When was the last time you looked around your shop to see if there are any customer-aggravating items? How about signs that explain your policies to customers? Do they read like they were written by Joseph Stalin? It’s really not necessary to scold your customers when you tell them where to park, make them stay out of the service area, or keep their hands off your tools, although it may seem like you have to sometimes. “No Customers Allowed” sounds pretty nasty, especially compared to a sign that gets across the same message by reading, “Employees Only, Please.”
You sound a lot more customer friendly (and professional), too, when you explain why you have the rules you have. Add “Insurance Rules” or “OSHA Regulations” to the “Employees Only, Please” sign and you’ve made your policies sound a lot less arbitrary.
When it comes to rules, it’s not a bad idea to review yours every once in a while. Look at things like your hours of operation, availability of merchandise, deposits, and return policies to see if they serve a real purpose beyond irritating your customers. Do you close so early in the day that customers don’t have a chance to pick up something they need after they leave work? If a customer has to take off work, it’s an additional cost to them of doing business with you. The same holds true for when you open—can they drop off an item for repair and still have time to get to their job? Saturday and Sunday hours are customer-friendly, too. And if you want to really do it right, offer to accommodate customers by appointment at other hours when you’re not normally open.
Most customer relationships are built on good communications, of course, which raises a couple of other questions: Do you call the customer when their job is ready or make them call you to find out if it’s finished? If the work’s not going to be done when you promised, do you call to warn them? It takes a little time and effort on your part, but the customer who gets such a call generally recognizes the thoughtfulness. Besides, it demonstrates that you respect the value of their time and, by proxy, appreciate their business.
While I’m ranting, whatever happened to saying “thank you” to customers? From the almost total absence of that phrase in most businesses these days, you might think it had been put on something like the FCC’s list of forbidden words. Another phrase seems to have replaced it, the one you hear when the cashier at the grocery store hands you your change and receipt and says, “here you go.” What the heck is that supposed to mean? Even worse, when the customer takes the change, their inclination is to say “thanks,” which sounds as if they are expressing their gratitude to the store! What’s wrong with this picture?
If you want to make your shop truly customer friendly, make it a practice to thank the customer every chance you get. “Thanks for calling,” “thanks for letting us work on your car,” even “thanks for coming in” are the right words to use when dealing with the person who keeps you in business.
These may seem like little, picayunish details when compared to major factors like how well the product works after the customer gets it home, and they are—individually. But when you add them up, which is what happens when the customer comes into your shop time after time, they grow. Add enough aggravations, and the next thing you know, you’ve built that proverbial mountain out of a molehill
.
Dave Donelson distills the experiences of hundreds of entrepreneurs into practical advice for business owners and managers in the Dynamic Manager's Guides and Handbooks, a series of how-to books about marketing and advertising, sales techniques, and management strategy.
Showing posts with label management. Show all posts
Showing posts with label management. Show all posts
Friday, April 19, 2013
Monday, October 8, 2012
Pricing For Profit - Step Two
Once you know how much the merchandise or job costs, you mark it up to provide a profit. One way is to use what’s known as “keystone” pricing, which simply means doubling the cost to arrive at the selling price. This provides a 50% gross profit margin. That’s why retailers can put goods on sale for 40% off and still make a profit. It works fine, but it isn’t always the best choice.
You can also use manufacturers’ suggested retail pricing, which even further simplifies the calculations. Nationally uniform prices, of course don’t reflect local market conditions, much less the individual business owner’s costs of doing business. Remember, too, that they’re designed to help the manufacturer move more merchandise, not necessarily help you make more money.
Using a standard markup sounds simple, but that’s really only the beginning of sound pricing strategy. You also have to be sure that the gross profit is large enough to cover your overhead, or the indirect costs of operating your business, and still leave a net profit. Whether you’re marking up merchandise or deciding on a labor rate, you’ve got to build in something to cover the rent—and all those other bills you pay every month.
Every business has indirect expenses (not related to the cost of a piece of merchandise or a particular employee’s labor on a job) that have to be paid. The obvious ones include your building and what it costs to operate it (utilities, maintenance, taxes, insurance), your fixtures, tools, office equipment, vehicles and other fixed assets (their cost on an annual basis is your depreciation expense), your salary and benefits (especially health insurance), not to mention the office manager and other general employees. Don’t forget to add in your property and casualty and liability insurance premiums, accountant’s fees, advertising and marketing expenses, office supplies, telephone, and so on and so on. While you’re at it, make sure you include an annual contribution to your own retirement plan, be it a 401-K, SEP-IRA, or whatever.
