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Beware of Being Too Kind to Your Customers

money-in-handA recent MSNBC article says there aren’t many shopaholics left due to the recession. Then it explores how retailers are responding to frugal consumers for the upcoming holiday season, which accounts for up to twenty percent of annual sales for many of them.

Last year, holiday sales were down 3.4%. This year, even more Americans are dealing with job loss, fear of job loss, wage cuts, a drop in home prices and a rise in credit card interest rates.

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So what will consumers do? What's a retailer to do?

Working twice as hard but not making anymore
Let’s start with retailers. Dropping prices to push out inventory has become the norm since last year. Offering extreme discounts is a tactic many will use to try to get customers in their doors. Here's what that means:

Let’s say you have a product that costs you $10. You normally sell it for $20, leaving you with a $10 profit. You decide to cut your price by 25% to $15.

So now you make $5 every time you sell a product. You have to sell twice as much of this item just to make the same amount of money!

In this example, we used a product sale to keep it simple. However, many small businesses sell a service. So think about it this way:

Carrying forward the numbers above – if you cut your hourly rate by 25% – you would have to work twice as much but you wouldn’t make anymore.

Is it worth it? Would you be better served pursuing another strategy?

Consumers are more price-sensitive, but value is still king
Now, let's look at those customers. Experts cited in the article say consumers will shop for good value on items they want and need. Note the term “value”, not price.

Consumers are more price sensitive than ever. However, because they have been bombarded with super-low prices, they are beginning to think that those products are worthless.

Furthermore, they will pass up an offer – even if the price seems too good to be true – if they think they just don’t need the item. If you cut prices too much, you may kill your business by killing your customer with kindness!

3 strategies for a tight-belt economy:

  • Divide your product or service offerings into three categories – must have, need and want. In this economy, focus on the must haves. Which customers must have your must have product? Focus most of your efforts here.
  • Is there a way to bundle a “need” with a “must have” or a “want” with a “need”? Offer a special deal on the bundle rather than the individual product or service. You may find that you can sell more without having to work a lot harder.
  • Think about your customer’s bottom line. How can you add value to your product or service and boost your customer’s bottom line at the same time?

For example, is there some essential knowledge that you could impart to help your customer use your product or service to save money? If so, they’ll be much more likely to buy – even now.

How are you compelling your customers to buy your products or services?

Share that with us by leaving a comment, e-mailing us at bigginfo@biggsuccess.com or leaving a voice message at 888.455.BIGG (2444).

We think you’re too kind for checking in with us today. Thanks so much!

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There’s a popular celebrity who says it took him 26 years to get one mile down the road. Please join us next time and we’ll fill you in on his story of bigg success. Until then, here’s to your bigg success!

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Engage Your Employees in 10 Syllables

0-building-blocksResearch shows it. We know it.

Engaged employees are more productive. Productive employees help us grow sales faster than costs. Therefore, engaged employees are key to increasing your bottom line.

How’s that for a logic exercise?

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Let’s discuss four words – which all begin with the letter “C” – that will help you engage your employees in ten syllables:

First, a one syllable word: Care
Really and truly care about your employees – not as workers, as people.

Throw the old adage about mixing business and friendship out the door. That’s yesterday’s mindset. For every time it bites you in the butt, there will be many times when it serves you well.

Let your people get to know you. Get to know your people individually, personally and professionally.

We work harder for people we like. We like people who care about us.

So genuinely caring creates a competitive advantage. Isn’t that something? It happens spontaneously, though. It’s not something that can be forced.

Second, a two syllable word: Converse

Talk with your employees. Find out what is going well and what isn’t. Discover what would help them do their jobs better.

We believe in open book management. However we don’t believe that you have to tell all of your employees all the details. Be positively real.

Leaders have more on their plate than ever. Everybody is trying to do more with less. But don’t neglect your people.

Get out from behind your desk a few times a day. Walk around. Spend some time chatting with your people. It’s probably the most productive thing you can do.

Conversation creates concord. Listening is one way to show your people you care. Many people assume the worst. Keeping them informed tames the beast.

Third, a three syllable word: Celebrate!
Our news media thrives on bad news. Do the opposite. Make a bigg deal of good news. Celebrate! Whenever your team does something spectacular, pause and enjoy the moment.

