by MHolland | Jan 31, 2024 | Business Tips, Cash Flow
Accountants should not be responsible for setting pricing.
Why not, you ask?
Because most accountants will focus on all your costs (inputs) and add an acceptable mark-up to get to the price.
Here is the problem – customers do not care what your costs are. Why should they? You could be running a very inefficient business with wages that are too high, rent that is too high, and so on.
Costs Do Not Equal Value
Let us look at a car example. It likely costs more to build a Mercedes than a Ford Fusion. Yet, not that much more. In other words, the mark-up on the Mercedes is greater than on the Ford Fusion for the intangible value that the customer places on that 3-star symbol on the hood.
In today’s outsourced manufacturing environment how does a business add value in unique ways to get a higher price?
It seems like everything is a commodity these days. How do you do value pricing when you are selling a commodity?
See It Through the Eyes of Your Customer
This is where, again, you must look at your product/service through the eyes of your customer.
Ask these questions:
- What elements of your product/service does your customer value?
- For example, can you deliver the commodity you sell more quickly than your competitors?
- What about after-market service? When the commodity product breaks down, what does your customer do? What expectations do they have? You could offer awesome after-market service for a price. You could build it into the initial pricing.
- What is a frustration that ALL customers have in your industry? It could be delivery times. No after-market service. Slow service. Indifferent, non-caring attitudes from order takers. Solve this big problem everyone has, and you are now differentiated. You will stand out from the crowd.
- What can be bundled with your “commodity” to add value and create something unique?
An Example of Fixing an Industry Wide Problem
In the accounting industry almost, everyone charges by the hour.
So, the client never knows what the ultimate bill will be until the work is done. All the risk is borne by the customer.
Most clients hate hourly billing. They hate it because they never know what they will pay.
This is where Fixed Pricing comes in. You work out what the value is to the client for the work to be performed and then set that price. You get the client to sign that agreement. The client will then hold you accountable for the results that you are committed to deliver.
All the risk is borne by the seller now. If you are inefficient, you will make less profit. Conversely, the rewards are all with you as the seller now too. If you take less time to fulfill on the promised results, then you will have more profit. (The client does not care; they agree to a Fixed Price and the inputs are not relevant).
Fixed Price Agreements transform something that most clients find annoying, irritating, or downright unfair into a competitive advantage.
How To Turn a Commodity into a Rarity
Again, let us again use the accounting industry as an example…
A tax return could be seen as a commodity now. It is just entering your slips into a tax software program, and the result is spit out and you either pay tax or get a refund. End of story.
The cheaper the tax return the more you save.
Why would you pay more? Where is the value add?
Okay, this is where bundling can come in handy.
You look at all the services you offer as an accounting firm – wealth planning, and retirement planning as two examples.
You create a bundle of services that includes:
- Retirement planning
- Guaranteed tax return. If the IRS or CRA sends any correspondence to you regarding your tax return that year you will handle it free of charge. In other words, audit insurance.
- You provide free phone calls on any tax matter coming up during the year.
As an example, let us imagine that the tax return is only worth $75. However, the entire bundle mentioned above is worth $1,000. Not all the clients of the firm will pay that. Many will, and the profitability could be much, much higher.
The above example could apply to most professional service firms, and even blue-collar industries like electricity and plumbing.
For example, a plumber could charge a fixed maintenance fee to cover a set of deliverables including annual maintenance that many people would happily pay extra for.
In Closing
Think about, in your industry, a problem that everyone has with your industry. (You may need to ask your customers). Solve that problem and change your prices accordingly.
Lastly, think of how you can use the concept of bundling to add value and increase your pricing for a bundle. Insurance or guarantees are a great way to add value.
Thanks for reading…
by MHolland | Jan 26, 2024 | Business Tips, Systems
A few years ago, I wrote the following blog on systems. I am re-printing it as it is even more relevant now, in 2024.
Without systems, there is no consistency, no duplication, and no training. The customers get different results from different people and at various times. It is impossible to grow because without systems there is no duplication.
