Combat High Credit Card Fees

Recently I discussed how bad debt is a massive cash drain and why you should avoid granting credit whenever possible.  And I shared a way to do this while upholding the professionalism of your business.  Today I'd like to explore another expensive cost and a way to use it to your advantage.

Does your business accept credit cards?   Increasingly, consumers are paying with debit cards.  Do you accept these?  Between monthly fees and per item clearing charges merchant credit card fees eat up a significant chunk of your profit.  Do you find yourself grumbling when a customer hands you a card to pay for a $2 item? 

How Do You Combat this Charge?

Many companies set a minimum amount or charge customers a fee to accept a credit card.  Does your business do this or do you eat the cost and silently fume?  The first two options piss off the customer and the last one pisses you off.  So what do you do?

Did you know that your merchant card agreement prohibits assessing a surcharge?  You'll find it in your terms of service.  You risk being canceled and/or fined if they prove that you charge a higher price for customary goods and services.  Obviously they see a surcharge as devaluing their method of payment.  They don't often exercise this remedy.  But you can get around the restriction by using the following method.

Post a notice at the cash register and on your eCommerce page: "All charges include an automatic 3% discount for cash.  Other forms of payment will be charged accordingly." 

Instead of charging a premium for accepting a card, announce that your prices include an automatic cash discount.  This way you aren't technically charging more for accepting a card; you're eliminating an existing discount.  Consumers are much more receptive to losing a discount than being charged a premium.  A premium feels punitive.

This type of reframing is a strategy my consulting firm specializes in.  I write about a technique we called the Grandfather Discount on how to raise prices in a previous post that became an extremely popular post.

Turn an Expense into a Profit Center

Increase your discount to 5% for a charge that costs you 3% to turn this expense into a profit center.

Try it and comment to let me know how it works for you.  I appreciate the feedback.  Also, do you have a thorny problem?  I love helping.  Give me a crack at it.  I'll post it and credit you for the idea.

Next time I'll discuss why it's so important for companies to focus on cutting costs.  Increasing revenue is great but cutting costs do much, much more for you.  Until then,

profitable business All!

Why Cuts Can Hurt Your Business and How to Turn it Around

Why is Downsizing So Popular?

It seems every day we hear about another corporation laying off employees.  Great firms thrive by selling more and introducing new products.  So why do so many companies embrace downsizing?

Out of sales revenue a company must pay to create the product, cover expenses, and settle taxes.  So a dollar of sales will yield less than a dollar of profit.

By contrast, a dollar saved drops straight to the bottom line and will yield exactly a dollar of profit.  So cutting costs $X produces a much greater impact on the bottom line than increasing sales $X.  Further, one can cut expenses immediately where sales are unpredictable and happen over time.  Viewed this way, one might sympathize with management and agree that downsizing is an easier and more certain method to grow profit than trying to boost sales.

In fact, firing a few dozen highly compensated employees and enacting sweeping budget cuts will almost certainly cause a spike in profit.   But that’s not the only impact.

From sales revenue, the company pays overhead and variable costs leaving the remainder as profit.  For additional sales, only variable costs - those that pay for creating and selling product - will increase.  Overhead has been paid so we can strip out this expense.  The company doesn't need to lease twice as much office space, for instance, to move twice as much product.

This allows us to calculate incremental profit on every dollar of new sales revenue.  

In our example below, profit increases three-fold by deducting overhead. Why is this significant?  Because every dollar of new revenue adds three times more profit.  So if the company grows sales simply at the rate of inflation it will yield 10% more profit.  That’s respectable growth for simply keeping pace with the cost of living index.

Other Disadvantages of Downsizing

When a company cuts, it targets the most highly-compensated personnel. These people are also the most senior.  As a result, they hold valuable institutional knowledge that the company dearly paid for over years of training and indoctrination.  When these people are forced out, the company loses this intellectual capital.

Further, layoffs tarnish a company's image, fostering resentment among former employees and prompting anxiety among remaining personnel.  The company loses its standing in the community as a just corporate citizen.  To make up lost ground, it invariably must resort later to costly PR campaigns and philanthropic efforts.

