Posts Tagged ‘gross margin’

Will Groupon Increase Business Cash Flow?

May 4, 2011

by Doug Smith, President, The Woodhaven Group, LLC

I have to admit that I have not used Groupon or the other coupon sites from a seller standpoint at this time.

But I am intrigued by the potential these sites have to offer.

I know there are businesses that love what coupon sites do to sales and return time and again to using Groupon and sites similar to it.

Having said that, here are a few questions an owner or CEO should ask themselves before taking the online coupon plunge:

  • Who is your customer?  What do they really want and expect from your company?  While everyone likes a deal, do they expect you to be selling your products or services at 50% off?  Are they more price driven or value driven?  Any new prospect you attract should be similar to your existing loyal customer.
  • What is the impact on your brand?  What message do you want prospects and customers to hear from you?  Is the coupon call-to-action aligned with the value proposition your company has invested time and money in developing?
  • What is the cost to acquire a new customer?  You should know this.  What % of the coupon users will return to buy the next time at full price?  Run scenarios to see if you like the cost of customer acquisition.
  • What is the profit per sale and are you comfortable with that?  Run the numbers on gross margin and overall cost of marketing.   If the coupon site takes 50% upfront, what will you be left with after the sale?  
  • What is the impact on your existing customer? Will they expect the same offer even if they do not act on the coupon?  If you offer them the same discount as the coupon, would they have purchased anyway but at full price?  Do their expectations of your company change going forward?

Those are just a few of many questions to consider prior to using the online coupon channel of marketing.

Lastly, I would talk to businesses similar to yours who have used Groupon and similar coupon sites.  Ask them what worked and what they would do differently.  The beauty of Groupon and others like it is that you can learn from the experiences of others.

What do you want to accomplish from using online coupons?

Profitably increasing your business cash flow should be at the top of your list.

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5 Signs Your Business is in Trouble

May 3, 2011

by Doug Smith, President, The Woodhaven Group, LLC

Here are 5 critical early stage signs that your company may be in trouble.  They all have to do with poor cash flow. If you are experiencing 1 or more of these,  as owner or CEO, you must act immediately:

  1. Vendors are reducing your credit limit:  This may be due to failure to pay on time, a poor credit report, reduction in the amount ordered or simply rumors about your company from other suppliers.  Are they asking for payment before they will ship the next order to you?
  2. Top people leaving for other companies:  When a company is in trouble the weakest performers will be the last to leave.  The top people will notice problems and find reasons to change companies.  Be concerned if this starts happening as the top people in your company will be talking to each other.
  3. Your accounts receivable balance is increasing:  This is the cash your company needs to live on.  If sales are not increasing but the accounts receivable balance is going up then you need to find out why and fix it.  Are there quality problems?  Are invoices not being mailed on time?  Do you have a couple large customers in financial trouble?  Is anyone assigned to work slow payers?
  4. Inventory and accounts payable are increasing but sales are down:  Is someone ordering inventory as if there is a big sales increase occurring?  Who is approving purchase orders?  Get with key suppliers and see if you can return inventory and get a credit off the next invoice.
  5. Gross margin is dropping:  This is cash not available for the company to use.  Is there a quality problem requiring replenishment of goods sold?  Was there a price increase from a supplier that was not passed on?  Is the sales department giving price breaks just to get orders?  Are competitors offering a better product and sales is cutting price to compete?

Management must maintain a dashboard of key indicators that are monitored daily or weekly.  This will allow the management team to identify problems early on and take action.