Finally, add something for net profit. That’s the whole point of running the business, right? The net profit, by the way, is not the same as your salary as the manager or owner. Your salary is payment for your labor managing the business. If you’re the owner, the net profit is the return on your investment and the compensation your receive for the risks you take. There’s a big difference.
The total dollar amount of your shop’s gross profit, the figure that has to be larger than your overhead expense, is also dependant on how much merchandise you sell or how many jobs you complete. These are determined, at least in part, by the prices you charge. If your prices are too high, customers will run away, so it can be a vicious circle. Cost-based pricing is all well and good, but ultimately, the prices you charge are determined by what your customers are willing to pay. That’s where a whole raft of other factors comes into play.
Dave Donelson distills the experiences of hundreds of entrepreneurs into practical advice for small business owners and managers in the Dynamic Manager's Guides, a series of how-to books about marketing and advertising, sales techniques, motivating personnel, financial management, and business strategy.
You can also use manufacturers’ suggested retail pricing, which even further simplifies the calculations. Nationally uniform prices, of course don’t reflect local market conditions, much less the individual business owner’s costs of doing business. Remember, too, that they’re designed to help the manufacturer move more merchandise, not necessarily help you make more money.
Using a standard markup sounds simple, but that’s really only the beginning of sound pricing strategy. You also have to be sure that the gross profit is large enough to cover your overhead, or the indirect costs of operating your business, and still leave a net profit. Whether you’re marking up merchandise or deciding on a labor rate, you’ve got to build in something to cover the rent—and all those other bills you pay every month.
Every business has indirect expenses (not related to the cost of a piece of merchandise or a particular employee’s labor on a job) that have to be paid. The obvious ones include your building and what it costs to operate it (utilities, maintenance, taxes, insurance), your fixtures, tools, office equipment, vehicles and other fixed assets (their cost on an annual basis is your depreciation expense), your salary and benefits (especially health insurance), not to mention the office manager and other general employees. Don’t forget to add in your property and casualty and liability insurance premiums, accountant’s fees, advertising and marketing expenses, office supplies, telephone, and so on and so on. While you’re at it, make sure you include an annual contribution to your own retirement plan, be it a 401-K, SEP-IRA, or whatever.
Finally, add something for net profit. That’s the whole point of running the business, right? The net profit, by the way, is not the same as your salary as the manager or owner. Your salary is payment for your labor managing the business. If you’re the owner, the net profit is the return on your investment and the compensation your receive for the risks you take. There’s a big difference.
The total dollar amount of your shop’s gross profit, the figure that has to be larger than your overhead expense, is also dependant on how much merchandise you sell or how many jobs you complete. These are determined, at least in part, by the prices you charge. If your prices are too high, customers will run away, so it can be a vicious circle. Cost-based pricing is all well and good, but ultimately, the prices you charge are determined by what your customers are willing to pay. That’s where a whole raft of other factors comes into play.
Dave Donelson distills the experiences of hundreds of entrepreneurs into practical advice for small business owners and managers in the Dynamic Manager's Guides, a series of how-to books about marketing and advertising, sales techniques, motivating personnel, financial management, and business strategy.
Monday, October 1, 2012
Pricing For Profit - Step One
When it comes to prices in your business, how much is enough and how much is too much? How do you set your prices? Buy low and sell high is the obvious answer, but for many companies, especially those with a mixture of retail merchandise and services, bricks-and-mortar and online competition, and customers driven one day by a penny-pinching budget and the next by the lust called gotta-have-whatever-at-any-price, there aren’t any easy answers.
Setting prices requires that even the most experienced manager or owner take a few moments every once in a while to dust off the calculator, get the accountant on the phone, and do some serious figuring. It’s tempting to just mark all merchandise up by a fixed percentage and figure labor at a flat rate comparable to what your competitors charge, but that’s not managing for profit, it’s hoping for one. There are several factors that you should consider.
Start with the cost of goods sold. That’s the amount you pay the manufacturer, wholesaler, or whomever for the merchandise you sell, whether at retail or as part of a service job. But it also includes the cost of acquiring those goods (shipping and handling), carrying them in inventory (interest expense), and allowances for returns and defective merchandise. If you pay any salespeople a commission or spiff, that needs to be taken into account, too.
For service work, you have to cover your direct labor costs on each job. These include not only an appropriate portion of your technicians’ annual salaries, but also their benefits, payroll taxes, unemployment insurance, worker’s compensation insurance, etc
What about the cost of your time? Whether you are a one-person business or simply provide indirect supervision of your staff, your time is a cost that has to be covered. One way to approach this is to divide what you expect to personally earn on an annual basis (including those items above but not your profit from the business—I’ll talk about that later) by 2,000, which is roughly the number of working hours during the year. Let’s say your “salary” plus benefits is $100,000. Your hourly labor cost is $50. Multiply that number by the hours you estimate you’ll personally spend on the job, add in the other worker’s costs, and you have your direct labor costs.