The True Bottom Line

Increasing revenue through innovation and solid strategy while retaining its key employees serves a company best in the long run.  Enacting sweeping cuts  to pacify Wall Street is reactive short-term thinking.  It's best to operate a lean enterprise customarily than trim the fat solely to meet Wall Street's expectations.

The Mathness Behind the Method: drilling down into the numbers

Our hypothetical company sold $1 Billion for the quarter.  Overhead was $200 Million.  On this first billion the cost to produce goods was $600 Million and variable expenses were $100 Million.  This yielded a profit margin on the first billion of 10%.  At this point, overhead is covered.  Only the cost of goods and variable expenses will increase with additional sales.

Out of each additional dollar of sales, the company pays 60¢ to create the product and 10¢ to sell it.  A total expense of 70¢ leaves 30¢ profit for every dollar of additional sales.  This is 30% margin on new revenue compared to the 10% on the first billion.

The original financials show $100 Million gross profit on $1 Billion.  A five percent increase of the original revenue is $50 Million.  At 30% margin, this yields $15 Million additional profit.  So the company will generate $1.05 Billion total sales revenue and earn $115 Million profit, a 10.95% combined profit margin.  This new overall margin is an increase over the original 10% margin of 9.5%.  So 5% new revenue growth will improve company profit by 9.5%.

Next time I'll share an easy way to pacify an irate customer.  And shortly I'll introduce an ingenious sales call method to bypass the dreaded gatekeeper so you get put right through to the decision maker.  It's all coming up in the next few days so stay tuned.  Until then,

profitable business All!

Improve Your Image While Preserving Cash

How often does a client ask to borrow money?  Maybe they requested to pay over time, or asked you for terms, or wanted to pay a small deposit with the balance in 30 days, or bugged you in any way to receive your goods and services before they paid in full.

A Credit Screen

Last week I wrote about how you pay interest forever on bad debts.  This week I want to offer a simple way to limit client borrowing while virtually preventing bad debts.  As a side benefit, you'll project a more professional and corporate image, letting your clients know you're serious about your business.  This technique identifies deadbeat clients without robbing them of their dignity.  In fact, rolling out this neat trick stops deadbeat clients in their tracks .

What is this trick?  A credit app.  Referring to your credit department projects credibility and stability while preserving your cash flow.  It lets your customers know you take credit seriously.

But this process powerfully deters deadbeats. 

Suppose a client has asked you - or one of your sales reps - to extend credit.  Instead of hemming and hawing, smile sweetly and reply "Of course.  I'd be happy to send you a credit app.  It usually takes two weeks to get a response back from our credit department once you return it.  When we get that back we'll know the terms they approve.  Until then, we're happy to continue doing business on a cash basis."

Identify Deadbeat Clients

What happens now?  If the customer has bad history with other suppliers, they'll drop their request immediately and never bring it up again.  They don't want you discovering they're a deadbeat.

If they're on good credit terms with other suppliers, they'll likely ask you for the form.  Then you'll have two weeks to run a credit check and I recommend you do it.  Then you can make a decision.

This turns around an uncomfortable moment into an image-building measure.  Most clients will view this little bit of bureaucracy favorably.  It alludes to a larger and more stable organization than they thought which gives you power.  Of course, they don't need to know you are the head of the credit department.

Do you accept credit cards at your business?  How do you handle it when a client hands you a card and asks to charge a trivial amount?  Do you have a minimum purchase, a surcharge, or do you eat the fees?  The first two methods piss off the customer and the last pisses you off.  Next week I'll share a way to use credit card purchases to improve customer service while adding profit to your bottom line.  And in a future post I'll share how to flip around the Cash Conversion Cycle to make you more money.  It's another ingenious tip from your Business Doctor.  Until then,

pfA!

Do you have bad debt?  Can you see how this technique could help?  Let me know your thoughts by leaving a comment.

How to Keep Credit from Killing You

In the last article we discussed how businesses finance operations by borrowing, and why offering terms can have unforeseen consequences.  In this article we’ll look at an extremely high hidden cost and how to combat it.

