4 Unusual Economic Indicators For The Small Business Owner

July 27, 2010

by Doug Smith, President, The Woodhaven Group

Oh, if we could only predict the future!

Every business owner or CEO has certain indicators they use to get a “read” on how their company is performing.  Based upon what those indicators tell the owner, he will adjust strategy going forward.  Business cash flow, profit and net worth depend on the owner making the correct decisions.  I have found most owners do a good job of reacting and making the necessary adjustments.

Unfortunately, all businesses are impacted by changes in the economy over which there is no control.

Should an owner invest in a new product line, open a new branch or cut back overhead in anticipation of rocky economic headwinds?  Those are tough decisions to make.

There are plenty of economic indicators released by the government such as housing starts, consumer price index, unemployment rates, consumer confidence index, and on and on.

They are all important to consider but, sometimes, there is information overload.  Compounding the confusion is when the government “restates” an economic indicator after it is released.

I have tended to include a few indicators of my own that I layer into my decision-making.  I will be the first to say they are not perfect and I do not look at them only in making a final decision, but these indicators do represent dollars spent that are impacting the economy one way or the other.

Here they are:

  1. Freight volumes for truckload carriers.  About 2/3 of the freight in the US economy moves by trucks.  This can be an indicator of inventory levels, consumer spending, manufacturing activity, and overall condition of the economy.  Lots of trucks on the highways is a good thing!
  2. UPS and FedEx shipments.  If the economy is tanking then  overnight shipments of almost anything will drop.  A month to month upward trend from these 2 companies is an indicator things are improving.
  3. Airline travel.  If overall airline travel is increasing that means business people are travelling to sell and close deals.  Even in the era of video conferencing, there is still no substitute for face to face meetings.
  4. Hotel vacancies.  Similar to air travel, hotels operating near capacity can be an indicator of more business occurring, more families vacationing and a bump up in conventions and conferences being attended. 

In my opinion, these 4 indicators are a reflection of how the economy is doing.  A downward trend for a number of months in each would probably cause me to think twice before charging ahead with expansion plans.

I would be interested to hear if you have your own unusual economic indicators that you follow.

Calculate Revenue Per Employee To Increase Productivity And Cash Flow

July 22, 2010

by Doug Smith, President, The Woodhaven Group

If your company is increasing productivity then chances are the cash flow  of your business is also improving.

That is a good thing.

But how do you know if the productivity of your business is showing improvement?

Is there a quick easy way for an owner or CEO to know if the efforts to improve productivity compared to other businesses is working?

Yes there is.  One quick metric that will give the owner a snapshot is Revenue per Employee.  It is simply total revenue or sales divided by the number of employees.  If your company can increase sales while staying at the same employee level then it tells you that  the combined efforts of all employees is having a positive impact on sales growth and probably on cash flow.

Industries differ in the Revenue per Employee calculation that is reported.  Software companies and oil companies can have a high Revenue per Employee while retailers may show a smaller Revenue per Employee.  J. Bryan Scott showed an interesting table right here of 100 companies and their Revenue per Employee totals.

For the owner, it is critical that you define what an employee is.  I have always liked to use full-time equivalents (FTE).  For example, 2 part-time 20 hour employees equal 1 full-time 40 hour employee.  I would define how many hours is a FTE and divide that into total hours  worked.  That is my number of employees.  I take the sales total and divide by the number of employees to get my Revenue per Employee.  Retailers are often a good example of why FTE needs to be used.  Some retailers choose to employ primarily part-time employees while others choose to employ primarily full-time.  Wal Mart probably has a low Revenue per Employee number if they don’t calculate using FTE.

The other caveat is to recognize when comparing to other companies that they may have a high percentage of their work done by outside contractors who are not employees.  As a result, the company will appear very productive because there would be a high Revenue per Employee reported.  I would imagine Microsoft and oil companies like BP or Shell that use a lot of outside contractors will have high Revenue per Employee calculations.  

When it is all said and done, the truest measurement of productivity using Revenue per Employee is to track the trend in your own company.  Is Revenue per Employee going up or down?  Take the best year of sales and profitability in the history of your company and use that year’s Revenue per Employee calculation as a baseline to compare to.  If I had a bad 2nd quarter, I would want to compare the Revenue per Employee back against that baseline year.  Then I would take action to get to my baseline for the next quarter.

