A man I trust (he has been right so often) predicts we may have about two more fat years. Followed by six lean years.
Fat years? Fat years? Yikes, imagine what the lean years will look like!
These past 19 months have been brutal on businesses. Restaurants. Pubs. Airlines. Travel agents. They have been pummeled.
What is the one thing that people do – most often – when things are going great?
They assume the sun will always shine, and they spend more.
This is the worst thing that any business owner can do when times are rockin’ is to add to their fixed costs.
There are six things you can do to thrive during tough times.
Keep Your Fixed Costs Tight
The first thing to do when times are good is keep fixed costs tight.
Go through all your operating expenses and ask which ones are discretionary versus fixed.
What is the difference between the two? Let me explain…
A discretionary cost is something like advertising. Unless you are locked into advertising contracts you can often turn advertising costs on or off.
Rent as part of a lease is often fixed and cannot be turned on or off.
Some wages may be fixed and some not. If you have long-term employees, it would be difficult to just shut them out without severance pay which could be high.
With all your discretionary costs separated from your fixed costs…
Work Out Your New Break-Even Sales
Take your total fixed costs from above and divide the number by your Gross Margin percentage.
Your Gross Margin percentage is calculated by first subtracting your total Cost of Goods Sold from your total Sales. That number is called your Gross Profit. Divide your Gross Profit by your total Sales to get your Gross Margin %.
Here is an example – your Cost of Goods Sold is $30,000. Your Sales are $50,000. Subtracting $30,000 from $50,000 you get $20,000. When you divide $20,000 by $50,000 you get 40%.
Based on your calculation above you determine your bare bones fixed costs are $60,000.
Taking $60,000 and dividing by 40% you get $150,000. That is what your break-even sales must be.
Next, ask yourself this…
Can I Raise my Prices?
In a tough market you will need to be careful raising prices. Is there something of value you can add? Can you add something that would cost less than the price increase people would be willing to pay?
A price increase – with no loss in sales volume – goes directly to the bottom line.
If price increases are not possible, look to….
Can you bundle together other products or services to increase your average sales per customer?
Can you add services to a product that were never added before? An example here would be installation services for electrical products.
Restaurants during Covid use delivery services, like Skip the Dishes, to maintain sales.
Learn to Live on Less
My friend says we have two lean years left before 6 years of famine. These two fat years are anything but fat for most businesses.
Now is the time to eliminate debt, and save, save, save. Live on less.
Bring Supply Chains in Close if Possible
In the West we have become very depdendent on Asia (China, Korea, Viet Nam, India) for manufacturing.
With supply chains being broken in 2021, ask yourself if you can find a supplier within Canada or the USA. If you manufacture, can you start the process of bringing your manufacturing back to Canada/USA?
Six things to do over the next 2 years:
- Lower your fixed costs
- Know your break-even sales. (This goes down as your fixed costs are lowered)
- Raise prices by adding value
- Bundle services and products to increase your average sale
- Cut personal expenses. Live on less.
- Bring manufacturing home
Thanks for reading…
We have all heard the saying, “what you can measure, you can manage?”. It is over-used to the point of being cliché…
Yet, it is true. The challenge is – what to measure?
Start with this – focus on the activities that produce results.
There are two things we must measure – activities and results.
Activities are real-time, happening now, and controllable.
Results are after-the-fact, past based, and non-controllable.
Wayne Gretzky could not control how many goals he got per game. He could, for the most part, control how many shots he took on goal.
You get the difference.
What are Your Business Activities That Lead to Great Results?
What is your strategic purpose?
To grow you need a pipeline.
Ok, here is a starting point. Measure your referral rate. Do you know what it is?
Here are some interesting facts –
70% of all new business for service-based businesses comes from referrals…
…and clients are responsible for 30-60% of those referrals.
The simple act of asking for referrals can result in a 9% increase in referrals. Wow!
But do you ask?
Who is Making the Referrals and Why?
Once you know this, you can put a system in place to increase it.
How Much do you Currently Spend on Advertising?
Before you spend another dollar on advertising, find out where your customers are coming from.
How much exactly do you spend?
What is your per client cost of acquisition?
A Few More Probing Questions
What do your clients think of you?
What is your attrition rate?
How frequently do your customers come back to do business with you?
How frequently do you write to your clients – particularly just to say thank you?
What is Your Turnaround Time on Sales Calls and Leads?
Here is an interesting study…
A while ago, a company called Performark mailed in thousands of responses to ads for goods and services costing at least $5,000.
You would think the price tag alone would be enough to trigger a quick response!
Hmmmm, well, not really. It took on average 58 days for a response. 25% of enquiries went unanswered.