These aren't the only factors, so check next week for more guidelines on pricing for profit.
Dave Donelson distills the experiences of hundreds of entrepreneurs into practical advice for small business owners and managers in the Dynamic Manager's Guides, a series of how-to books about marketing and advertising, sales techniques, motivating personnel, financial management, and business strategy.
Setting prices requires that even the most experienced manager or owner take a few moments every once in a while to dust off the calculator, get the accountant on the phone, and do some serious figuring. It’s tempting to just mark all merchandise up by a fixed percentage and figure labor at a flat rate comparable to what your competitors charge, but that’s not managing for profit, it’s hoping for one. There are several factors that you should consider.
Start with the cost of goods sold. That’s the amount you pay the manufacturer, wholesaler, or whomever for the merchandise you sell, whether at retail or as part of a service job. But it also includes the cost of acquiring those goods (shipping and handling), carrying them in inventory (interest expense), and allowances for returns and defective merchandise. If you pay any salespeople a commission or spiff, that needs to be taken into account, too.
For service work, you have to cover your direct labor costs on each job. These include not only an appropriate portion of your technicians’ annual salaries, but also their benefits, payroll taxes, unemployment insurance, worker’s compensation insurance, etc
What about the cost of your time? Whether you are a one-person business or simply provide indirect supervision of your staff, your time is a cost that has to be covered. One way to approach this is to divide what you expect to personally earn on an annual basis (including those items above but not your profit from the business—I’ll talk about that later) by 2,000, which is roughly the number of working hours during the year. Let’s say your “salary” plus benefits is $100,000. Your hourly labor cost is $50. Multiply that number by the hours you estimate you’ll personally spend on the job, add in the other worker’s costs, and you have your direct labor costs.
These aren't the only factors, so check next week for more guidelines on pricing for profit.
Dave Donelson distills the experiences of hundreds of entrepreneurs into practical advice for small business owners and managers in the Dynamic Manager's Guides, a series of how-to books about marketing and advertising, sales techniques, motivating personnel, financial management, and business strategy.
Monday, October 31, 2011
Perpetual Change Marks Business Strategy
Nothing is so permanent as change. The customer you deal with today will not be the same one you see tomorrow. Your employees will have a different outlook on work when they get up in the morning and your vendors will come through the door with new products, new prices, and oh, by the way, new corporate owners with new credit requirements. More of your tools will have LCD screens and many of them will talk wirelessly to your customer and to each other. You can only hope they keep talking to you. In every type of business—change happens.
Some of us fight change and some of us embrace it, but we all have to deal with it. “You have to respond to the market,” says Michael Young, owner of Street Rods by Michael in Shelbyville, Tennessee. “If you can’t adapt, you’re not going to be here in five years.”
Consider your customers. Most company owners are justifiably very proud of having a base of loyal customers. If they rely exclusively on those loyal customers to support their revenue stream, though, it won’t be long before they see their sales decline. Why? Because customers change. Consider just one simple fact: twenty percent of Americans move every year. While not every one of them moves across the country and therefore out of your market area, many do. And even those that just move across the street put a dent in their disposable income with moving expenses, etc., that cut into their budget for other things—like what you sell. Those lost sales have to be replaced by sales to new customers just to stay even.
Even the customers who do stick around change. Their tastes evolve, they learn new things, they get bored and want to do or own something different. If nothing else, they get older. The baby boomers, the generation that gave us the Rat Fink and American Graffiti, has started cashing Social Security checks. How will that change their propensity to spend money on hot tubs, designer denims, or flat screen TVs? And will the younger customers who hopefully come along to replace them be looking for the same things? Not likely. That’s one reason you see more muscle cars on the street and fewer ‘34 Fords; more Hondas and fewer Chevrolets. It’s not just a change in fashion—it’s a change in the customer.
Don’t fight it
So how do you deal with change? To start with, don’t fight it—you can’t win. Instead, open your eyes to the inevitability of change, make yourself and your company ready for it, and embrace it when it comes. The first step, if you want to keep up with changes in the marketplace, is to make a conscious effort to listen to what the customers are saying to you about themselves and what they want.