Impact of Delinquencies

I apologize.  I'm about to scare you.  It's very likely that after reading this post, you'll never look at debt the same way again.  You'll start operating a cash business going forward.  And you won't personally lend money as freely.  But that's not bad.  The way we typically account for debt shields us from the full impact.

When you grant credit to a customer, you either borrow from your savings or a third party to cover it.  And until they repay you, you lose the use of that money.  If you use your savings, you'll lose the interest you would normally earn.  If you borrow, you pay interest to a bank.  Most of us don't consider the impact of a default because we expect to be repaid.
What happens if they stiff you?

Can't you simply write off a bad debt?  

When you "write off" bad debt, you don't get the money back.  You're only removing profit retroactively. You won't view it on your financial reports and you won't pay tax on the income you never received.  But you still borrowed to lend your client money.  And your cash flow covers the interest on your debt until repaid.  If you're stiffed, that's forever.  

As we touched on in the last column of this series, the highest rate on all your open credit lines is the rate at which you pay interest. Why?  Because you assume that when your client pays you, you'll then pay down your highest rate loan.  If they don't, you continue to carry the debt.  Putting this together we can see that you pay interest on delinquencies forever at your highest rate.

“Okay,” I hear you grumble.  “I know that sometimes I finance my customer's purchases.  And I didn’t consider I was paying interest on delinquencies indefinitely.  And I didn't see until now that I was borrowing at my highest interest rate.  But my customers usually pay within a month or so, and only a few default.  Are a few bad clients costing me so much?”

The answer is a resounding yes!  Over time the amount can cripple your cash flow.  Let's look at an example.

Was Einstein Smart?

The famous physicist Albert Einstein claimed compound interest was the most powerful force in the universe^*.  It’s truly horrifying for a borrower to see compounding turn a small loan into a veritable fortune over time.  Compounding adds interest onto the interest onto the interest… all the way back to the transaction date.
 

Say you borrow $1000 to extend terms to your client and they default.  I'll show the math below, but if you use a business line of credit with an average interest rate you'll lose $180 of net profit your first year.  After five years, $400.  After ten years, $940.  After twenty the profit you lose grows to nearly $5000, five times the amount of the original credit!  And the balance grows even larger and more quickly as the rate increases.

All this expense for extending a single customer who never paid you.  Imagine if you had a lot of bad debts.

One way or another, you're paying ballooning interest on each bad debt every year.  If you use debt, you're carrying more than you need to.  If you're debt-free, you've lost the compound interest on that money.  By granting credit you either decrease assets or increase liabilities.  The net result is the same: a substantial and ever-increasing drain on profit.  All because you extended credit, maybe years ago.  

You can how see even a few delinquencies can become prohibitively costly after several years.  If you are careless in extending credit, you can end up in a huge hole.

Want more proof?  Use the equation below to calculate the amount of money a family business could lose after generations of being stiffed only a small amount at the beginning of its history.  A terrific primer on compound interest is The Skinny On Credit Cards.

The Mathness Behind the Method

Expressed algebraically, the formula for compound interest is C(1 + r)^t where C is the original Cost, r is the interest rate, and t is the number of times the interest compounds.  As the number of years shown by the exponent t, and the interest rate r increases, the result grows very large.

In our example, we used a rate of 18%.  The interest is 18% of the balance of the debt.  So using the formula above the balance of $1000 debt after 5 years is: 1000 * (1.18)⁵ = $2287. In year six you pay interest on $2287.  At 18% cost of capital, that's $411.66.   After ten years, the balance quintuples to $5234 and 18% interest is $942.12.  After twenty years the balance increases to a whopping $27,339, and the interest is $4921.

The Bottom Line

Especially in the beginning of a business you must be miserly about extending credit.  Even better, don't do it at all.   There are times you need to offer credit; for instance, when it's expected or you're trying to compete.  But make credit the exception, not the rule.

Next time I'll discuss a way to prevent bad debt while keeping your customers happy.  In one of the next columns I’ll examine another hidden cost that can be extremely expensive and how to avoid it.  And later we’ll discuss how to flip around this equation so that you start making money on financing cost, not losing it.  It’s all next week so keep your eyes glued.  Until then,

profitable business All!