“Organize around business functions, not people. Build systems within each business function. Let systems run the business and people run the systems. People come and go but the systems remain constant.” – Michael Gerber
Semi-Organized Chaos
Without systems in a business, you have semi-organized chaos. I have found in my work with hundreds of small businesses that it is the lack of systems that causes business failure more than any other factor. Lack of systems lead to other problems that are often identified as the problem when they are really the symptom. For instance, people often say poor finances led to the early death of that business. Or operational problems, or poor marketing. Lack of great systems is at the root of it all. (Of course, you still need a viable business model – selling snow skis in Morocco will not be a winner).
Some people hate the word “systems.” They want to be free. Free to create. Free to “go with the flow.” Freedom to “let their people figure things out on their own.” And, when things go wrong, they complain that “it’s so hard to find great people.”
Sports as Metaphor for Business
Sports is a fabulous metaphor for business – sporting games run on rules, systems, extensive training, and key metrics – just like a winning business does.
The other day, I read this funny story of what it was like for Nicky Gumbel refereeing a boy’s cricket game in England:
“I remember, years ago, a football match that had been arranged involving twenty-two young boys (including one of my sons, aged eight at the time). A friend of mine, Andy, was going to referee. Unfortunately, by 2.30 pm he had not turned up. The boys could wait no longer.
I was press-ganged into being the substitute referee. But I had no whistle, there were no markings for the boundaries of the pitch, and I did not know the rules as well as some of the boys.
The game soon descended into complete chaos. Some shouted that the ball was in. Others said that it was out. I was not at all sure, so I let things run. Then the fouls started. Some cried, ‘Foul.’ Others said, ‘No foul.’ I did not know who was right. So, I let them play on. Then people began to get hurt. By the time Andy arrived, there were three boys lying ‘injured’ on the ground and all the rest were shouting, mainly at me!
But the moment Andy arrived, he blew his whistle, arranged the teams, told them where the boundaries were and had them under complete control. The boys then enjoyed a great game of football.
Were the boys freer without the rules, or were they in fact less free? Without any effective authority, they could do exactly what they wanted. But people were confused and hurt. They much preferred it when the game was played according to the rules. Then they were free to enjoy the game. The rules of football are not designed to take away the fun of the game. They are designed to enable the game to be enjoyed to the full.”
So many businesses are just like this – semi-organized chaos. No rules, no systems, no order. Just people trying to figure out (each in their own way) how to get things done.
No Systems Make People Sick
In sports, as in the example above, people get physically hurt without boundaries. Do they get hurt in business with no boundaries?
Yes, they do. From added stress, sickness from over-work, anxiety. In-fighting. Blaming people instead of the system.
Without systems, everyone must make it up. Here is a simple example in my own business. I am a real stickler for the details in providing awesome service to our clients. As a virtual business we communicate a lot with emails. Without any Performance Standards (read, systems) each person just adds their own “style.”
Freedom of expression, right? Perhaps…
Our Email System
In our email system we sprinkle “softeners” throughout the email to inject tone in a toneless, flat form of communicating. Words like, “kindly,” as in “would you kindly confirm whether 3pm, Friday works for a quick call…”, “good morning/afternoon/evening”, “thank you”, “I was wondering if you would mind…”.
We do not use abbreviations. Have you ever got an email with a 3-letter abbreviation that you have no idea what they mean? I have…
We do not use loads of “happy faces” – yet one per email acts as a softener.
If I were to remove the names from a few emails in our company, you would have a tough time figuring out who wrote it.
This provides a consistent level of showing we care through that medium. It is a system, complete with Performance Standards.
What Should You Systematize in Your Business?
Start with the things that matter most to your customers and your Team. Think of your Team as a well-oiled machine as in a sports franchise. Give your “players” all the tools, training, coaching they need to perform as the stars they are.
Never blame a person, always blame a “system,” or lack of systems.
And, with great systems, you now have a means to counsel people out of your business, if they refuse to play by your “rules of the game.” Without systems you will never know if people just needed boundaries and training to excel.
People want to naturally do good and excel. They just make it up as best they can. Then bad owners blame them because they did not do it “their way.”
If you want duplication and consistency, give people a system to follow.
If I have a system, doesn’t that mean my people will become bored robots?
