How to Build a Small Business – Marketing & Sales By Ralph Hershberger Smashwords Edition Copyright 2013 Ralph Hershberger Smashwords Edition, License Notes Thank you for downloading this free ebook. Although this is a free book, it remains the copyrighted property of the author, and may not be reproduced, copied and distributed for commercial or non-commercial purposes. If you enjoyed this book, please encourage your friends to download their own copy at Smashwords.com, where they can also discover other works by this author. Thank you for your support. Other books by Ralph Hershberger at www.smashwords.com: How to Build a Small Business: Startup How to Build a Small Business: Management & Strategies The content offers small business owners a collection of brief articles that offer insights and years of experience from a several time start-up and small business owner himself, Ralph Hershberger. Ralph is also a SCORE mentor and the topics cover issues that are frequent questions and concerns of SCORE’s mentoring clients. 1Ralph H. Hershberger is President of Madera Associates, LLC a consulting firm that specializes in alignment of sales, finance, and operations of small businesses. He has held positions in business development, finance, operations, and general management in both the engineered products and construction industries. He has been a key management team member of three startups including Valley Verde Veterinarians, PLLC where he presently serves as Financial Manager. Prior to founding Madera Associates, he was COO/CFO of The Nielsen Wurster Group of Princeton NJ, an engineering consulting firm that provided dispute resolution, risk management, and management consulting services to the global construction industry. Thanks to the foresight of David Wichner, Assistant Business Editor at the Arizona Daily Star, an article on “Biz Tips” appeared in the Business section every Monday on a current topic for small business owners from 2011 to 2013. All of the articles were written by Ralph Hershberger who served as Executive Vice President and President of the Southern Arizona Chapter 0689 of SCORE at that time. Also, thank you to Diane Diamond, VP of Media Relations for the Southern Arizona Chapter, who edited, proofed and formatted these articles into this electronic format. Resources: www.score.org www.southernarizona.score.org www.azstarnet.com www.sba.gov How to Build a Small Business – Marketing & Sales GETTING MORE FROM YOUR MARKETING DOLLAR MANAGING THE SALES & MARKETING ROLES DIFFERENTIATION – THE KEY TO SURVIVAL AND GROWTH HOW TO MANAGE THE PECEPTION V. REALITY CHALLENGE BRANDING – WHY DO IT? FREE MARKETING E-MARKETING HOW TO LEVERAGE THE INTERNET FRAGMENTED MARKETS AE A FACT OF LIFE GET INVOLVED & NETWORKED BUSINESS ENTERTAINMENT –A KEY PART OF YOUR MARKETING EFFORT SALES IS NUNERO UNO DON’T MAKE PRICING THE FIRST DECISION THE PRICING CONUNDRUM CREATIVE WAYS TO INCREASE SALES CONVERTING LEADS INTO SALES REPEAT BUSINESS – THE KEY TO SURVIVAL COPING WITH SUPPLIER PRICE INCREASES GETTING MORE FROM YOUR MARKETING DOLLAR How can a small business generate a boost in sales on a tight marketing budget? Here are two ideas that can make your marketing dollars go further. Since most small businesses generate a large portion of their revenue from local customers, targeted local event advertising and promotion can have a major impact. Event marketing is not new but many small businesses fail to take advantage of it. Here are ways for a local business to get their name in front of new audiences. Sponsor a hole at a local benefit golf tournament. Sponsors are listed in the program and on signage at the tee box. Sponsor an event through the local chamber of commerce. Many chambers hold monthly networking mixers at members’ places of business. It’s a great way to pull people in who never would have come into your location. Sponsor a 5k or 10k race. Many charities use these events to raise awareness and money. Local news coverage offers a secondary bump. Sponsorships are available at any budget level. Although most businesses watch what their competition is doing, few consider learning from other industries or retail sectors. Frequent buyer programs have proven to be immensely popular and effective at generating repeat traffic. They have spread from airlines, to drug stores, office supply retailers, pizza shops, and grocery stores. Is there a way to implement a plan in your business? Bundling products with services reinforces the value proposition to your customers. It is also an effective way to camouflage pricing on individual items and makes it difficult for competition to undercut you. Never underestimate the power of the word NEW. It creates interest and curiosity that makes customers want to learn more. Learn from TV ads that trumpet new packaging, new sizes, or new colors as a way to revitalize older product lines. Other resources: http://www.score.org/resources/score-tip-week-how-cash-summer-events http://www.score.org/resources/4-smart-ways-build-better-customer-relationships http://www.sba.gov/community/blogs/guest-blogs/industry-word/marketing-your-business-withevents http://www.sba.gov/community/blogs/7-tips-starting-successful-customer-loyalty-program MANAGING THE SALES & MARKETING ROLES One of the most frequently asked questions by SCORE clients