3 Hidden Costs Destroying You

In the last article we wrapped up our series on developing and using performance measures (aka metrics) to create a world class sales force.  Properly applied, metrics enable you to identify future top performers and nurture and improve your top talent. Even a novice manager can achieve superb results by measuring results and tweaking processes.

Today we turn our attention to cash management.  The reason most often cited for business failure is under-capitalization.  The root cause is often financial ignorance leading to mismanagement of cash.

In the next series I'll explore three areas where you’re bleeding cash without even realizing it.  Unless you set up the right policies financial ignorance can damage and even destroy you.

In each of the next articles I’ll explore one of these hidden cash drains and how you can combat it. Knowing this might just save your company.

Companies must borrow money to finance their operations.  They pay interest on that money.  How you borrow those funds and how to avoid borrowing those funds when you don’t need to are critical components in effective cash management.

Would you believe you might easily be throwing away half your profit or even all of it in some cases? In an earlier post I discussed how I showed that one local merchant almost made a disastrous mistake.  In this series I’d like educate you and help you guard against making these mistakes.

First let’s define some terms:

Net Terms
This is the number of days you allow your customers to pay.  It’s typically expressed as Net X where X is the number of days you allow the customer to pay you back.  The most common is net 30 although net 10 and net 15 are common.

Cash Conversion Cycle
You pay a carrying charge on what you sell.  This is your CCC times your highest credit line.  To calculate the number of days, subtract the date a client receipt is available to you from the date money is removed from your bank account.  This can be deceptively longer than one believes.

Cash vs. Accrual
Whether you operate a cash or accrual business determines your CCC.  A cash business pays its supplier at the same time or after the customer pays for goods.  If your customers pay you for every sale and you then arrange to pay for these goods, you operate a cash business and your CCC is zero or negative.  An accrual business pays for goods before receiving payments and its CCC is a positive number.

Hidden Cost #1: Extending Credit

If you buy merchandise to sell later, you extend credit, possibly without even realizing it.  That means you operate an accrual business.  An accrual business finances its operations by borrowing.  A cash business doesn’t.

Most small business owners don’t realize it but even service businesses operate on accrual.  Sole proprietors often finance their operations with a personal credit card.  And accrual businesses pay interest.  Holding inventory, allowing your customers to pay on time, invoicing for services rendered, paying your creditors before receiving merchandise, buying goods to include in assembly...  All of these practices increase your Cash Conversion Cycle and make it longer for you to get paid.

These hidden expenses eat up profits and drive you crazy.  To understand the underlying reasons requires a shift in perspective.  Once you do, you can tweak your policies to fix it.

With a little work, you can set up your policies so your profit increases, not decreases.

The Risks of Extending Credit

Often it seems harmless to extend credit.  But you accept these risks each time:

• The payer can pay late
• The payer might default
• Your potential profit is eroded by financing costs

Also, borrowing affects your own finances.  You can overextend or alter your own credit profile which might impact your ability to borrow or dramatically increase your costs in doing so.

In the next article we’ll explore how much extending credit is actually costing you and we’ll discuss a way to combat this expense.  Then I’ll share why two other hidden costs are killing you.  In future columns, we’ll explore additional ways to combat these hidden costs.  It’s all coming up starting next week, so keep your eyes peeled.  Until then,

profitable business All!

Customer Service for Dummies

Sometimes you just need to let a customer go. If a client is abusive to staff, or demanding but you're unable to satisfy or reason with them, you may have to show them the door.

But this article goes deeper. It can be valuable to periodically evaluate your customer base and jettison the ones that are no longer a fit. Many companies routinely rid themselves of their "D" class unprofitable customers. It is a valuable strategic practice that will not harm customer relationships provided you do it correctly.

In the last column I shared a compensation plan that creates top sales performers. Now I want to explain a way to provide Ingenious Customer Service.

Excluding outright abuse from an out-of-control client, decide whether to terminate only after you've had a chance to reflect and cool down. Tell the client you need to check on something and will tell them later how (not if) you will solve their problem. Don't stall them, just find a reason to get back to them. Then make the decision when you're rational.

