Don’t Fear Lawyers

13 12 2011

We are often brought in to fix a problem that has gotten out of control.  Often, the problem could have been prevented with very little work from an attorney.  When asked about why the client waited so long to retain an attorney, the answer is almost always “I was worried about how much it would cost.”

That fear causes problems to get out of control and makes everything more complicated and expensive in the long run.  Without exaggeration, it can mean the difference between five hours of work and five hundred.


Increase Your Bottom Line–Revenues Part 3

1 11 2011

In “Increase Your Bottom Line—Revenues part 1” we explained that, generally speaking, the two ways to increase your revenues (ie. your top line; we are not talking about profit here) are:

1) Increase the number of sales (i.e. if you sell 100 widgets a month, sell 200 a month), or

2) Increase the price per sale (i.e. if you sell your widgets at $1 per widget, sell them instead at $2 per widget).

In “Increase Your Bottom Line – Revenues part 2” we explained the two broad methods of increasing your revenues:

1)  Sell to new customers, or

2)  Sell more to existing customers.

We then touched upon the idea of return on investment.

One thing that we see a lot of businesses miss is an opportunity to easily sell more to existing customers.  To do this, you have to know your customer well and identify their need, but if you keep your vision broad, it is often an easier method of increasing revenues than finding new customers.

Amazon is a perfect example of this.  When they first went online, in 1995, they sold only books.  Now, they sell virtually everything.  The idea is simple – people are already coming to us to buy books, we can give them the option of buying music as well.  This has the additional benefit of bringing in new customers too.  They did it again with the Kindle – people are already buying physical books from us, if we give them a method to buy electronic books, maybe we will sell more (there is a tradeoff though, because for every electronic book sold, that is one less physical book).

Note the return on investment concept coming into play here – to expand into music, an investment must be made, but it is a relatively small investment to sell something that Amazon’s existing customers already buy.

Increase Your Bottom Line–Revenues part 2

31 08 2011

In “Increase Your Bottom Line—Revenues part 1” we explained that, generally speaking, the two ways to increase your revenues are:

1) Increase the number of sales (i.e. if you sell 100 widgets a month, sell 200 a month), or

2) Increase the price per sale (i.e. if you sell your widgets at $1 per widget, sell them instead at $2 per widget).

There are important caveats attached to those two, and a good example.  So please read the first post if you haven’t already.

Let’s look at how to increase the number of sales.  Instead of outlining all options, we can simplify this into two broad concepts:

1)  Sell to new customers, or

2)  Sell more to existing customers.

Keeping these two ideas in mind is very important, especially when you are trying to expand.  Let’s look at the same basic scenario as last time to see why:

In any given month, you sell 100 widgets at $2, for revenues of $200/month.  Now, you want to sell more widgets.  We will assume these are the same exact widgets, and you are not introducing a new product.  How do you sell more?

Sell to New Customers

There are people out there that don’t know that your widgets exist and they don’t know that they need the widgets.  So some sort of marketing campaign could work great.

Sell more to existing customers

These are people that know about your product, but aren’t convinced that they need to buy more than they already are buying.  Increase the value that they are getting from the purchase.  You can do this by providing an easier customer experience (maybe do a survey to learn what might be keeping people away or if there is something that can make the purchase of your product more convenient… something as small as where you sell can make a huge difference), a rewards program, or lowering the price (but see “Increase Your Bottom Line—Revenues part 1” for how this may backfire).  Another great way to expand is by expanding your product line, which we will talk about in a future post.

Getting the Most Return on your Investment (ROI)

Before you choose one of those options and a method for implementing that goal, you need to learn what will give you the most ROI.  Read “How to Solve a Problem” for a brief overview.  In short, work from the ground up with research.  For instance, don’t just implement a rewards program because someone else got a great return from a rewards program.  It might not work for your business.  Learn about why rewards programs work.  A marketing campaign will also remind existing customers that you exist.  So you may get a better ROI there.  Look at what your competition does and how long they have been doing it.  Chances are, if they have been doing something for a long time, it works.

Increase Your Bottom Line–Revenues part 1

16 08 2011

A couple of weeks ago, we wrote a primer into increasing your bottom line.  As a reminder, there are two basic items of focus:

(1) Increase your revenue,

(2) Decrease your costs.

As the title above implies (not so subtly), this post is part 1 in answering the question: How do you increase revenue?

First, it is important to understand the question.  The question focuses on revenue and revenue only.  That is, the total amount (the “gross”) of money flowing into the business. This is not your “profit margin,” or your profit, or your bottom line.  In fact, many businesses suffer the problem of increasing revenue, but decreasing their bottom line.  This can even lead to a loss!

You might be skeptical about this last point.  If a business is bringing in more money, how can it be losing money?  You will just have to trust us.  It happens more often than you think.  This is because there are hidden costs to increasing sales – you might spend more on advertising, shipping, employees, etc.  Each of these expenses might decrease your per item profit margin until some, or all, of your items are actually selling at a negative profit margin and you don’t even realize it!  But that will have to wait for a different post.

So, how do you increase revenues?  Like our last post, it may seem obvious, but it’s more complicated than it sounds.  Here are your two options, stated a little inaccurately (you will understand why a little later):

1) Increase the number of sales (i.e. if you sell 100 widgets a month, sell 200 a month), or

2) Increase the price per sale (i.e. if you sell your widgets at $1 per widget, sell them instead at $2 per widget).

Here is a basic idea of how these two interplay with each other.  But since this is just an overview, we are not going to touch upon the intricacies such as marketing (which targets (1)) and how that might lead you to change your price (either up or down).