is the difference between marketing and sales. Since many companies have a VP-Sales & Marketing, this confusion is not surprising. When we teach our Business Planning workshop we make the following distinctions. Marketing is characterized by analyses of potential customers, developing action plans to reach them, and preparing them to buy. It includes identification of target market segments including their profiles, buying preferences, and buying criterion. It involves a systematical study of the buying decision makers, their hot buttons, their ability to pay, and any other dynamics of their purchasing behavior. From this analysis, plans for advertising, publicity, pricing, and product distribution are developed. A sale is the conversion of all the prep work into a transaction. Leads that are generated by the marketing programs are contacted, qualified, and turned into orders. The marketing work has prepared the customer to make a purchase. Sometimes the sale happens immediately but usually there are transactional factors that delay the sale. These could be nuances in the product features, availability and delivery issues, price, or payment issues. The sales function is responsible for identifying these hurdles and overcoming them. Successful sales people know that the best way to reveal customers objections is to use a trial close. Instead of talking around all the issues, ask for the order. The customer will either say yes or explain why they cannot place the order. This gives the sales person the opportunity to modify the proposal so it is acceptable to the customer. Marketing and sales each require different skill sets. Marketers tend to be analytical and quantitative. Sales people are extroverted, relentless, and highly focused on closing. Although it is unusual for one person to be proficient at both, a small business owner must recognize that both functions must be addressed. Consider using consultants to fill the gaps. Other resources: http://www.score.org/resources/rethinking-sales-what-you-can-do-people http://www.score.org/resources/6-top-email-marketing-services-small-business http://www.sba.gov/content/developing-marketing-plan DIFFERENTIATION – THE KEY TO SURVIVAL AND GROWTH A simple definition of market differentiation is a unique product or service. A more useful definition is a product or service that embodies unique traits, characteristics, or customer emotions. Most new SCORE clients think about their business in terms of a functional product rather than what makes their product different from all the other similar establishments. Our mentors work with them to evaluate their products from a different perspective. Differentiation creates a legal monopoly. All monopolies, legal or otherwise, can exercise substantial pricing power and that’s what a small business needs to survive. Legal monopolies, such as luxury goods, command higher prices and margins because the buyer perceives there is nothing else like it or it has a unique set of attributes that they want. Price becomes secondary. Maintaining a differentiated product is an ongoing battle. It is a fact that all products eventually trend toward becoming a commodity. Imported knock-offs cut into the market, me-too competitors emerge, and technology patents eventually expire. Once a product becomes a commodity i.e. just like every other competitor’s product, you are trapped in a price war. Generic drugs are a perfect example. Small businesses normally cannot survive a price war. Even if you have a relatively mundane product, it can and must be differentiated. It will lead to more business and better margins. Other resources: http://www.score.org/resources/differentiation-what-it-and-how-do-we-do-it http://www.sba.gov/community/blogs/5-tips-using-differentiators-increase-your-small-businesssales HOW TO MANAGE THE PECEPTION versus REALITY CHALLENGE Perception v. reality. This observation is used to explain all types of irrational and inconsistent behavior. Since it is human nature to believe the worst, negative perceptions can be especially sticky and difficult to diffuse. Negative perceptions can seriously harm a company’s revenue line by undermining a product’s brand. For example, product recalls can cripple a product’s quality image (think Toyota). Unresponsive customer service drives customers away. A satisfied customer will refer you to a friend. An unsatisfied customer will tell ten people. An experienced business person knows that measuring lost sales is an extremely difficult task. What steps can be taken to reverse negative perceptions? Identify and acknowledge the problem. What are the facts and their source? Internal group dynamics tend to discount any outside threat. Perception issues must be taken seriously. Attack the problem head-on. This requires a two pronged strategy of correcting the operational issues and then developing a communications plan to broadcast a positive message to your marketplace. Adopt aggressive marketing tactics to attract customers to return. Most people are willing to give an offender a second chance provided they are convinced they won’t be burned again. A sincere apology and a discount coupon or other material incentive usually works. Provide updates concerning the situation. Honest testimonials from satisfied customers are an effective way to