If you think that, let me ask you a question – did Wayne Gretsky, arguably the greatest hockey player of all time, operate inside of strict boundaries and rules as a hockey player? And did he display creativity and amazing capabilities inside of these rules?
People excel inside of rules, standards, systems, boundaries, not outside them. It is what makes a country work, a sports game, a community group, and it is what will make your business really soar!
Thanks for reading….
by MHolland | Jan 17, 2024 | Business Tips
A few years ago, I wrote a well received blog on email etiquette. This was pre-Covid. I think the time near the end of Covid restrictions and especially now, post-Covid, the tone of emails has sharply declined.
To be serious about awesome service, it starts with the intricate details. The following is my original blog post, with some edits…
If People in Business Spoke Like They Write Emails
I am a huge advocate for transforming how people write emails in the West.
There seems to be a school of thought that writing nice emails filled with softeners (see further below) are either, (1) an unnecessary, inefficient waste of time, (2) not professional, and (3) only for underlings, not important people.
I do not buy it. Emails are still used more than texts or phone these days, and if people spoke on the phone the way they write emails, it would be rude.
It certainly would not create an aura of awesome service in your company. You have all heard it said, “how you do one thing, is how you do everything.” And we have come to tolerate abrupt emails as if that is acceptable.
Here is an example of a pared-down efficient email I could send to a client:
Attached fs for Dec 23.
~M
Here is it gussied up a wee bit:
John,
Attached fs for Dec 23.
Regards,
Mark
Now, this is the “awesome service” version:
Good morning, John,
I hope you are having a great start to the week…
Please find attached your Financial Statements for December 2023.
Kindly let me know if you have any questions at all.
Thank you John and I am looking forward to talking soon,
Warm regards,
Mark Holland
Its true that it takes a few seconds longer to type the third email. However, how it is received by your customer/client is night and day. And how does it make you feel writing it? For me, it feels uplifting to add softeners.
Kenya versus Canada
My wife and I have spent a lot of time in Kenya, Africa and I have noticed how polite and gracious all the emails are written there in business. They are a bit more formal than what we write in the West yet filled with kind softeners.
Here is an example (real email redacted) from a businessperson in Nairobi:
Dear Mark:
I am grateful for your swift response, and I hope that you have had a good start to the day.
I wish to confirm that I am a full CPA, MBA (finance), and BComm (accounting) with 21 years experience in both the private and non-profit sector…
[the email goes on from there and ends with….]
Looking forward to hearing from you…
[signature]
The reason Kenyan emails are much softer and more gracious has to do with cultural differences. In Africa, relationships are more important than tasks. In the West, we are much more task-focussed and less relationship-centric. However, what about awesome service?
Softeners are Crucial in Email
Softeners are words that add “tone” to emails that are toneless. They are words and phrases like:
- Good morning/afternoon/evening
- Hello (versus “hi”)
- Please
- Thank you
- Kindly
- Warmly
- I was wondering if…
- Would you mind if…
- I hope you had a great weekend/day/holiday
- Welcome back (from your holiday, time off etc.)
- I hope you are feeling better (if they were sick)
Use their name once in while.
Do not use too many emojis (one happy face or two maximum per email).
All the above inject a soft, friendly tone into your emails.
A Way to Create Awesome Service
A lot of businesses talk the talk about awesome service and claim to provide it. Remember this though, awesome service is in the details. It is in the littlest of things.
And how you email, text, and answer the phone in business will be the greatest indicator of how your culture operates.
In fact, in the spirit of “how you do one thing is how you do everything” consider that this will be even more indicative of how your culture is if you email/message/talk on the phone in the same way you would to your external customers to ALL internal Team members, including suppliers.
To train yourself for awesome internal communications, just imagine your clients are listening in on ALL those internal communications.
It Will Transform Your Own Mindset
There is a great side benefit to writing with softeners – you will feel great! It is always what we generate in life that creates how we feel, not how others treat us.
What Not to Do
Regarding awesome email communications there are a few never-do’s:
- Process your emotions in an email or text (especially when upset)
- Say anything that you could regret later
- Use it for negotiations
If upset, get on the phone, or meet in person. My personal rule is – Never email/text when upset. It will not go well! It will go back-and-forth until either the communication is broken or one of you picks up the phone.
