If you own a small- or medium-sized enterprise, you probably don’t have a big marketing budget. Therefore, your marketing strategies need to be cost-effective. Larger corporations can afford to spend a lot of money on displaying just a big logo and slogan, but SMEs can’t, and their logos typically don’t ring a bell to the common audience, anyway. With SMEs, you’ve got to pay attention to the five areas that increase market share, wallet share and profitability. That’s not to say that corporations don’t have to pay attention to these things, but since I’m writing to a target market of SME business owners, these five areas are especially relevant.
Let’s look at the five areas. First off, to increase market share, you need to draw in more leads and increase your conversion rate, which means convincing people to buy from you. A business that has 100 leads with a 10 percent conversion rate has a different problem than a business that has 10 leads with 100 percent conversion rate. Even though both of them end up with 10 buying customers, they obviously have different problems. By knowing the root cause of the problem, your solution can be more targeted and accurate. For instance, if you’re the business with 100 leads and 10 percent conversion, you may need to focus more on training your salespeople and working on your sales process. If you’re doing this in-house, it probably doesn’t cost you anything at all. But if you’re the one with 10 leads and a 100 percent conversion rate, then your focus may be on increasing marketing activities with things like flyers and ads. This time, you’re justified to spend some money.
But here’s the mistake most businesspeople make: They don’t measure the number of leads and their conversion rate. What they usually measure is the number of customers. So they know the result (i.e. customers) but they don’t really know what causes it (i.e. lack of leads or low conversion rate). So they make a guess
and invest marketing dollars to put an ad in the paper, for instance. Before you know it, their marketing budget blows up but their results are not optimal.
Another mistake is that most business owners only focus on leads and conversion rate to grow their businesses. Did you know there are three other ways to increase profits?
To increase wallet share, you need to increase the number of transactions per customer, i.e. get repeat orders, or increase the average sales per client. So you can increase revenue without adding customers. Actually, if you have measured the profitability of all your customers, is it good enough? Sometimes we spend so much time getting more and more customers only to find that our customers are not buying enough to justify the services we give to them. Have you analyzed your customer base to determine the high- and low-profit customers? Do you give them different amounts of focus and levels of treatment?
Strategies to increase wallet share are usually much cheaper than those to increase market share. They’re not sexy, cool and exciting, but they will give you more profit with less cost.
Finally, you must know what your profit margins are. Because many business owners are not financially savvy, they usually overlook this factor. There are over 67 strategies to improve profit
margins, but first you must know what your profit margins are.
Like customers, your products also vary in profitability. There are fast-moving, high-profit goods that deserve a lot of attention and marketing. But there are slow-moving, low-profit goods that you might as well stop selling. Trying to be a one-stop shop without proper financial consideration can be dangerous to your cash flow and profitability. You may end up with a warehouse full of dead stock and dead cash.
Knowing how to manage your money is also crucial. You see, many people hesitate to increase their expenses, but they don’t realize how much money and opportunity cost are lost in bank interest rates, dead cash, unproductive employees, overpaid managers, overtime and poor office management. You need to have complete financial reports to know what’s really going on in your business. You can’t make these decisions by guessing.
For now, start asking better questions in your business. I advise you, after reading this article, to rethink how these five steps outlined above would apply in your business. Next time, we’ll talk more about the details of making more money in a cost-effective way.
Coach Cynthia is a firm owner of ActionCOACH South Jakarta. For a free business health check go to www.acsj.co.id.