keep customers in the know, that the problem was taken seriously, and was corrected. If your product or service market is large enough to support a third party survey, use it to monitor your progress. Perception reversals take time and the corrective actions may generate uneven results. Make the changes, stay the course, and learn from your mistakes. Other resources: http://www.score.org/resources/protect-your-online-reputation http://www.sba.gov/community/blogs/3-simple-ways-improve-customer-satisfaction-today BRANDING – WHY DO IT? What comes to mind when someone says McDonalds®, Nike®, or Coca-Cola®? It’s an immediate vision of a product and an expected level of satisfaction based on its attributes, both positive and negative. The advantage of branding is that it generates initial trial purchases and reinforces repeat purchases. Large consumer brands spend millions to establish these images but branding extends to industrial products and services – think Caterpillar®, Boeing®, or H&R Block®. Branding works for small businesses too. A reputation is a form of branding. Are you a high price, high quality, specialty product business or a moderately priced, acceptable quality supplier? Your customers will quickly recognize where you are on the value scale. The first step in developing your brand is to understand your potential customers and the benefits they expect from using your product. Do they want a utilitarian product that satisfies a function or do they want a complete purchasing experience that includes wide selection, competitive pricing, and attentive customer service. A strong brand creates sales momentum and enables you to focus on other elements such as adding new products or services. If your brand is strong, customers will assume the positive attributes of your current products extend to your new ones thereby increasing the odds of a successful introduction. Other resources: http://www.score.org/resources/12-tips-naming-business-brand-or-product http://www.sba.gov/community/blogs/difference-between-trade-name-and-trademark%E2%80%93-and-why-you-can%E2%80%99t-overlook-either FREE MARKETING When money gets tight, marketing budgets are typically one of the first expenses that are cut. Start-ups and small businesses face a similar situation of limited funds. How can a business continue to generate leads and maintain its market visibility if its traditional ad budgets are cut? The answer is to shift the proportion of your budget spent on high cost items to lower or no cost options. Remember that the purpose of any marketing message is to make the customer aware of you product, generate interest, and conclude with a call to action. Examples of lower or no cost marketing tactics are: Submit articles to trade journals or local special interest publications. Editors are always looking for fresh content. This option is extremely effective for technical business-to-business marketing. It establishes the author and the company as the “go to” source. Event marketing. Sponsoring local events such as 5K races or a market fair get your name in front of hundreds of people. This technique is effective for consumer products or services marketed to a broad customer base. Sponsor educational seminars. The advantage of this effort is that the attendees are pre-qualified i.e. they come because they are interested in learning more and are close to a buying decision. Websites. The leverage of the Internet cannot be ignored. Your website does not have to be interactive - it can simply be informational. Traditional print media. Many newspapers and magazines offer customized advertising programs that enable you to keep a presence for a minimal expenditure. The key is to select those options that are most likely to reach your target market. Other resources: http://www.score.org/resources/17-cheap-or-free-marketing-ideas http://www.sba.gov/community/blogs/free-sources-market-data-plus-tips-using-data-businessplanning E-MARKETING E-marketing is one of the most popular subjects that SCORE clients ask about. E-marketing is cited as a way to establish and foster closer relationships with customers. E-marketing is a broad term that includes web pages, social media such as, Facebook, Twitter, Yelp, as well as apps and interactive messaging. Each is a unique tool and not every business needs to use all of them. There are several reasons that you should learn about these tools. The next generation of buyers uses and trusts the content on these tools more than TV or print ads. Much of the content on the networks comes from friends that have instant credibility. The leverage is phenomenal. One well-written communication can be sent to hundreds of clients. If you have a national presence, the reach is in the tens of thousands. Compared to any other form of marketing (print ads, direct mail, TV spots, or coupons) the cost per contact is minimal. The choice of which e-marketing tools to use is determined by your basic marketing targets and messages. Does your target market consist of older people who may not possess the latest smart phone? Do you have the resources to maintain an active web site – one that requires daily monitoring and responses to inquiries? Many small firms have found that it makes sense to use a consultant to guide you through the options and to determine what E-tools