If you have an industry association where everyone computes Revenue per Employee the same way, then that becomes a great way to measure how productive your company is.

As an annual goal for my company, I would always challenge my management team with an aggressive improvement in Revenue per Employee.  I know that if I hit the goal then I probably had a great year from a sales, profit and cash flow standpoint.

I would be interested to know if your company has had success using Revenue per Employee as a productivity calculation.

Use This Easy And Proven Tip To Supercharge Sales

July 19, 2010

by Doug Smith, President, The Woodhaven Group

Are you a retailer?  Worried about whether you will  have enough cash flow from your business to buy inventory for the all important Christmas season?

Do this now with the fall merchandise coming into your stores and create the cash needed for fourth quarter. 

Hold a one day private pre-season Fall sale.

Follow these proven tips to make it a huge success:

  1. Send out a personalized letter only to your customer’s announcing that the sale will be for one day only.  Do not extend beyond this one day.  It creates a sense of urgency.
  2. Discount 40% on any merchandise purchased on this one day only.  This will especially work if you are a retailer that does not have your inventory on sale 24/7.
  3. Include in the letter a coupon at the bottom that must physically be presented at the time of purchase.
  4. Do not email this announcement.  Sometimes it is better to get something in hand that has to be brought to the store.  Save the online coupons for another time.
  5. If you sell apparel, offer free alterations for anything bought on this one day only.
  6. Personally sign the letter with your direct phone number listed.  Advise them that if they are going to be out-of-town that day to call and you will ring up the sale for them.
  7. No holds for a later decision.  At the end of this day the sale is over.
  8. Have all sales staff call their personal accounts and set an appointment to meet their customers in the store. Again, this creates a sense of urgency and shows that the sales staff cares about their customers.   
  9. Make the day a major in store event.  Maybe have wine, appetizers, live music. You get the idea.   

This sale can turn into an annual event that only you and your regular customers will know about.  It’s your own little secret. About the third year you do this event you will see some customers taking a vacation day from work just to be there early when the doors open.

A side benefit will be that you can get an early read on what  styles, colors, and fabrics the shopper is really going to be interested in for this fall and holiday season.  Now you have direction on what to buy for November delivery.

Also, don’t be surprised when your customer comes back  the week after the sale and pays full price for that item she chose not to buy the day of the sale.

Oh!……and one other benefit.  You have just supercharged your cash flow early in the shopping season.

Use Google TV Ads To Build Brand And Increase Cash Flow

July 16, 2010

by Doug Smith, President, The Woodhaven Group

As a small business owner or CEO you do not have the luxury of wasting the cash flow of your business while trying to build your company’s brand and increase sales.

One of the quickest ways to blow cash and profit is to invest too many dollars in the wrong marketing channels.

Most business owners have been turned off by TV because of the big ongoing expense and long lead time to produce and schedule a spot.  However, the biggest complaint I have always heard is the inability to truly measure the results of a specific TV spot.

Most small businesses that have included the Internet as part of a well executed  integrated marketing strategy  know about Google’s successful AdWords program.  What you may not realize is that for about the last 2 years Google has been incorporating the mechanics of the AdWords program into purchasing TV spots.

As a small business owner you can find programs on Cable TV and bid on specific spots on those shows.  By using keywords similar to those used in AdWords Campaigns, your company can target programs and times that work best for your marketing strategy.  Best of all, you can measure the results afterwards.

To find out more go to Google TV Ads here.

Successful marketing is all about testing concepts, measuring results, making adjustments and testing again.

Whether you want to build brand or develop a top-notch direct response program, I suggest your company test Google TV ads.

Leverage your knowledge and experience with Google AdWords to become more productive with your TV budget.

10 Creative Ideas To Increase Sales Now!

July 13, 2010

by Doug Smith, President, The Woodhaven Group

As a business owner or CEO you must create and maintain positive cash flow in your business.  It is your #1 priority.

Let’s be clear where that cash flow is not going to come from.  The amount of loans to small businesses fell in the 1rst quarter of 2010 compared to 2 years earlier.  Banks and other private lenders are being more choosy about who is getting any type of small business loan.  Regardless of good cash flow projections and collateral, some businesses still are not receiving the lines of credit needed to operate their businesses.