The Wrong Way to Fire Customers

Unfortunately companies often terminate clients at the wrong time, stating inflexible policies as ultimatums or offering tactless suggestions during a fevered disagreement, and this can sully a good reputation. Handled improperly, disagreements can also cause former customers to feel betrayed and act vindictively. Read about the Rule of 200 to learn the ramifications of a heated exchange. This is where excellent companies differ, proactively heading off this behavior before it begins.

The Right Way to Fire Customers

When you've chosen to discharge clients, the best practice is to allow them to fire themselves. How do you do this? By progressively removing value from the business relationship.

In an earlier column I shared a technique to handle a customer complaint. You'll remember I suggested you can avoid ill will by putting the decision in the customer's hands. In this same way, put the decision to terminate the business relationship in their hands.

A business relationship is like a playground teeter-totter.  As the supplier, you sit on one side and the customer sits on the other. You load your side with goods and services and the client loads his side with money. In this way the teeter balances.

If the totter becomes angled and you notice that you are dragging the ground, how do you right the teeter? Either by lightening your load (removing services) or increasing the customer's (increasing payment.)

In the same way, gradually make the business relationship less valuable for them and more valuable for you.  For instance, when you raise prices with the Grandfather Discount, exclude them from the offer.

Of course you will continue to provide the customary excellent service you give everyone, but gradually remove enough value from them while increasing the value to you so that ultimately the teeter-totter will right itself.  Or the customer will get off the teeter. Simply put, he'll terminate himself.

Will he leave immediately?  Maybe not - and this method won't leave you with the satisfying feeling of instant closure. But even when a customer is incredibly difficult to deal with, the decision to terminate should be made rationally, not emotionally.

Will he leave upset?  No.  Not if you put the choice to quit in his hands and he exercises it. You can even recommend an alternate vendor if you wish. And if he does choose to get upset, he won't have anything concrete with which to slander you.

Case Study: the Dance Studio

As a teenager I took dance lessons at the local studio. We middle class college students loved it because it was inexpensive and near the University. As a result of word of mouth of the students, the business grew rapidly. However, the owners soon discovered the college students were on a fixed budget and chose to attend the less expensive group classes. Hence, they were "D" class clients compared to the "A" and "B" class clients who could shell out for expensive private lessons.

The owners chose to cultivate a more affluent demographic by moving the studio to a wealthier part of town. The new owners found themselves in a dilemma: the D-lister's word of mouth had built their reputation and they didn't want to risk damaging it. So they implemented policies that caused us to jettison ourselves.

They handled it the right way. They didn't ask us to leave. But over time they made the services so inconvenient that we no longer found attending worth the trouble. The owners began decreasing the frequency of the group lessons we attended, from three times a week originally to twice a week, then weekly, and finally every other week. The owners justified the reductions by claiming that the regular classes had filled the available time slots and it was all they were able to provide.

The class winnowed itself down and eventually we all left. But there was no animosity because we had made the choice. And had we been miffed, what could we say? That the studio had become so popular that we felt shut out? We had nothing concrete with which any of us might damage their reputation. The studio flourished after we left with a new clientele, and the owners enjoyed an unblemished name.

Next week I'll share a way to use a variation of this technique to hand off customers and vendors to junior staff, furthering your ability to delegate and create a turn-key organization. You can even pass off close, long term relationships without risking losing clients. Done properly, this method will free up a lot of your time and allow your organization to grow rapidly. And later we'll continue discussing Ingenious Sales Management, developing a training program that nurtures top performers who stay with you for life. It's coming up next week. Until then,

profitable business All! 

These Ads Work Amazingly Well

Last week we discussed why sales should not handle billing. I also touched on an inexpensive method to eliminate typos in expensive handouts and advertisements. I'd like to discuss another area of marketing – advertising - and how you can get the greatest return on your investment.

Create your own “Golden Oldies”

When you watch TV, which commercials in particular do you rush to mute?  Not because they're offensive, but because you just don't want to suffer through watching them again?

Guess what?  That means they're working.  When you need that merchant's product in the future, you’ll remember 'em, won't you?

Many companies stopped airing commercials we enjoyed years ago that could still work today to pull in new customers.  Managers get tired of their own ads long before they lose their appeal for prospective customers.