are right for you. Other resources: http://www.score.org/resources/create-website-your-business http://www.score.org/resources/it-time-create-app-your-business http://www.sba.gov/community/blogs/how-craft-social-media-policy-your-small-business HOW TO LEVERAGE THE INTERNET It’s hard to imagine a time without the Internet. From its beginnings as a government funded program in the 1960’s to its commercialization in the early 1990’s, it is estimated that 2.4 billion people, a third of the world’s population, have used the Internet. It is a network of networks that consists of millions of private, public, academic, business, and government networks. Its popularity can be explained by its vast scope and ease of use. The primary reason that retail consumers use the Internet is that it empowers them – it enables them to learn about products, perform their own competitive analyses, price shop, and order with incredible speed, all within the comfort of their home and on their own schedule. Businesses have found it to be an indispensable tool to tap into new markets and generate fresh sales from existing ones. All businesses should have an Internet presence (website) but not all businesses need the same type of website. Some businesses need only an informational site because their product or service must be experienced on site e.g. a doctor or dentist. Interactive sites convey information resulting in a call to action – an order or a reservation. These sites require constant monitoring. It is a two-edge sword – instant access creates an expectation of instant gratification. When developing a website, think about the overall content and message that you want it to convey. Look at your competitors’ sites and see what works and what doesn’t. Ease of use is critical as well as the overall visual impact. Once these issues are resolved, hire a consultant to develop the design, write code, and to secure the proper Internet Protocol address and Domain name. Like any technology the Internet has its own semantics and protocols that are best left to the professionals. The Internet is another tactical marketing tool so the content must be consistent with the rest of your marketing message. Track your customers’ response to the website relative to your other marketing efforts such as advertising, print media, and direct sales effort and adjust your budgets as needed. One final note - despite the popularity of the Internet, print catalogs and advertising are still extremely relevant. Many customers prefer to learn about products this way and then order via the Internet. As with most things in consumer marketing, one size does not fit all. Other resources: http://www.sba.gov/content/start-online-business http://www.score.org/resources/building-your-own-small-business-website FRAGMENTED MARKETS ARE A FACT OF LIFE Many SCORE clients start their business planning with one type of potential customer in mind. This mindset severely limits their upside and in some cases decreases their chances of success. Countless examples exist that illustrate that the typical customer is a myth and a business that fails to recognize this is missing potential customers. Fragmentation is a term used by business planners and marketers to describe how markets evolve from a single product or customer to a multitude of options. A simple example is the auto industry. Henry Ford said that the customer could have any color as long as it was black. Back then, cars were a novelty and Ford offered affordability and dependability. Nothing else was necessary to dominate the market Fast forward to the 1960’s when the highest volume selling car model was the full-size Chevrolet with over a million units sold annually. By the mid-1980’s it was the Honda Accord, with around 350,000 units in a growing market. What happened? Competitive forces persuaded car companies to recognize that one size did not fit all. Soon there were 4x4’s, SUV’s, vans, minivans, mini-cars, and cross-overs in addition to the standard family sedan – all available in a rainbow of colors. Business managers must rethink their businesses from the customers’ perspective, not their own. Not only do different customers want different things (product and features) but they purchase using different distribution channels such as retail walk-in, catalogs, Internet, e-bay etc. A business with just a store front misses all the other traffic. Some retail customers buy multiple versions of the same thing (clothes) with the intention that some items will be returned. A flexible, no hassle return policy is very important to them. Retailers of larger tickets items such as furniture and cars know that it’s not the total price but the monthly payment that hooks customers. They offer attractive financing such as “no money down - no payment until January 1, 2016”. Competition demands that businesses examine their marketplace image and anticipate customer demands. The fact is that options create a demand for more options -- the beast must be fed. Businesses that fail to change will appear stodgy, dated, and fail to attract new customers. Other resources: http://www.score.org/resources/14-ways-market-new-product-or-service GET INVOLVED & NETWORKED One challenge that affects all business owners and senior management is isolation. Who can they talk with about strategic