Only 1 in 8 requests triggered a follow-up sales call. That call came 89 days – on average – after the initial enquiry.
Two More Activities to Measure
How are we creating new customers?
How do we ensure they keep coming back?
Keep this in mind – a 5% increase in customer retention can cause a 25-85% increase in profitability.
Know your acquisition costs per customer/client.
Know where you are getting quality leads from.
Focus and expand on what is working.
Follow up on enquiries fast.
The old adage “what you can measure you can manage” becomes, “measure the right things to get the results you are seeking”.
Lastly, remember this – you cannot control results, only activities…
What activities will you start tracking?
Thanks for reading…
Two weeks ago, I talked about the timing of your sales pipeline. Last week I wrote about your cash conversion cycle…
As a refresher, your Cash Conversion Cycle is the number of days – on average – it takes for you to convert working capital to cash.
You start with the number of days it takes to collect your accounts receivable. Then you add that to the number of days it takes to sell your inventory. Finally, you subtract the number of days you take to pay your vendors.
|Days to collect receivables
|Days to sell inventory
|Less – days to pay vendors
|Cash Conversion Cycle
Quiz – which is better, Business A, or Business B?
Business B. Why? Because it takes only 35 days, compared to 40 days to convert working capital to cash.
How can Business B get even better? By managing inventory better! It is 35 days on average to sell and only 15 days for Business A.
How can Business A improve? By getting paid quicker, and/or paying vendors a bit more slowly. It is taking 40 days to collect its receivables versus 25 for Business B.
Here are 6 ways to increase your cash-flow:
Way # 1 – Order Inventory Later
Inventory is money on the shelf.
I remember touring a warehouse once, years ago, and was shocked to see so many items laying on the floor. Other items were collecting dust. I said, “you know, if those were gold bars, would you treat them like that?”
Ordering the wrong stock too soon is going to tie up your working capital.
Order the wrong stock and you have trouble selling.
Too soon, (before people need or want), and again you have money sitting on a shelf.
An example of “too soon” is buying stock for Christmas in March. That said, if you get a great deal that could be a good business decision.
Inventory management is an art. It is related to three things:
- Timing of purchase
- Ability to re-sell the inventory quickly.
- Availability from suppliers
Way # 2 – Get Deposits from Customers Upfront
I believe Dell Computers had a negative cash conversion cycle because you pay for the computer upfront. Only then do they build/assemble it for you.
When I suggest getting deposits upfront to businesspeople the response is often – “I cannot. My customers will not accept that”.
How do you know? Who sets the terms?
If Michael Dell had asked his customers I am sure they would have said – “we prefer to pay on delivery”.
Michael Dell set the rules and grew a massive global cash-machine as a result.
Way #3 – Get Accurate Invoices Out Fast
The longer it takes for you to issue an invoice the slower the payment. This one needs no explaining, right?
Way #4 – Chase Those Receivables
Once you have sent your invoices – chase them with a system.
We use software that is incredibly friendly, powerful, and consistent. It is fully automated to chase our clients receivables for them.
This shortens the days your receivables are outstanding before becoming cash in the bank.
Way #5 – Only Sell to Credit Worthy Customers
It makes no sense to sell to someone who is a credit risk.
When they do not pay, you have lost more than the receivable.
As I have written about before, you lose the entire Gross Profit on that sale.
A bad debt of $1,000 is not $1,000. Take that and divide by your Gross Profit %.
$1,000/30% = $3,333.33.
To understand the philosophy behind this, please read this blog:
Top 7 Mistakes People Make in Managing Their Accounts Receivable
Way #6 – Take a Wee Bit Longer to Pay Your Payables
If you can, pay a wee bit more slowly.
Big companies and the government are notoriously slow payers to their vendors.
Develop a policy. Too many businesses just pay, well, whenever. The “whenever” is when a vendor screams loudly!
By all means, pay small vendors faster. For bigger ones, certainly pay a couple of days before due. Not sooner. BC Hydro will not need your money early. Pay it close to the due date.
Doing the above 6 things will lower (remember less is more) your cash conversion cycle.
Thanks for reading…
Why do we start a business?
To make money? Is that it? Is that ALL there is? Could there more to it than that?
Make new friendships? Have fun? That sounds a little more “user-friendly”!
Go a bit deeper and look.
Do we want a legacy? Yes? If so, how do we do that?
And what is a legacy? Is it the structures? The people? Or something more intangible?
Everything You See Will Disappear
Take a look at your business. Look at the buildings, offices, computers, the people. Think of the systems, the products you sell, the services rendered. Imagine the computers, the software, your website.
It will all disappear. All of it.
You will be gone. You may leave your great business to your kids or a successor. They will die and be gone. They may leave it to their kids. Ultimately, they, too, will be gone.