How We Got Here
If you look at how people post on Facebook (with exceptions of course), they use a lot of softeners and emotional words. They would never post on Facebook the way they may write curt, unemotional, tone-dead emails.
In my research what I discovered are two schools of thought – (1) my school of thought, where softeners are liberally used to create a message of caring, awesome service, and, (2) the Fortune 100 Executive school of thought, where softeners are seen as weak, and a waste of time.
The rationale for the Fortune 100 School of Email Writing is this – “I am important, and I do not have time to waste with sprinkling softeners throughout my emails. And, frankly, I really could care less what you think of me, or what I am saying” because I am an Executive.
Here is my final bit of advice – be yourself, and if too many softeners seem like a waste of time and inauthentic for you, then try just adding 2-4 words that lift the dry tone of an email.
Start with “please” and “thank you,” and “hello, instead of “hi”” …and see how it goes!
Thank you for reading…
by MHolland | Jan 11, 2024 | Business Tips
To fly a large jetliner a pilot needs more than 3-4 indicators to get you safely to your destination…
You are about to board a flight. It is a large Boeing 747. You glance inside the cockpit. (Okay, okay, imagine it is pre-9/11).
You see the pilot has taped over all the dozens and dozens of gauges, lights, and dials. There are only three he is focused on.
What do you do?
You turn on your heels and rapidly exit the aircraft.
Running a Business is Like Flying a Plane
A business is much like flying an airliner. A businessperson needs more than a few financial indicators.
The challenge with financial indicators (and they are, of course, critically vital) is that they are the measurement of a result. And you cannot change the result; it is too late.
Activities that we measure that have an impact on the result you desire are called Leading Indicators. They are like advance warning signals of things to come. You can take corrective actions to change them, and the results – hopefully – will change.
A Business Example
Now, let us look at a business example….
You have a goal for a certain sales target.
To keep it simple, we will look at four Key Performance Indicators that are Leading Indicators to reach your goal. We will choose one from each of four areas of your business – (1) Finance, (2) Operations, (3) Customers, and (4) Team.
Number One (Finance Area) is repeat business. How often, on average, do your customers come back each month.
Number Two (Operations area) is on-time delivery. This will be a powerful leading indicator of how well you are doing and may impact sales volume.
Number Three (Customer Area) is customer satisfaction as measured by customer surveys after each transaction. If the score is high this will have an impact on the number of referrals you will receive, as well as repeat business.
Number Four (Team Area) are employee satisfaction surveys measured weekly. An unhappy Team may lead to unhappy customers and thus lower sales.
Of course, one of your KPIs is sales, yet this is a Lagging, or results based, KPI. You can stare at your sales figures all day long and yet not know what to do to make them grow. To do that you need to track the key activities that are impacting sales.
How Many KPIs Should You Track?
A paper published in 1956 was called “The Magical Number Seven, Plus or Minus Two” talked about the limitations of the human brain to contain and process more than seven bits of data.
Well, since 1956 we have had Executive/Business Dashboards. We do not need to contain in our head all the business KPIs we may be measuring.
Okay, so what is the “right” number. Current thinking is somewhere between ten and twenty. This is more than the seven as written about in 1956, yet not so many that you cannot make informed decisions to attain your business goals.
Four Main Areas for Your Key Performance Indicators
As mentioned above your business KPIs should be grouped into four main categories – (1) Finance, (2) Customers, (3) Operations, and (4) Learning/Growth (or Team).
About 3-4 per grouping is enough, with a few more in the financial area. You will track both Leading and Lagging Indicators.