issues, best practices, and competitive activities? One option is to use a consultant who is a specialist in the field or who is well known through your industry. Here are two other less expensive choices: Join a non-profit group. Besides performing valuable work and feeling good about it, you will meet a very different circle of people, make new contacts, and expand your professional network. There are dozens of volunteer groups in Tucson and it is not difficult to find one that matches your interests outside of work. Animal shelters, arts and theatre groups, historical preservation teams, and social support agencies are all well represented in Southern Arizona. Network Constantly. Networking is not new. Chambers of Commerce have existed for decades but in past several years several specialized networking groups have appeared. They meet regularly to discuss problems common to their members such as the impact of legislation or changes in pension laws. A good place to start to find a group is with your local Chamber, trade or professional association. Other resources: http://www.volunteermatch.org/ http://www.usa.gov/directory/tradeassc/index.shtml http://www.asaecenter.org/Community/Directories/AssociationSearch.cfm http://www.chamberofcommerce.com/ BUSINESS ENTERTAINMENT –A KEY PART OF YOUR MARKETING EFFORT Firms that rely on repeat business know the importance of building strong relationships with their customers. The reasons are simple -- it reduces the risk and increases the predictability of each transaction. The customer’s expectations have a higher probability of being met. Business entertainment is a legal and accepted practice to build a supplier-customer relationship. Although the IRS has reduced the allowable deduction to 50%, it still is money well spent. And it is not just for large businesses. Every supplier must compete for a customer’s “mind-share”. Targeted entertainment enables the supplier to spend uninterrupted time with a client and can leave a lasting positive impression. It also relaxes the seller-buyer dynamic so that difficult issues can be resolved amicably. Lunches, dinners, and golf are several traditional forms of entertainment but not everyone has the time during a work day for lunch and not everyone plays golf. Some forms of targeted entertainment that any small business can use are: Tickets to a special event e.g. theatre or marquis sports event. Tickets to an event that the client’s spouse or children enjoy. Hunting and fishing excursions. Small gifts at Christmas. Be sure to check with the company’s policies on gift giving and receiving. Any token item that recognizes the special hobby or interest of the client. Donations to the client’s favorite charity. A tennis or birding outing. Be creative. The better you know your client, the better you can select just the right form of entertainment connects with them and solidifies your relationship. Other resources: http://www.score.org/resources/keep-your-customers-coming-back http://www.sba.gov/about-offices-content/2/3145/success-stories SALES IS NUNERO UNO What is the most important element in a business? Products, services, store location? All are important but without sales, none of the above matter. Many of the clients who ask SCORE for advice have excellent ideas for unique products or services but have given little thought to how to generate sales. Without sales, production, accounting, purchasing, and management will not get a chance to perform their jobs for very long before the cash runs out. Most startup forecasts over-estimate sales (revenue) and fail to examine the impact of revenue shortfalls. Generating sales starts before a business opens. How will potential customers learn about your business? Advertisements, grand opening coverage, coupons, free samples, event publicity, and Internet sites such as www.groupon.com are proven methods to reach your potential customers. Each program has a cost and the results must be measured for effectiveness. Trial and error is common. Keep adjusting the mix, measuring the results, and changing your marketing budget. Once you get the first sale, think about how to make that customer want to come back again. Sales from existing customers are the life blood of any businesses. Other resources: http://www.score.org/resources/sales-basics-beginners http://www.score.org/resources/keep-your-customers-coming-back DON’T MAKE PRICING THE FIRST DECISION Pricing decisions are one of the riskiest tasks for any business. It is a major determinant for volume which in turn defines the revenue and without sufficient revenue, a business ceases to exist. Pricing is a logical consequence of your operations, financial, and marketing plans. How can one determine a price if a target market has not been identified and its needs addressed in your operations? How can a price be set without a full understanding of your direct and indirect costs? Here are some examples of how different business strategies lead to different pricing decisions. A production company that emphasizes short-lead times and rapid response to emergency orders can charge more because the cost of not having your product exceeds the price premium. Custom designed products that support an end customer’s strategy command a higher price because they help the end customer differentiate