How many "golden oldies" advertisements can you recall?  I remember a jewelry store radio spot years ago that ran so often every time I heard it I cringed.  I knew it so well I could hum the jingle.  I got so sick of it that whenever it played I desperately looked for another station to listen to.

Business owners and marketing managers become bored from their ads more quickly than their audience.  Often they’ll make the mistake to change them prematurely.  While an ad still pulls customers, allow yourself to get good and sick of it.  In most cases you'll get bored long before it stops being effective.

Large advertisers often switch media frequently so you may think that's the rule.   But a small business has different advertising needs than a giant. As a manager, I’d rather get sick of an ad that my customers adore than the other way around.  Don’t we still use clichés in conversations?

Don’t presume distribution = exposure = increased sales

These days too many managers advertise for the wrong reasons.  You run an ad to increase sales by urging your targeted audience to buy, not so your ad will go viral on YouTube.  It's fine if that happens, but keep in mind that your advertising is a means to greater profit, not an end in itself.  Creativity for creativity's sake is pointless unless you specifically sell that type of creativity.  Focus on the end – sales - not the means.

Change an advertisement only after it stops attracting more customers.  Most ad campaigns are costly and time-consuming.  Whenever you produce an ad - whether it be a homemade flyer or an elaborate commercial - use it until it's no longer effective.  Remember your goal: maximizing the return on your campaign and thereby increasing net profit.

Later this week I'll explain the four questions you must answer to begin targeting your market strategy to achieve the best returns.  And next week I'll discuss an easy way you can design your ad campaign that'll make a huge impact.  Until then,

profitable business All!

Salespeople Should Never Receive Payments

In the corporate world, sales managers often assign the responsibility of receiving payment to their salespeople.  One of our portfolio companies paid commissions out upon receipt.  They had no receivables support and they encouraged their reps to collect payments.

On its face the idea seems sound.  A salesperson gets paid for the sale, so why not have her collect payment?  When a rep collects payment, it even provides an excuse to stay connected.  However, this policy has unintended consequences and can result in huge customer service fallout.

Your reps act as client advocates.  By contrast, debt collectors are bearers of bad news.  By putting a rep in the roll of debt collector, the company has removed a valuable buffer.  A rep can play mediator to quickly resolve misunderstandings and settle frazzled nerves to ensure the business relationship endures.  If the rep must also act as bill collector, he cannot feign detachment; he must include delinquencies in the sphere of the relationship.

People want to keep their dignity so they'll often ignore sales calls if they are unsure whether a rep is calling as sales advocate or debt collector.  The cumulative effect?  Reps focused on billing divide their sales efforts and customers duck their calls.  This decreases sales department efficiency which lowers productivity and resulting commission.  This also increases bad debt which leads to even lower commissions.  And this can cause a drop in staff morale, crippling the company's profitability.

Case Study: Advertising Agency
We suggested our customer hire receivables clerks to encourage their reps to focus on selling.  Billing clerks could then handle receivables and note in the system any customers that were in default.   On average, a sales rep is better compensated than a billing agent.  So, we suggested it makes sense to delegate these tasks to a lower paid employe.  In a later column I’ll explain an easy way to optimize each employee's duties throughout the organization to achieve maximum efficiency.

The result?  Because the reps ignored billing issues they had more time to sell.  Reorders increased.  The extra revenue on additional sales that reps could make more than compensated the company for the salaries of the new billing personnel.

When a rep happened upon a client delinquency,  he ignored it until the client's credit line was restricted by the credit department.  If the client addressed it with the rep, he recommended the client call billing to resolve it as a prerequisite to reordering.  The rep deliberately feigned ignorance instead of addressing it directly with the customer.  In this way, he played the advocate and preserved the client’s dignity. 

Managers and organizations need to realize: the best sales reps are not mere order takers.  They’re client advocates, subject matter experts, and executive advisers.

Yesterday I explained how to eliminate those nasty typos from expensive commercial printing jobs and save on your printing expense.  Next week begins the first of a series of articles on a novel step-by-step approach to developing an integrated marketing strategy.  You can use this as a basis to plan your most cost-effective advertising methods.