Here are some examples you can track:
- Financial
- Sales and Gross Profit by Product Line (tells you what products/product lines are the most profitable)
- Break-Even Sales (total sales required to cover all your fixed costs plus a profit)
- Days to collect receivables on average (measures efficiency of converting sales on credit to cash)
- Cash-Flow (where did cash come from and what was it used for)
- Days in inventory on average (measures how quickly inventory is converted to cash)
- Return on Equity
- Current Ratio (measures liquidity)
- Customers
- Conversion rate (percentage of leads converted to customers)
- Customer satisfaction score (how customers rate you will be a major leading indicator of future results)
- Referral rate (are new customers coming from referrals – the best source for new business)
- Average transactions per customer (repeat business is the lowest cost for new business, as it is existing customers who are coming back to buy more)
- Average sale per customer (the amount people pay on average per sales transaction)
- Operations
- On-time deliveries (leading indicator of future results)
- Error rate for a manufacturer (will cause customer problems, or higher costs per transaction)
- Machine Output per machine (down time will result in lower sales)
- Productivity per Team Member (higher costs per transaction arise when productivity is low)
- Percentage of wages to sales (a leading indicator of possible lower productivity or sales volume issues)
- Team
- Team satisfaction scores (as measured by check out forms done weekly)
- Team turnover
- Education/training costs invested per employee.
- Ranking of Team members by customers
You Get What You Measure
Remember, you get what you measure. If you choose the wrong things, you might get the wrong result.
Here is an example. Let us say you want higher sales. However, your mission statement is to fulfill on what your customers want and maintain them for life.
What you measure is the average sales value per salesperson. And you reward them for their results. Higher average sales mean higher commissions and bonuses.
Your salespeople may end up pushing sales on your customers that work in the short term, yet have the customer feeling used and unappreciated, and they might leave. This obviously works against your Mission Statement.
Attach a Key Performance to a Team Member
Each KPI must be owned by a Team Leader and each person on her/his Team. Holding people accountable for their numbers will make the KPI an active measure, not passively watched by the company with no actions taken.
Here is an example. In the trucking industry it is common to have greater than 100% turnover of truckers.
Wow! Imagine that? How do they cope?
Let us say you have a human resource manager responsible for the truckers in a company that has historically experienced 90% turnover.
You give her a Target KPI of 70% turnover. She will be evaluated and rewarded on her ability to attain this 70% KPI.
What is she now thinking about all the time?
How to motivate her truckers to keep them happy and employed with this company. This consumes her thinking all day. And her actions will line up with things that will make her truckers stay and not want to leave.
Of course, she will have a budget to work with as well. (This is how you manage conflicting motivations, or she could overspend to attain her goal of 70% or less turnover.)
Summary
Think about what your goals are for the next 1-3 years. Create KPIs that will help you define and act on problems before the problem becomes too big or chronic.
Delegate the ownership of those KPIs to individual managers in your company.
Track your results weekly in some cases and monthly for others.
Meet with your Team to discuss the numbers and take corrective action.
Make sure you have many Leading Indicators so that corrective action can be taken quickly.
Thanks for reading…
** This blog is based on the thinking of a book called The Balanced Scorecard by Robert Kaplan and David Norton
by MHolland | Jan 5, 2024 | Selling Tips
These are tough times for small and medium sized businesses…
People have less cash to spend (more money is going to cover basics like food, fuel, and mortgage payments).
Credit for small businesses is either not available or unaffordable with exploding interest rates.
What to do?
Batten down the hatches and trim expenses? Hang on until the wave passes and then come up for air?
How about going the other way? What about investing in soft skills for your team?
Awesome Service Training
Many businesspeople I talk to about investing in soft skill training for their Teams resist it in one of 3 ways:
- They say, “we already do awesome service. We do not need it”.
- They mistakenly do not make the connection between soft skills training and hard-core business results.
- They do not see it as relevant to their business, or their industry.
First, before we get into these three objections, what exactly are soft skills?
Soft skills are training that embed Performance Standards for your Team in the service aspect of your business.
And, every business has a service aspect, even if you sell manufactured goods.
They are things like:
- How many rings before you answer the phone?
- What is the first thing every customer hears/reads when you answer the phone, enter the shop, read an email? Is it consistent, kind, filled with softeners?
Softeners
Soft skills are well named. They are often words, or scripts that soften what is otherwise harsh, cold basic business language.
Even greetings like “good morning, good afternoon, or even hello” can be considered softeners. “By the way”, “I was wondering if…”, “do you mind if a put you on hold?”, “thank you for your patience” are a few other softening phrases.
Even punctuation marks like “…”, or a comma instead of a period can serve as sentence softeners.