their product in their market. A service company develops a time-saving product that enables their customers to accomplish more in a day. Value sensitive customers will recognize this as a productivity gain and pay for it. A specialty retail store carries items that cannot be found anywhere else. Some market segments prefer exclusivity and will pay for it. The examples above demonstrate that successful pricing requires a deep understanding on how the end-customer values your product or service. If you know this dynamic, you have eliminated a large portion of the pricing risk in your strategy. Other resources: http://www.score.org/resources/10-questions-ask-yourself-when-selecting-your-target-market http://www.score.org/resources/target-practice-identifying-group-people-are-your-real-buyers THE PRICING CONUNDRUM Pricing is one of the most misunderstood elements in the business world, especially among small businesses. A common trap is that price the most important thing in a transaction. Globalization and the Internet have enabled price information to be more accessible to more customers so it’s easy to assume that it is the buyer’s dominant consideration. Real world experience suggests it is not. What is the correct price? It’s one that reinforces all of the other elements of the product – the performance benefits, quality, service, and overall owner satisfaction. Price means different things to different market segments. Repeat business is a common characteristic of B2B (business to business) transactions. Of course price is important but it is usually the last thing that is considered after reliability of delivery, quality, and access to new products. Only after these needs are satisfied does price enter the equation, but with a twist. Low price is desirable but price predictability is more important. For any business that lives by its forecast, price volatility is fatal. That’s why most large company requirements are handled via annual purchase contacts that are quantity and price specific. Similar examples of the “low price is not everything” behavior exist in the consumer market. The car market is a complex market with dozens of models and price points. If low price was the only factor, the luxury car segment would not exist. Even Wal-Mart, known for its low prices, is not just about price. The real power of its business model is that it offers known, branded products at low prices. Branded products have already answered the buyers’ concerns about quality, styles, and reliability so the only remaining factor is price. Still skeptical? Think about the last item that you purchased. Would a low price make up for no stock or poor quality? Evaluate your pricing from a holistic point of view – price is just one piece of a multi-faceted business plan. Other resources: http://www.score.org/resources/differentiation-what-it-and-how-do-we-do-it http://www.score.org/resources/expertanswers/pricing-strategies-small-business http://www.score.org/resources/contracts CREATIVE WAYS TO INCREASE SALES When customers cut back on discretionary purchases, many service and retail business fall victim to this change. Yet some businesses manage to grow during difficult times. How do they do it? The key is to change the way you and your customers look at your business. You must rebrand your company and its products. Although sales and rebates are time honored ways to generate sales traffic, they reduce margins, create expectations for future discounts, and are easy for competitors to duplicate. Consider the following ways to rebrand your business around creating better value for your customers. Develop a line of value products with fewer features and lower prices. Multiple product lines with different features and price points maintain margins. Institute a frequent buyers program. Offer extended guarantees. Introduce no-questions asked return policy. Expand your service department – increase your hours or expand your parts inventory. Introduce a service that is a time saver for your customers. Offer free delivery. Offer extended payment terms. Promote gift card purchases. These tactics differentiate your product or service from the competition and don’t cost much. Any element added to your business profile that differentiates yourself from the competition reinforces the value theme and helps avoid a price war. Other resources: http://www.sba.gov/community/blogs/community-blogs/small-business-cents/how-takeadvantage-gift-card-market http://www.score.org/resources/score-tip-week-your-business%E2%80%99s-brand-stillworking-you CONVERTING LEADS INTO SALES Most leads never result in a sale. The challenge is to improve your success rate. All sales transactions share common dynamics – understanding the customer’s needs and closing the sale. This is true for big tickets items such as cars and houses, business to business purchases, and services. Successful sales are the result of a total engagement of the customer by a sales person. It is the responsibility of the sales person to understand what is driving the customer’s initial interest. Good sales people know that asking questions is the key to closing the sale. Professional sales people always ask for the order known as a trial close. A trial close normally results in a series of objections, most of which can be overcome. Typical