This will take a little bit of time but you’ll find it’s worth it.  Upon completing the process, you’ll calculate your ideal cost-effective advertising and know exactly how to spend your budget.  You’ll never question whether you should spend money on a particular newspaper, coupon, flyer, or yellow page ad again.  Stay tuned.  Until then,

profitable business All!

Dramatically Reduce Your Printing Costs

Have you ever gone through the trouble and expense to create a beautiful brochure only to discover a typo after you'd printed ten thousand?  I once printed five thousand letterhead envelopes only to discover upon receipt the zip code was truncated to four digits!  All that time and money for layout, a copywriter, graphic designer, printer... down the drain.  What a headache.

Has this ever happened to you?  If so, your enthusiasm at handing out your gorgeous new brochures probably waned.  You were stuck with a mess of less than ideal material and had to decide: do you suck it up and use the substandard material or repeat the ordeal and expense to reprint the job?

In this internet age businesses need a digital form of their printed material.  Use it to entice visitors to download brochures and information from your website.  Instruct your sales reps to email them to prospective clients.  Send them to web publishers as camera-ready artwork.  Use whenever possible in lieu of printed material.

Why wouldn't you?  An electronic pamphlet costs nothing to reproduce compared to a printed version, and the recipient receives it instantly for immediate gratification.

You can still print handouts.  But you'll obtain a significant cost advantage when creating any printed material beforehand by producing short runs from a digital file.  Even if you never intend to distribute it electronically this will save you money.  As a bonus, you won't stockpile hoards of dated material.

Suppose you're creating a new full-color brochure and you want ten thousand copies commercially printed.  Before going through the expense of mass printing, create a digital version.  Until you're certain you have what you want, run off only as many copies as needed at a color copy store like Kinkos.

Printing small batches allows you to fix typos before printing large quantities.  Printing copies as needed also allows you to test multiple formats.  You can tweak all aspects of the flyer - layout, content, color, style, paper quality - to discover what combination draws the best.  Only after you've determined the optimum mix should you then print at quantity.  You'll never print a brochure with a typo again if you test your marketing.  And this way your print ads will be much more effective.

In the next article I'll share with you one job duty your salespeople should never perform.  And shortly, I'll tell you how to inexpensively test your marketing, and how the printing process often works against you if you're uninformed.  After reading this post, you'll never see a marketing firm, service bureau, or publisher the same way again.  And you'll stop throwing away your money on advertising that doesn't work.  Look for it in the next couple of days.  

Until then,
profitable business All!

Raise Prices Without Losing Customers

In the last post, I shared why your prices were probably too low and how you're leaving money on the table.  If you've ever worked at a business when it raised its prices, you probably endured grumbles from customers.  Justifying the increase becomes so exhausting that many merchants take the path of least resistance and swallow the increased expenses.  But what if you could raise prices and avoid the grumbles?

One way to increase prices without risking upsetting or losing clients I call the Grandfather Discount.  It works like this:

1. Raise prices immediately.  
2. Tell the customers you want to keep that you're grandfathering them under the old rate for six months.  
3. Discount the new price back to the old.

Here's why this works:

• When your client receives the bill, your new price will stare at them from the top line with the discounted price displaying at the bottom.  Your customers won't be angry about the increase because you aren't asking them to pay it yet.  Those who do complain will be polite and you can receive it as feedback.
• Each repurchase during this time your bill subtly reminds them of the imminent price change.  The grandfather gives them  time to get used to the new price.  And they'll subconsciously revise the value they are receiving upward to reflect this higher price.
• After six months, eliminate the discount as agreed.  By removing a discount instead of adding an increase, the customer feels (and you can remind them) the benefit they received for six months.  This is in contrast to feeling penalized going forward.  
• Because you raise prices immediately all new customers will pay your new price.  This adds extra profit to every new sale starting immediately.  

You may find some clients stock up to buy before the price discount expires.  From day one you'll start booking additional sales.

This simple re-framing technique improved the bottom line of many corporate clients, even some big ones.  Try it!  Do you think this will work for your business?
 