Can you feel the difference between these two as an example –
Thank you,
Thank you.
Softeners in speech, emails, and phone calls can act like the honey that sweetens the harsh, cold words of language.
Is it less efficient? Yes.
It takes more time in speaking, writing, and on the phone.
Recently a business associate sent an email to one of my Team members.
It had no hello, no good morning, no greeting, no name, nothing.
It consisted solely of 5 words:
“What the heck is ____?”
This was the first email ever received from this person.
It was more efficient, yes. However, it occurs as a little abrasive and rude.
And this is another mistake people make. It is a big one. They think it is okay to speak rudely to their internal Team and then pour on the sugar for outside customers.
No, no, no.
How you do one thing is how you do everything. Customers will one day overhear rude language to internal Team members. This makes them immediately suspicious of the motives of the company’s external politeness.
Soft Skills Equals Hard Core Results
We all know that soft skills equal hard-core results. We know this is true. How?
Because we as consumers are always shopping with our wallet. Especially when it comes to eating out.
Take two restaurants with the same quality food. One place has awesome, genuinely caring, consistent service from the time you enter to the moment you leave.
The other one may have slightly better food. I would assert that the first place will have more repeat business, a higher average sale, more referrals, and more profit than the second one.
More than any other factor people come back to a business when they feel that you genuinely care for them. To demonstrate that you authentically care for your customers, you must have Performance Standards that consistently show that you do care for them. It cannot be a “once in a while” experience.
Performance Standards in action also must be done for their own end, not to get more sales, or a higher average sale.
Your customers will smell the insincerity.
Awesome service Performance Standards must be done because:
- It is the right thing to do.
- They make you feel great.
- They make your customers feel great (even if they do not come back).
Okay, let us go through the objections people have for implementing soft skills training….
Number One Objection – “We Already Provide Awesome Service. We Do Not Need It”
Does your company have documented Performance Standards for all areas of your business where customers engage with you?
If no, then I would assert that it would be impossible to create consistent wow factors for your business.
Consistency also means that the standards are the same regardless of which Team Member is serving a customer.
They are the same every day in every interaction.
When not, you can create additional Performance Standards for dealing with the break-down in a way that leaves the customer impressed with how you handled it.
Your Performance Standards cover:
- How you respond to emails (timeliness, tone, content, follow-up).
- How you greet customers when they come into your store or shop.
- How clean your store, shop and bathrooms are.
- How you answer the phone, the scripts on the phone, and how you end the call.
- In short, every single what we call “moment of truth” is designed in such a way as to leave your customers feeling cared for, served, even wowed.
Number Two Objection – No Connection Between Soft Skills Training and Hard-Core Business Results
The way to prove that soft skills lead to hard core results is simply to measure the impact over the first quarter after implementing an awesome service skills training. (This should be the first quarter after the results are embedded in your Team).
I would assert that you should see more repeat business, more referrals, and a higher average sale per transaction.
And it is important to measure those three things; however, that is a topic for another blog.
I know of a regional Australian airline that implemented an awesome service phone training a few years ago. In the first year after that training, they saw an increase of $21 million in sales. Pretty hard-core results, wouldn’t you agree?
Number Three Objection – My Business is Special, Unique
Many businesspeople I talk with are victims of magical thinking.
They believe that there is some brilliant, unique formula that will produce great results in their business.
Awesome service Performance Standards just seem too basic, too elementary for their “complex” and unique business.
Yet, I repeat, again – what has you return to a particular restaurant, hotel, shop, online business? Is it solely price? Is it solely the product?
No, it is the before you become a customer experience, it is when you are buying the service or product experience, and it is after the transaction is complete experience – i.e., the follow-up.
Every single business and organization on the planet wrap their product or service in some kind of service delivery mechanism.
Without Performance Standards It will be ad hoc, unplanned, unscripted…which means your customer’s experience will be different every time. It will change depending on the day, the person, the branch. Or even non-existent.
By delivering your product or service inside well trained and consistently applied Awesome Service Performance Standards you will almost be guaranteed of increased sales, repeat business, and higher cash-flow and profits. That is on the condition that your products are very good quality or above standard.
Thank you for reading…