objections are wrong size, wrong color, too many or too few features or benefits. Some objections are merely proxies for price i.e. the customer is too embarrassed to say the item is out of their budget. A good sales person knows how to offer an alternative or combinations of alternatives to calibrate which objections are deal breakers. One common technique to test the price objection is to ask, “If it were free, would you take it?” This question isolates the products’ benefits from its price. Depending on the product or service the individual factors may change but in the end, all sales come down to the customer’s value judgment – does this product meet my needs and does the price reflect a good overall value. If you can reach agreement on this question, you will close the sale. Other resources: http://www.score.org/resources/5-steps-turn-leads-sales http://www.score.org/resources/6-killer-tools-boost-sales-2012 http://www.score.org/resources/how-sales-techniques-work REPEAT BUSINESS – THE KEY TO SURVIVAL Many businesses realize that cost-cutting is not enough to improve profits. In the end the top line has to grow. The obvious place to look for additional business is your current customers. Numerous studies have shown that keeping an existing customer costs less than finding and landing a new customer. The process to capture a new customer is much more involved than selling to an existing account. Most successful businesses enjoy a high percentage of repeat business. This is true for businessto-business (B2B) and business-to-consumer (B2C) environments. Many B2B transactions are not just the same customers but for the same products. Industrial commodities are a common example. Repeat customers are vital for B2C who also need a steady base of revenue. Think of all the coupons you receive from your favorite retailers. Developing repeat business is about creating a competitive, dependable, and risk free experience with each transaction. PDQ – Price, Delivery and Quality - still drives most B2B transactions. The B2C retail sales experience frequently includes added or unique products (think clothes or food), easy return policies, and a warm, hassle free shopping experience. How do you know what to offer? Why not ask your customers, especially the ones that you want to return. Most customers are not bashful about sharing their views on how to run your business. Fix the problems and reinforce the positives. And don’t be afraid to experiment and reconfigure. Your market is not static and neither should you be. Other resources: http://www.score.org/resources/5-strategies-keeping-strong-relationships-during-transitions http://www.sba.gov/community/blogs/3-simple-ways-improve-customer-satisfaction-today COPING WITH SUPPLIER PRICE INCREASES An improving economy means increased revenues. That’s the good news. The bad news is that suppliers will start to increase prices. Severe recessions cause supply contractions as businesses reduce their workforce and shutter capacity. As demand increases companies seize the opportunity to recapture lost profits by raising prices. Given the slim profit margins under which many businesses operate, small cost changes can decimate the bottom line. It’s an endless cycle that requires vigilant monitoring. Businesses have several options to mitigate the impact of price increases. Their success will, most likely, depend on not just one tactic but a combination of several actions. The most common techniques are: Pass on the cost increases incrementally via smaller, more frequent adjustments. Announce broad based surcharges that can be linked directly to one cost driver. This technique is common in manufacturing entities that purchase commodities such as agricultural products or precious metals. Negotiate a smaller price increase by committing to a longer contract term or increased base volume. Offer to increase a supplier’s share of your projected demand or Bring on a new supplier who is willing to offer better pricing to gain access to your business. Investigate commodity or financial hedging. Conventional hedging (not speculating) limits and delays exposure to rising prices and currency fluctuations. Provided there is no decline in quality, consider substitution of less expensive inputs. Refuse to pay the increase. This tactic is used in tandem with one of the other options i.e. you should have another supplier option in place. Each of these options requires prior research, development, or testing before they can be activated. Product and supplier changes are always risky and the downside can be worse than the cost increase. It’s not too late to develop these contingency plans. Even if they are not used this time around, they will be available for the next cycle. Other resources: http://www.score.org/resources/expertanswers/pricing-strategies-small-business http://www.score.org/resources/10-ways-entrepreneurs-can-reduce-their-supplier-costs ### Contact any of the almost 400 SCORE Chapters in the United States for free mentoring sessions with certified SCORE mentors and free or low-priced small business information and education. The author, Ralph Hershberger, is a member of the SCORE Southern Arizona Chapter #0689. http://www.southernarizona.score.org https://www.facebook.com/SCOREsouthernarizona?ref=hl [email protected] 520-505-3636