There’s an old management technique called management by exception. Try this instead – manage for exceptional. Highlight people on your team who have done something outstanding.

Share the credit liberally. It’s a rookie mistake to do otherwise. There’s almost nothing you can do to engage your employees that goes as far as a genuine “atta boy” or “atta girl”.

Celebration encourages continuation. It’s fun to play for a winning team. We can’t wait for the next game, for the next opportunity to show what we can do. We look forward to the next victory. So we can celebrate again!

Fourth, a four syllable word: Collaborate

Michael Jordan said it best: “Talent wins games; teamwork wins championships.”

Encourage your people to share their ideas. It will make your life as a leader much easier.

Great leaders make decisions but the best answers often come from their people. Your employees will be more engaged when they see their ideas being adopted. That leads to bigg success!

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Thanks so much for the gift of your time today. Please join us next time when we ask, “Are you a volcano waiting to erupt?” Until then, here’s to your bigg success!

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10 Danger Signs for Business – Part 1

danger We’ve heard that diagnosing a medical condition early greatly increases the chances of successful treatment. The same is true for our businesses – we want to spot the minor issues so they don’t become major problems.

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Cash to a business is like blood to our bodies. It has to continue flowing or we won’t survive. As a small business owner, the bottom line is that you can’t run out of cash. So you have to know how to diagnose and treat the source of the ailment before it spreads. With that in mind, here are ten signs that your business may be heading for trouble:

#1 – Lost market share

Your sales may be growing, but your share of the market may be falling. Are they up because you’ve increased prices? Is the growth of your sales keeping pace with the growth of the markets you serve?

Market share is precious – among other things, it provides leverage to raise prices as your costs increase. As competitors enter your market, you have to work even harder to maintain (and hopefully increase) your share.

#2 – Declining customer counts

Your sales may be holding steady, but fewer and fewer people are making purchases. Your remaining customers are spending more, possibly because of price increases. There’s nothing wrong with that, but you have to find a way to attract new customers because a certain amount of customer attrition is natural.

We don’t want our customers to leave because they’re unhappy. But you can’t make everyone happy all the time so even that will happen. We’ll also have customers move away, pass away, grow out of our product or service, and the like.

#3 – Low repeat and referral business

Many businesses actually lose money to get a customer for the first-time. If they break-even, they’re very happy. It’s the follow-up purchases that make a difference to our bottom line.

A healthy percentage of repeat and referral business also shows that your product or service is still meeting the needs of a core base of people. And these people are the ones who will refer other people to you, which is much less expensive than depending totally on advertising to grow your business.

#4 – Declining sales

Right now, a lot of businesses are experiencing this. It may have nothing to do with you – it may be your industry that is experiencing trouble. So you have to ask yourself … is this a long-term trend or is it cyclical? That’s the first thing you have to determine.

Next, ask yourself, will my industry recover? Some industries were facing challenges even before this recession. It’s only accelerating the long-term trend. Other industries will do just fine coming out of it. You have to know which one applies to you.

Once you’re satisfied that your industry will survive, you have to look at your own business. A lot of shake-out is happening even in healthy industries. Isolate whether it’s a problem with your business or the industry as a whole to know your best strategy.

#5 – Disproportionate sales to a small group of customers

Picture this extreme situation – all of your sales come from one customer. You’re totally at the mercy of that customer. It’s like being an employee without the safeguards that go with employment!

Generally speaking, if more than ten percent of your sales are to one customer, you may face trouble at some point. Five percent is even better. Bigg customers are great. But serving a bigg number of customers leads to bigg success.

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Thank you for reading our post today. Join us next time when we talk about five more early warning signs of trouble ahead in your business. Until then, here’s to your bigg success!

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Growth: The Good, the Bad, and the Ugly

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(Image in today's post by asifthebes)

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Growth: The Good, the Bad, and the Ugly

By Bigg Success Staff
03-26-08

Bigg Success in Business

growth 

When business owners talk about growth, they usually talk about sales growth. While it is important to look at the growth of the top-line, it’s even more important that the bottom-line increases.

Sales growth doesn’t necessarily lead to profit growth. The reason is that sales growth may be "good", "bad", or even “ugly”. 