As an owner, I would not automatically assume funds will be available from my local lender.      

There is one solution that will work.  The small business owner must find ways to increase sales.  The smart owner has already cut expenses, gotten extended terms from suppliers and probably tapped into personal investments.  More sales will bring more of the business cash flow your company needs to survive and grow.

Your company will need to do creative and unique tactics to spring loose the purse strings of the consumer or business who is your customer.

Start doing these 10 things today to increase sales:

  1. Learn more about the needs and wants of your customer.  Find better solutions to their problems and market to that.  In one word, “listen” to the individual customer more than before.  You may find that there is a whole category of products or services your company should have been selling to him that will increase your sales.
  2. Monitor and use social media.  There are many ways to use social media to generate sales.  The overriding method is to use social media to build relationships with customers and noncustomers.  Monitor for  complaints about competitors and offer a solution.  Monitor for complaints about your own company and be there to take ownership of the problem.  Incorporate surveys, contests, and links to websites, including your own.  All of this can position your company as a credible source of information. The end result will be an opportunity to create a new customer.
  3. Use email marketing to strengthen customer relationships.  This is not an opportunity to just email blast special offers constantly.  Instead, use emails to target a message about the benefits of your product, new information on your industry, an interview with a local business leader or an update on coming events involving your company.  Email marketing is an inexpensive way to stay in touch with your customer.  A call to action can still be included to trigger additional purchases.
  4. Get lapsed customers reinstated.  If you sell to other businesses then call on the company.  If you sell to consumers then send a personalized letter to each customer with a special coupon.  Don’t let them forget about you.
  5. Offer extended terms.  Help your customer finance the purchase.  Chances are your customer needs your product.  Here is a way to show that you are there to help them.  Instead of normal 30 day terms, extend out to 60 or 90 days.  Of course, make sure this offer is to creditworthy customers.
  6. Offer an unusual promotion.  Check the gross margin of your most popular products and offer something different to pry loose the spending of your prospect.  It may be a discount, a free service with purchase or a bundling of products.
  7. Run a 3 day limited promotion.  Make it unadvertised and exclusive to your customer database.  Communicate this with an email and followup contact by phone or in person.
  8. Offer a special after hours private shopping event.  If you are a retailer, tie in with a local not for profit and include their database in the invitation list.  Have a portion of the proceeds go to the charity.  Include wine, music, and giveaways at the event.  This could easily be held on a Saturday or Sunday evening.
  9. Create a white paper.  Your prospects and customers are probably having cash flow issues also.  Offer tips on how to save cash.  This will work for both businesses and consumers.  They will appreciate the free advice and use their new-found cash to spend on your products or services.
  10. Ask for and get testimonials.  Then send them out with a promotion to both prospects and customers.  There is no method of advertising more effective than a third-party advocate.  By including existing customers it will reinforce that they made the right decision by buying from your company. 

Use one or more of these ideas to pump up sales and increase cash flow.  Keep track of results and show your banker the action plan, goals, and the resulting increase in sales. 

You may see your banker wanting to make a loan to this well run growing business of yours.

A Fool Proof Way To Generate Business Cash Flow Now!

July 11, 2010

by Doug Smith, President, The Woodhaven Group

Do you have customers who purchase from you daily, weekly or monthly?

Would you like to have those customers help you with your business cash flow?

No problem.

Here is what you can do.

Let’s say you are a chiropractor who charges $50 per visit and your average customer comes to you for 2 visits per month.  Offer your customer a discounted package of 12 visits, 30 visits or 52 visits if they pay upfront.

Impossible to do, you say.  It is happening everyday across America.  Currently, the average person earns maybe  1-3% at most on their cash if they invest in Treasurys or CDs.  The chiropractor might offer a discount of 10-15% for a package of visits.  It is a great deal for his customer (patient) and he gets use of the cash immediately.

