Sales

Successfully Converting Leads into Sales

Every business has some ‘low hanging fruit’ to pick. There are ripe profits stuck between the leads your business generates and the actual revenue dollars you convert from these leads.

A lead is created by your referrals, your marketing and advertising efforts, your location etc. A lead could be a potential customer walking into your store, a phone call, a website hit or a cold-call by your sales team.

Out of every 100 leads, there is only a percentage that gets converted to actual sales. Some of the leads that did not become sales may have happened for the following reasons:

– The business missed answering the phone call. Perhaps the voice message was not followed up in a timely manner.
– The lead was not properly followed up by the sales team. Be certain that your sales team properly educated about the products or services your business offers.
– Nobody followed up with the potential customer after the initial contact. This could be because the sales team get the contact information or ask for permission to follow up. This could also be because the information was obtained, but the lead was still not followed.
– Maybe your staff is good with converting walk-ins, referrals and phone calls, but the system to properly follow up emails leads or website hits has not been perfected.

Create and perfect systems to ensure that every lead is followed up in a timely manner. Be certain that your sales team is properly educated in all aspects of your products or services.