Good growth

"Good" growth can be defined as an increase in sales that also increases profits. You really want to see profits rising at a higher rate than the percentage increase in sales. That shows that you’re controlling your costs well and achieving economies of scale.

Bad growth
"Bad" growth happens when an increase in sales leads to a decrease in profits. How can that be?  If it costs more to produce each additional sale, profits will decline.

Seems obvious, doesn't it?  However, in practice, a lot of managers get so focused on making sales that they fail to consider the costs of those sales. You have to determine whether your organization just isn’t controlling costs well at this new level or if you’re reaching diseconomies of scale.

Ugly growth
"Ugly" growth is growth at a rate that exceeds the financial resources of the business.  It may even be "good" growth, but the financial resources of the business may be depleted before that becomes apparent. Growth consumes capital, because assets such as your receivables and your inventories have to increase to support that growth.

Growing sales is the only way to grow profits in the long run.  So you should concentrate on growing sales – the right way. Keep profit margins at the top of your mind, but remember that all of your bills are paid with dollars!

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Danger: 10 Warning Signs of Trouble Ahead for Your Business

By Bigg Success Staff
03-19-08

Bigg Success in Business

danger

We’re told that diagnosing a medical condition early greatly increases the chances of successful treatment. The same is true for your business – seeing the warning signs early gives you the opportunity to solve minor issues before they become major problems.

Cash to a business is like blood to our bodies. It has to continue flowing or we won’t survive. The bottom line is that you can’t run out of cash. So you have to know how to diagnose and treat the source of the ailment before it spreads.

With that in mind, here are ten signs that your business may be heading for trouble:

#1 – Lost market share
Your sales may be growing, but your share of the market may be falling. Market share is precious – among other things, it provides leverage to raise prices as your costs increase. As competitors enter your market, you have to work even harder to maintain (and hopefully increase) your share or your business may get into trouble.

#2 – Declining customer counts
Your sales may be holding steady, but fewer and fewer people are making purchases. Your remaining customers are spending more, possibly because of price increases. You have to find a way to attract new customers or your business is headed for trouble. 

#3 – Low repeat and referral business
You need a healthy percentage of repeat business because it’s much less expensive to keep a customer happy than to get a new one. It also shows that your product or service is still meeting the needs of a core base of people who will refer other people to you. If your customers aren’t coming back, your business may face trouble.

#4 – Declining sales

If your sales are falling, you’re definitely headed for trouble. It may have nothing to do with you – it may be your industry that is experiencing trouble. Isolate whether it’s a problem with your business or the industry as a whole to know your best strategy.

#5 – Disproportionate sales to a small group of customers
Picture this extreme situation – all of your sales come from one customer. You’re totally at the mercy of that customer. It’s like being an employee without the safeguards that go with employment! Generally speaking, if more than ten percent of your sales are to one customer, you may face trouble at some point.

#6 – High employee turnover

When you lose employees, customers are affected – they deal with less experienced people who don’t know your business or the customer’s needs as well as long-time employees. The costs of training people so they’re fully productive are also significant. If you can’t retain employees, your business will likely face trouble.

#7 – Costs rising faster than sales (declining profit margins)
Costs rise for a number of reasons. As your sales rise, so will your costs. If they don’t, why do you need that cost at all? So rising costs are expected. However, costs that rise faster than sales means you will face trouble at some point because you’ll have less and less profit for each dollar of sales. 

#8 – Disproportionate purchases from one vendor

You don’t want to be dependent on any vendor for purchases in any category. That gives that vendor too much leverage in your business. They’ll be able to pass on costs to you that you may not be able to pass on to your customers. If you don’t have a diverse base of vendors (or at least a back-up plan), your business will probably face trouble sometime.

#9 – Unwarranted increase in receivables
It’s great to make sales, but not if you don’t get paid! That’s worse than not making the sale at all because it costs you money to make a sale. Slow paying customers also create problems because you can’t pay your bills with receivables. If you don’t control your receivables, your business may be headed for trouble.

#10 – Unjustifiable inventory build-up
Depending on your business, inventory may be even less liquid than receivables. First, you have to sell it; then you have to collect on the sale. Inventory that’s not turning over is dead-weight. So if your inventory is building up too fast, your business will likely experience a cash crunch at some point.

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