Here is a sampling of businesses that could benefit from this pricing strategy:

  • Hair salons or barber shops
  • Massage therapists
  • Yard maintenance companies
  • Physical Therapists
  • Oil change companies
  • Car Washes
  • Commercial window washers
  • Residential cleaning services

An added advantage to using this approach is that it takes your customer out of the market.  If your customer has “prepurchased” from you, then chances are they will not be going to your competitor.  The only caveat to remember is that you have received your cash upfront.  It may be smart not to spend all this cash at once as this future cash flow will not be coming in as it has in the past.  A good cash flow forecast would be in order to assure there will be  no short falls.

Discounted packages are a core pricing and sales strategy for many small business owners.  You may want to test this program to see if it is right for your company.

6 Tough Love Cash Management Tips

July 10, 2010

by Doug Smith, President, The Woodhaven Group

Ok, so your business cash flow is in real trouble.

The expected sales increase you anticipated after changing the marketing strategy is not working. I mean it is really not working.

As a small business owner it seems like you are a quarterback operating the 2 minute offense just to get some cash in the door.

What can you do differently to bring in cash?

Well I have walked in your shoes.  It’s not a pretty situation to be in.  Here are tips you can start doing before the sun goes down tonight:

  1. Let everyone know there will be nothing purchased in the company without it first going on a purchase order.  Then you have to personally sign off on the purchase order before it is processed.  If that delays a purchase 24 hours so be it.  Then you as owner sign every check.  Do not delegate this.  By signing checks you will discover who has circumvented the new system.  You will find that unnecessary spending and over spending will stop when everyone knows there will be an audience with you.
  2. Have your management team identify such things as old equipment, old machinery, vehicles not being used, obsolete inventory, and even unused furniture.  Then sell it.  Have a board posted in your office with the items listed and post the money received as each item is sold.
  3. Eliminate all service and maintenance contracts and replace with an hourly fee for service performed.  If your company really needs to cut back temporarily on expenses to generate cash this will do it.  You can always reinstate the service contracts later.
  4. Generate an upfront down payment  on all sales (unless you are a retail store where you get the full amount at the point of sale).  The sales department will balk at this as they will be concerned that a down payment will kill the sale.  It won’t.  Change the commission structure to pay less if  no down payment is received.  The top sales people won’t miss a beat.  They will get the down payment and be an example for the others.
  5. Go to your landlord and negotiate a 10% or more reduction on rent.  In  return offer to extend the term of the lease.  Make sure there is a clause in your lease that allows you to sublet unused space.  
  6. If you own your property or own large equipment then do a sale and leaseback.  Even if you owe on loans, you will convert your equity position into cash.

As an owner of a small business, sleeping at night is a good thing.  Use these 6 tips and take some pressure off of your cash flow position and your nerves.

Use This Depression Era Program To Increase Business Cash Flow

July 9, 2010

by Doug Smith, President, The Woodhaven Group

Layaway programs are helping both consumers and retailers who are cash strapped.

During the Depression of the 1920s and 1930s, layaway programs were started to help shoppers buy items for Christmas from retailers.  For a small down payment, the retailer would hold the merchandise while the customer made weekly payments.  When the final payment was made the retailer handed over the merchandise to the happy consumer.  

As credit cards became more popular, layaway programs were eliminated.  Today, more and more consumers are either cutting up their credit cards or reducing the amount charged.

Smart retailers and businesses are reinstating layaway programs as a method to generate sales and help the shopper’s cash flow as well as the cash flow of their own business.

It’s amazing the variety of products and services that are using layaway programs.  A few I have seen are for:

  • Furniture
  • All types of big-ticket apparel
  • Jewelry
  • Vacation trips
  • Tickets and lodging to music festivals
  • Toys
  • Televisions
  • Cosmetic surgery of almost any type

In my opinion, one of the leading retailers using layaway most effectively is Sears and their subsidiary, Kmart.  To get ideas how to structure your own layaway program go to Sears layaway site right here.

Is layaway the right program for your company?

I would suggest doing your own research, talk to retailers and businesses who have tried layaway and test it on a few products or services.

You just may find this is one more tactic in your sales and pricing strategy that will help increase your overall cash flow.

Consult This Advisory Board To Improve Business Cash Flow

July 6, 2010

by Doug Smith, President, The Woodhaven Group

It can be lonely as the owner of a growing small to medium sized business.  Often a problem or opportunity may come up and as an owner you wished there was someone to bounce ideas off of that really understands your business.