In the second example above, note that this would double your revenues, all things being equal. This is an important caveat – if we double the price, we would expect the number of sales to fall.  That is, it would directly affect number 1 (how much depends on the elasticity of demand.  Different items have different rates of change).  If sales fall, then revenues decrease.  At some point, the sales will fall so much that your revenues actually decrease.  So, it is absolutely critical to know whether your price increase will lead to lower revenue.

This works in the inverse as well – decreasing price per sale can increase revenue by increasing sales.  The increase in sales may (or may not) offset the decrease in price.

For example:

In any given month, you sell 100 widgets at $2, for revenues of $200/month.  Let’s say you raise your price to $3.  Now you find that you only sell 20 widgets/month, for revenues of $60/month, a big decrease.

So, you decide to lower your price to $1.50 and find that you now sell 200 widgets, for revenues of $300/month, a big increase.

It can work the other way as well: maybe when you lower your price to $1.50, you only increase to 125/month, for revenues of $187.50 per month, a DECREASE in revenues from your original price.  Now, lets say you increase your price to $3 and find that sales only drop to 75/month, for revenues of $225/month.

So you can see that an increase in revenues don’t always come from an “increase” of sales or price, rather it is a “change” in sales, price, or (usually) both.

Increase Your Bottom Line–a primer

1 08 2011

Everyone wants to increase their bottom line; that is, their profits or the “net.”  But too many people do not have a strategy to do so.  It is important to have at least a basic understanding of how to increase your profit.  For instance, you can spend money on advertising, but before doing so, you should at least have a basic understanding of what you hope to get out of that – brand expansion, direct sales, etc.

The first thing to know is that to increase your bottom line, you have two basic options:

(1) Increase your revenue,

(2) Decrease your costs.

These seem obvious, but we often break it down that simply for people and it turns on a light bulb.  Another realization that seems obvious is that these two things are not mutually exclusive and can happen at the same time.  More importantly, the best business decisions will meet those two goals at the same time.

The U.S. Debt Ceiling–a simple analogy

20 07 2011

In a past post, I gave an overview of the debt ceiling issues.  I recently explained this to a very confused colleague using a simple analogy:

Let’s say you have a monthly income of $1,000.  Your basic living expenses are $700 a month, leaving you with a “surplus” of $300 a month.  Due to elements out of your control, you cannot change your monthly income (despite repeatedly asking your boss) and you cannot decrease your living expenses.  That is, the bare-minimum necessary for you to survive every month is $700 and the most money you can possibly earn every month is $1,000.

You have options on what to do with that $300 though.  You can save it or spend it.  In this example lets pretend that the only way to save it is by putting the surplus in a jar in your closet. If you save it, you can spend it in a later month.  For instance, if you save $300 one month, you now can spend $1,300 the next month (your $1,000 income check plus the $300 that you saved).  Or you can spend $1,150 next month and $1,150 the month after.  Or you can continue to save $300 a month, or whatever you want to do.  But you can never spend more than your monthly income PLUS whatever you have saved up in the past; that is you can never spend more than what your boss pays you that month PLUS the amount in your jar.

Given the above scenario, everything is fine and simple.   Life goes on, sometimes you save a portion of your $300 surplus, sometimes you spend a portion of your savings, etc.  One day, you get a credit card.  Your credit card has a cap of $5,000.  The credit card allows you to borrow any amount of money at one time, up to $5,000, or you can borrow in increments.  The credit card acts almost exactly the same as your jar – you can take money from it, or put money back into it.  The big difference is that you can never take more than $5000 out and you will HAVE TO put the amount of money that you took out back into it at some point.  So if you take $100 out, you will eventually have to put $100 back in.  The other big difference is that you have to pay interest on what you take out, so if you took out $100, you might eventually have to pay back a total of $150 over time.

There are only two hard and fast rules attached to this particular credit card: (1) you can never take out more than $5000 at a time, including accrued interest and (2) as long as you pay your minimum payment every month, you are not in “default.”

You decide that since you now have this credit card, you can spend more than $1000 a month, so you do.  You buy all kinds of fun stuff, so your monthly expenses end up $1,200, month after month. You spend every dollar in your jar as well since you had some saved up.  But every month you continue to pay your minimum payment.  Pretty quickly though, you reach your cap and can no longer spend extra.  Due to the large balance, your minimum payment every month is $300.  So now your income of $1,000 a month exactly meets your bare necessities PLUS your minimum required payment to avoid default.  You can no longer buy anything excessive since you have spent your savings and maxed out your credit card.

The important thing is that you are NOT in default.  You just have to cut back on the $200 excessive spending a month that you have grown accustomed to.  You also won’t be able to save any money or have the benefit of occasional splurges that you enjoyed in the past.

This is the situation the U.S. Federal government faces – they have maxed out their credit card, so they need to cut back.  They WILL still spend money, but only equal to the amount they bring in.  Right now, and for the foreseeable future, the amount they bring in is enough to cover their minimum “monthly payments” on the credit card as well as their “crucial living expenses.”

The Importance of having a FANTASTIC Logo

16 07 2011

Recently I was speaking with an entrepreneur who was bragging about hiring a very expensive graphic designer to design a logo.  The entrepreneur was spending a huge portion of his startup budget on just the logo.  This is a very common and costly mistake!

A logo is your trademark.  As a general guideline, it should be recognizable and unique.  Anything else depends on your industry and target demographic.  For instance, sometimes you will want your logo to obviously indicate the product or service you offer.  Other times, you want it to be more subtle or just be something memorable.  But your logo will never be the key driver of your business.  Having a great logo or a catchy slogan will mean nothing if you provide a bad product or service.  Similarly, having a decent logo will be good enough if you provide a great product or service.

In the case of a startup with very little seed capital, wasting money on an expensive logo is a bad investment.  If you have a large amount of seed capital, then it does not affect you as much.