Are you tired of shelling out money for unreimbursed costs?  In a future post I'll explain how to deal with merchant card fees and other surcharges.  I'll show you how to eliminate these cash drains and turn them into profit centers.  Stay tuned!   Until then,

profitable business All!

Your Prices Are Too Low!

Would you rather earn $100 each on ten customers or $10 each on one hundred?

If you answered ten customers, you’re an efficient businessperson.  Why expend extra effort dealing with ninety more people for no extra income?  You are in business to make a profit, right?

In the same way, you might be leaving money on the table, charging less to sell more volume but earning a lower net profit if your prices aren't high enough.  Ultimately, you want to charge as high a price as your most price-sensitive customers will pay.  So if everyone can easily afford to buy your product, your prices are too low.  Your most price-sensitive customers should feel the pinch.  If you never encounter any price resistance, you’re leaving money on the table.

If it’s your job to set prices, I understand you don’t want to deal with customers endlessly grumbling over increases.  But there’s an equilibrium between too high and too low, and it’s the manager’s job to determine where that point lies.  Learn to justify your value.

If the last time you raised prices was during the Bush administration – especially the first one – it’s time to do it again.  In the next post I’ll explain how to increase prices painlessly using a technique I named the Grandfather Technique.

You should raise prices each time your supplier does, and every time your market improves.  In the next post, I’ll discuss exactly how to do this.  Learn how to earn optimum profit without irritating or losing customers.  In the next few weeks I'll share how you can design advertisements that work; avoid high printing charges; learn how to calculate your clients' value to your business, and much more.

Until then,
profitable business All!

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An Ingenious Method to Add Profit

Have you ever had a client ask for a discount? What a pickle. Do you: 1) give in and feel taken advantage of; or 2) refuse and risk losing the client.

The other day I was at the service station D & S Auto where I took my car in for a $40 oil change. I asked Denny, the owner: "Can I get a discount?" He looked down at the floor, shuffled his feet, and caved. He grudgingly agreed to knock $5 off the bill.

I asked him how he felt about acquiescing. He confessed he disliked it but was afraid declining would upset me. "Besides," he added "$5 won't break me."

The Impact of this paltry $5 Discount

Would you believe me if I said that Denny was about to give away most of his profit? I detail this below but let me share a way to offer a discount that saves your blood pressure while offering the customer a supposed concession. All while adding profit to your bottom line.

The Discounted Upsell

We've all experienced the upsell. This is when the drive-in asks you "Do you want fries with that burger?" You give a discounted upsell by offering a discount off an additional purchase. But it can also be used effectively when a client asks for a concession.

Instead of shaving profit off an already booked sale, offer an additional purchase at a discount. In the case of my oil change, Denny could have asked to rotate my tires and offered to reduce the normal price by $5.

Choose a service with an ultra-high margin and the firm books additional profit for additional work it wouldn't normally perform. The customer leaves satisfied because they feel you gave them a concession. And you can feel satisfied too.

The Mathness Behind the Method

• Denny employs a skilled mechanic at roughly $50/hour. We'll ignore payroll taxes and benefits that increase costs. Let's assume that a half hour oil change is $25 in labor costs.

• My vehicle is occupying one of his bays on the floor. Denny sells this time slot only once. So we must apportion overhead. The company pays rent, utilities, office supplies, telephone, advertising, and other expenses. We'll allocate $5 for overhead. So far his costs are $30.

• Other costs: interest on bank loans and credit cards, bad debt, equipment, and any other unexpected or unusual costs eat up profits. These easily make up 5% of gross sales. That costs $2 leaving $8. A 20% margin isn't terrible. However, after taxes Denny's left with net profit of $5.

By Denny discounting $5, he relinquished all his profit. Scary, huh?

In a future post I'll explain how you can use a variation of this technique to placate an irate customer. With this simple gimmick, they'll usually settle down immediately. And there are additional ways to use this tip to dramatically boost net profitability. But more on that in the next and future postings.

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These tidbits are from my time at the consulting firm. I'll post at least weekly.

I appreciate all your comments. Let me know if there are any particular business issues you've experienced and I'll write about them and credit you. Until then,

profitable business All!