Owners never have enough trusted advisors to turn to that really know what they are talking about and will shoot straight with them.

Oh yes, there are bankers, attorneys, and accountants and most of them mean well but have not run a business and had to meet cash flow deadlines.  The extent of their knowledge of your business and industry is what you have shown them. 

Here is who I have used over the years as an informal advisory board when I needed a second opinion or felt like I needed a fresh idea:  the CEO or National Sales Manager of my top supplier.

If your #1 supplier has done business with you for years then they probably know your company as well as you do.  They may know your industry even better than you.  You need to tap into that knowledge.

Make no mistake, top management at your #1 supplier has a vested interest in you doing well and your company growing it’s marketshare.  They want to help.  They want your business to be successful.

Unlike an attorney or banker, your supplier is in a unique position to observe and understand the trends taking place in your industry.  After all, the CEO and National Sales Manager are meeting with owners like you everyday across the country.  They know the difference between the superstar managers and the B-team.  They see changes happening in real-time. The existence of their own company depends upon the everyday business decisions being made by their clients. They cannot afford for those decisions to be wrong.

I have often used input from these individuals in my decision-making.  A few of the benefits I have gotten from my best suppliers have been:

  • A unique successful promotion I implemented that had worked for another company in a non-competing market in the country.  I did not have to resort to trial and error advertising.
  • Identified which benefits of the supplier’s product got the best results when featured in advertising spots.
  • Personal introduction to owners in other parts of the country similar to my company.  I then successfully developed a mutually beneficial relationship that has lasted over the years.
  • Suggestions for reputable suppliers in other product lines that other owners had used that did not compete with his company.
  • Cost savings ideas he had seen work in other companies that ended up increasing my business cash flow.
  • Marketing channels that were working or not working and why. 

Developing a close relationship with the CEO and top management of your supplier can also work in reverse.  You may find your opinion carrying more  weight when your supplier gets ready to redesign or upgrade the product you purchase.

The next time you have a problem that seems unsolvable, pickup the phone and run it by your #1 supplier.

It can be a win-win situation for both companies.

One Simple Low Cost Method To Increase Sales

July 1, 2010

by Doug Smith, President, The Woodhaven Group

If sales are down try this low-cost method to increase sales and instantly improve your business cash flow.  The best part is it takes zero advertising dollars.

Look back at the last 3 years and calculate the average revenue or sales per customer that was generated for a year.

Make a list of your top customers and rank them in order top to bottom by year to date volume and determine who is trending to hit or exceed the yearly average.

Now,  make a list of those customers that are trending below the average, set a specific goal per customer to close the gap and have the sales department assign these customers to the top sales people in your company.  Their mission is to move sales volume up on each of these customers so by year-end their volume is at the predetermined average.

Why would this approach work?

First, you have already invested dollars to get them as a customer so no new advertising is needed to get these sales.  Second, the customer likes your company and what you have to offer since they are purchasing from you.  They are just not buying enough.

Try the following steps to increase sales with these customers:

  1. It sounds crazy but ask them to buy more.  It could be that the sales department has just been taking orders and not trying to build the sale.  Tell the customer how much the company values them as a client and would like to do more business than they currently are doing.  Believe me, this will work by itself with some customers.
  2. Increase sales by identifying a product or service that they are not buying that would be a good fit for the customer.  This becomes new sales for your company and sales that should have been generated with this customer all along.
  3. Offer a rebate or some incentive if by the end of the year their total volume hits the target goal.  If you get pushback, tell them the goal is realistic and is just the average amount purchased by the typical customer of your company.
  4. Review the payment history of this account and if it has been good, inform them that as a valuable loyal customer their credit limit has been increased. Like many users of credit they may purchase up to their credit limit.

I would do all 4 of the above suggestions for each customer.

Bonus method to increase sales:

After you have implemented the above program to increase sales with the “below average” volume customers, do the same steps with the “above average” volume customers.

The result will be a spike upward in the overall annual average revenue per customer.  This all happens without bringing on any new customers.  You are just maximizing the potential with your current customer database. 

Your business should see a jump in sales, cash flow, and profit.