“Customers are more knowledgeable,” observes Sales Manager Tom Dickinson of AP Tuning in Lebanon, PA, a company that specializes in high-performance automotive work. Not too many years ago, hot rod magazines and mail-order catalogs defined media for that market. Today, enthusiasts can learn about the sport from an ever-growing number of media outlets—everything from the Internet to entire television networks devoted to it. Enter a term like “torque converter” into Google, and you’ll get 743,000 listings. When Dickinson’s customers see somebody on TV winning races or shows with a car like theirs, they become a more informed—and generally more demanding—customer.
“It used to be that you learned about cars by talking to the guy in the next pit stall at the track,” according to Darrick Klima, also in the automotive performance business as owner of Belleville Motorsports in Belleville, KS, where they build over 100 race cars a year. “One of the bigger things these days are race car workshops and driving schools. People are spending money to become better racers because they’re spending more money on better race cars. It puts a lot of pressure on everybody.” Klima attends schools and seminars himself so he will know what his customers are being told.
Klima also spends a lot of time getting feedback from customers. “We meet change by listening to our customers,” he says. “All I do all day is talk to people who are racing our cars.” He says he and his staff listen to the drivers’ ideas, bounce them around internally, then try them out to see if they work. If they do, the new concepts become incorporated into all their products. “We have to definitely spend more time and money trying to come up with a better mousetrap.”
Dave Donelson distills the experiences of hundreds of entrepreneurs into practical advice for small business owners and managers in the Dynamic Manager's Guides, a series of how-to books about marketing and advertising, sales techniques, motivating personnel, financial management, and business strategy.
Some of us fight change and some of us embrace it, but we all have to deal with it. “You have to respond to the market,” says Michael Young, owner of Street Rods by Michael in Shelbyville, Tennessee. “If you can’t adapt, you’re not going to be here in five years.”
Consider your customers. Most company owners are justifiably very proud of having a base of loyal customers. If they rely exclusively on those loyal customers to support their revenue stream, though, it won’t be long before they see their sales decline. Why? Because customers change. Consider just one simple fact: twenty percent of Americans move every year. While not every one of them moves across the country and therefore out of your market area, many do. And even those that just move across the street put a dent in their disposable income with moving expenses, etc., that cut into their budget for other things—like what you sell. Those lost sales have to be replaced by sales to new customers just to stay even.
Even the customers who do stick around change. Their tastes evolve, they learn new things, they get bored and want to do or own something different. If nothing else, they get older. The baby boomers, the generation that gave us the Rat Fink and American Graffiti, has started cashing Social Security checks. How will that change their propensity to spend money on hot tubs, designer denims, or flat screen TVs? And will the younger customers who hopefully come along to replace them be looking for the same things? Not likely. That’s one reason you see more muscle cars on the street and fewer ‘34 Fords; more Hondas and fewer Chevrolets. It’s not just a change in fashion—it’s a change in the customer.
Don’t fight it
So how do you deal with change? To start with, don’t fight it—you can’t win. Instead, open your eyes to the inevitability of change, make yourself and your company ready for it, and embrace it when it comes. The first step, if you want to keep up with changes in the marketplace, is to make a conscious effort to listen to what the customers are saying to you about themselves and what they want.
“Customers are more knowledgeable,” observes Sales Manager Tom Dickinson of AP Tuning in Lebanon, PA, a company that specializes in high-performance automotive work. Not too many years ago, hot rod magazines and mail-order catalogs defined media for that market. Today, enthusiasts can learn about the sport from an ever-growing number of media outlets—everything from the Internet to entire television networks devoted to it. Enter a term like “torque converter” into Google, and you’ll get 743,000 listings. When Dickinson’s customers see somebody on TV winning races or shows with a car like theirs, they become a more informed—and generally more demanding—customer.
“It used to be that you learned about cars by talking to the guy in the next pit stall at the track,” according to Darrick Klima, also in the automotive performance business as owner of Belleville Motorsports in Belleville, KS, where they build over 100 race cars a year. “One of the bigger things these days are race car workshops and driving schools. People are spending money to become better racers because they’re spending more money on better race cars. It puts a lot of pressure on everybody.” Klima attends schools and seminars himself so he will know what his customers are being told.
Klima also spends a lot of time getting feedback from customers. “We meet change by listening to our customers,” he says. “All I do all day is talk to people who are racing our cars.” He says he and his staff listen to the drivers’ ideas, bounce them around internally, then try them out to see if they work. If they do, the new concepts become incorporated into all their products. “We have to definitely spend more time and money trying to come up with a better mousetrap.”
Dave Donelson distills the experiences of hundreds of entrepreneurs into practical advice for small business owners and managers in the Dynamic Manager's Guides, a series of how-to books about marketing and advertising, sales techniques, motivating personnel, financial management, and business strategy.
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