This is just the nature of everything we see. It is all created stuff destined to disappear. To fade into the source that it came from.
Take a look at this picture. John, one of my best friends, did it. Beautiful, isn’t it.
And, what a delightful symbol. We all see the water right behind it. The tide will come in and sweep it away. Back from where it came.
That is your business.
Feeling freed up, or despairing?
I hope it frees you a bit from the grip of control we all – as business owners – can have on our businesses. (Or the business controlling us)! We created our businesses and we want to be proud of them. We WANT them to last! To leave a legacy…
But wait, there is one thing that lasts…
I will come to it, keep reading.
There is a style of painting called “Buddha art”. You start with a blank canvas, water, a brush, and evaporating ink.
You draw a beautiful painting. The water evaporates and the canvas turns blank.
Can we hold our businesses so lightly? Creating them as art. Letting them fade and re-create them daily?
How does that image make you feel? Less stressed, I hope…
Saint Theresa of Lisieux
Saint Theresa entered a Convent in France at the age of 15. She died at age 24. She lived a simple life. St. Theresa did not create an order, nor start a business, or a publishing house.
What she did do – and she is a great example for us – is this. She decided to love her fellow Sisters with all her heart. She did every small thing – washing dishes, sweeping the floor, serving others – with love. With love, she transformed a relationship with a grumpy older nun into a loving, caring one.
When people visit the convent, they are absolutely shocked at how small it is. They imagined a large Convent at the center of acres of gardens. No, it was tiny.
What is remarkable about her life is that she wrote so little. She was not ambitious in the physical sense. Yet she touches the hearts of millions through her book, “The Little Way”. She is a Doctor of the Church. One of a small few.
What has this got to do with business?
Legacy. Her legacy lives because she did small things with love.
Are we trying to conquer the world with our stunning acumen, great systems, brilliant competence?
Where is the love? The kindness?
“Our days on earth are like grass; like wildflowers, we bloom and die”.
Your Business Legacy
Your business legacy will be how much you did each act with love.
That is all that will remain. The tide washes the mandala back to sea. The ink disappears on the ink painting. In your business, what remains is the love you put in.
Imagine doing each act, each day, with all your love. How you talk to your team. The way you interact with your clients. An email dripping with softeners and kindnesses.
Build your business with skillful finesse and let that skill overflow with love.
The chances the “things” of your business will last a wee bit longer than the sand mandala above expand in direct proportion to the love poured in.
And who will we all become in the process?
Thanks for reading…
I am almost finished reading an awesome book called Hyper-Focus by Chris Bailey.
Some of what I read I knew already. Keep reading and I will share some cutting edge pointers.
The stats he refers to are incredible. One study was done in situ – meaning live studies on real workers.
(In situ studies are rare. It took them 6 years to get permission, Why? Potential disruptions to the live workers).
They attached monitors to the workers to regulate heart rate for stress. Monitors were added to their computers. This was to see how often people switch from app to app, task to task.
Wanna know how often? Ready for this? Every 40 seconds. The average worker switches every 40 seconds from task to task, app to app.
That is stunning. How does any real, concentrated work ever get done?
Here is another stat. Let us say that you are in a hyper-focused state. You get interrupted. It takes an average of 22 minutes to get back to where you were before the distracting interruption.
You may be wondering what exactly is hyper-focus?
First, you will be working on a project that is challenging. Yet not too complex. It cannot be done habitually.
You will enter a state of flow. An hour whizzes by like 15 minutes. You forget to eat. No distractions (or few) are entering your space. That includes your workspace, your mind, your emotions.
At the end of a session of hyper-focus you feel energized, not tired.
The kicker – you get a LOT done and done well!
Here are my top 3 tips so far…
Number 1 – Buy an App to Stop Distractions from Bombarding You
Your smartphone is not a phone. Consider it is a very annoying computer in your pocket. Annoying because it is harping notifications all day long.
New email. Ding. New text. Ding. New WhatsApp. Ding. New call. Ring-ring-ring.
Ok, you may have turned off notifications and that is one step forward for sure.
I just bought an app/service called Freedom. Good name.
It is designed to stop the addictive pull to check emails, answer the phone, check WhatsApp or social media threads.
There are a few programs like this out there (Cold Turkey, Rescue Time). So far, I like Freedom the best.
What the app does is set up a distraction free environment. It blocks all sites and apps across all your devices (phone, tablet, computer). Or you choose which apps you want blocked.
Then you set the time. I use 90 minutes to enter into a highly productive hyper-space block. You could start with any block, say 30 minutes.
You can block groups of sites. One is news sites. Try to bring up BBC News – blocked. Shopping sites can be blocked. No getting into Amazon when in hyper-focus time.
Outlook can be blocked. Multiple phone apps can be blocked.
Think of it. For 90 minutes – no emails, no texts, no messages. No unconscious checking the news, or Facebook.
Number 2 – Set Intentions
One tip Chris talks about in the book is the Rule of 3.
Focus on only 3 top items/intentions for each day. (The mind cannot hold much more than that!)
(I have practiced this and it works)!
Set your intention(s) for the hyper-focus block you set. This would be something important that forwards your business, life, or work.
As your mind wanders (and it will), keep pulling it back to your stated intention.
Chris talks a lot about Attentional Space. Doing complex, new tasks, or problem solving requires a huge load of brain power.
You cannot multi-task in a hyper-focus state.
By the way, you can multi-task – when it does not require concentration and what you are doing is habitual.
Consider most people can walk, chew gum, and carry on a meaningful conversation at the same time.
Number 3 – Take a Fast from Social Media
Facebook is designed to keep you in a loop. An unproductive, endless loop – feeding you news and ads based on your comments and views.
It craves your attention. And what do you get from it?
Come on, be honest? New, meaningful relationships? Improved, deeper relationships with your Facebook friends? More clients for your business?
Facebook and Twitter – all of these types of software – are black holes. And you are not in control. You may even be addicted.
Take a cleansing, purging bath from social media for 30 days. Too much? Try only using them 30 minutes a day max.
Give it a go.
This book is chock-a-block full of great tips and studies.
By the way, the second one-half of the book is dedicated to scatter focus.
No one can hyper focus ALL the time. You get the most done in Hyper Focus. But you are most creative when in Scatter Focus time.
Here is a link to Amazon for the book:
HyperFocus by Chris Bailey
Increase sales by cold calling? You would rather stick needles in your eyes, right?
Seasoned sales pros hate cold calling. Did you know that? It is true.
They do it because they think it gets sales. And cold calling does work. The problem it that it is a brutal game. Loaded with rejection. Doing it means you have to build up a steely shell and an iron will.
I have done it. Smiled and dialed my way through lists callings hundreds a day. Yes, you read that right – hundreds.
In fact, during that time I was using Skype. Being clever with Excel I discovered I could click a number in a cell, and auto-dial using Skype. I also found out – to my utter shock – that Skype has a “fair use” policy. (Unlimited does NOT mean unlimited). I was calling so many people that I got a very nasty email from Skype. (Thank you Microsoft). It said, in scary legal terms, to “cease and desist”. Or they would ban me from using Skype. Forever. No warnings even!
Ok, that is a story for another day. Today I listened to a fantastic business podcast on cold calling. (I will share link below).
Here are some tips I gleaned:
Tip #1 – Cold Calling is NOT a Numbers Game
Yup. Not a numbers game. Wait a minute. Since the invention of the phone has not this been common knowledge?
Commonly believed does not equal common sense.
Here is the problem. A big list is not a targeted list. You will end up calling a lot of non-qualified leads.
I have bought lists from list brokers. I made the mistake of thinking it was targeted. These bought lists were casting too big a net.
In the podcast the expert, David Walter, says something different. Only call very targeted leads.
Here is the example he gives. The boss tells the sales guy to – “go out and make calls”. They make calls. More calls = more sales.
The boss tells his Executive Assistant: “go get in touch with John’s attorney”. That is what he/she will do.
See the difference? One is shotgun. The other a rifle.
This leads me to…
Tip #2 – You Are Selling to the 80% That Are Happy with What They Have
What? How do you sell to the 80% that are happy with what they have? Makes no sense, right?
If you are like me, I bet you thought you are scouting for the 10% that are unhappy with what they have, correct? (The other 10% are just rude and will hang up on you).
How the heck do you sell to the 80% that are happy?
Because they do not know any other way than the way they do it now.
What you say is (as example) something along these lines –
“I know you are probably very happy with what you have in the area of ______, am I right?”
Then the punchline: “as a businessperson, I bet you like to keep your options open, yes?”
You are looking to set an appointment (or online demo) to show them another way. A way that is better, cheaper, faster, stronger than what they have! (You get the idea).
Tip #3 – Never Leave Voicemail
I did some cold calling the other day. I left some voicemails.
The challenge is – I now have zero control. What are the odds they will call me back? Zip.
What you do is this:
…you call the same targeted person – over and over – until you reach them. Three times a day if needed.
Do not leave voicemail.
There is much more in the podcast than what I wrote above.
In these tough times when you may want to add more sales, try calling the prospects you want as clients.
Take a listen:
Why Cold Calling Goes Wrong
Thanks for reading…