2008 Issue 2
Make Buying From Your Website
Easy
Time IS Money
— So Get The Best
Return On Your Investment
Discounting Is Dangerous
The Power Of Numbers:
Profitability Ratios
 
Make Buying From Your Website Easy
Most businesses have by now spent money
developing a website to feature their products.
But actually getting a return on that investment
through attracting leads and making sales
doesn’t necessarily follow. Many are so poorly
designed and constructed that they drive
customers away instead of encouraging them to
buy.
Tuning up your website by implementing just two
basic principles will improve your chances of
keeping visitors interested in looking around
and progressing to a purchase.
1. Make The Navigation Customer-Centric
While part of the pleasure of shopping in a
bricks ‘n mortar store may be the ability to
leisurely browse your way over to the item you
came in for, that’s generally not the approach
of the website store visitor. These shoppers are
very intolerant of delay in getting to the
product they want by being forced to click
through numerous pages. Or worse, being so
frustrated by poor navigation that they can’t
even find what they are looking for at all.
Customer-centric navigation tools guide shoppers
directly to the products they want to buy before
they lose interest.
If you sell a lot of different product lines try
to classify them in some way that brings all the
items in a particular line together. For
instance, if you were selling pool supplies you
might use categories like "pool cleaners", "pool
pumps", "pool heating", "pool filters", and
"pool toys". If there aren’t a great number of
these categories then display an individual
navigation tab for each, otherwise a drop down
menu from a "Products List" tab is a better
approach. Use the terms that the target audience
is likely to use and recognize – common
descriptions if you sell retail to the general
public or technical terms if you deal with
people in the trade.
A category listing should be only one of the
ways of providing access to your products.
Search functionality is necessary to complement
the ability to browse around in categories.
Searches can be set up in any number of ways. A
particularly useful method is to provide an A-Z
listing of all products so that a person looking
for "Floating Pool Lights" can locate them by
looking under F and clicking straight through to
a list of the types you hold. Even more helpful
would be to also have them listed under P ("Pool
Lights – Floating") and L ("Lights - Floating
Pool Type") to cover the different ways people
approach searching for items.
Some visitors will already have a particular
brand in mind while others will be after a
replacement part from a particular manufacturer
so an A-Z listing of products by manufacturer is
also helpful. The shopper in need of a
replacement "Poolrite" cartridge filter can go
straight to the information on them. Even a
parts number search is useful in some
situations.
If you deal with price conscious shoppers then
the ability to sort results by price can make it
easier for them to make a choice. Finally, allow
for the user who just isn’t sure and provide a
general keyword search option.
2. Make It Easy To Buy
Having made it easy for your visitor to find
what they want, now make it simple for them to
buy it.
First thing is to provide multiple payment
options. These days most website shoppers expect
to be able to make their payment online – more
than 90% of all online business is done using
credit cards. True, not everyone is comfortable
providing their card details over the Internet
and not everyone likes to shop with a credit
card, so to cater to these customers also
provide more traditional pay routes like
ordering by telephone, by fax and by mail.
Central to making a sale is the design of your
checkout process. Studies reveal a distressingly
high rate of cart abandonment by online
shoppers. There are many contributing factors
but in most instances it is simply that the
customer can’t follow the process because of
unclear navigation. Common features for a smooth
checkout include giving the customer the option
to continue shopping or proceed to checkout as
each item is added to their cart, showing the
details of each item they put in their cart
including an image of the product and a link
back to the page they found it on, and making it
easy for visitors to change their mind by
altering quantities or removing an item.
Your Internet store is not only open 24x7, it is
visible worldwide – so consider what would make
purchasing from it easy for a shopper located in
another country. Provide your full street
address to reassure the customer that they are
dealing with a legitimate business. Add a handy
currency converter and provide solid information
on postage and handling costs.
Instead of just costing you money, a well
designed customer-centric website will start
doing what it’s supposed to do - making you
money.
To Top 
Time IS Money — So
Get The Best Return On Your Investment
Have you ever reached the end of the day and
wondered where all your time went? Playing
catch-up to retrieve wasted time is what keeps
many SME owners welded to their business
premises way outside of ‘normal’ business hours.
For many SME owners a number of their customers,
suppliers and employees are likely to be friends
as well as business acquaintances. This overlap
of private and business relationship can lead to
requests for assistance or for special deals
that can make serious inroads on their time. A
lot of small business operators go slowly broke
doing work for friends at discounted rates or
for free. "Discounted rates" translates as "at
less than your market value" and that means more
hours you have to put in to make up for the lost
profit.
Activities justified as building relationships
with customers and suppliers can easily stretch
out to time wasting proportions whereas choosing
an appropriate form of contact in the first
place could have sped up the information flow
and decision making. Phoning someone to resolve
a complicated issue will save time over emailing
backwards and forwards with them but for
straightforward matters an email that takes 5
minutes to compose and send is more efficient
than several phone calls.
Other entrepreneurs seem happy to waste time
carrying out basic tasks of little productive
value. Is it really necessary to run errands
such as picking up a check from a creditor when
it could be mailed through? How many waste time
making duplicate trips because they haven’t
planned the most efficient sequence of visits or
deliveries, or notified customers in advance of
their visit and find no one at home?
Figuring out just how valuable an hour of your
time is can be a real eye opener. Understanding
how much money you are wasting by wasting time
is the best incentive for making changes that
will improve how you utilize your work hours. To
figure out the minimum hourly value of your
time estimate how much money you're making per
year and divide it by 2,000 (a 40 hour week over
50 weeks – plug in your own actual figure if you
know it). To estimate the maximum hourly value
consider how much you make when you are most
productive such as the value of product you
could turn out in an hour, what your billable
client time rate is, etc. Somewhere in between
these figures is the real value of your time.
That figure should be your benchmark for
deciding which activities are earning you money
and which are losing you money and wasting your
time.
With a sense of your hourly value in mind look
at each task in terms of opportunity cost – what
you could be earning if you weren’t doing this.
Any job that brings in less than your hourly
value figure should be up for reconsideration.
You can make arrangements not to do some of
those jobs that bring you in less than your
going rate or you can put definite limits on how
much time you are going to commit to low value
work. Could you outsource your financial record
keeping to a bookkeeper? Hire a junior to do the
mundane low value adding tasks? Automate some of
your processes? Use an answering machine or an
answering service?
Dealing with people who use up your time in ways
that don’t produce any gain for your business,
such as obvious tire kickers or friends who are
always dropping by for a chat, can be dealt with
by learning techniques to tactfully terminate
pointless conversations. On a more personal
level you can decrease wasted time if you learn
to use some of the proven time management skills
like scheduling your daily activities. In
essence, the more time you save by working
efficiently and effectively the more money you
will be able to make. Taking a course in time
management can provide a real payback in terms
of avoiding time wasting activities.
No one wants to be a slave to the clock but the
fact is there are only 24 hours in a day, 7 days
in a week, and 52 weeks in a year. Time wasters
come from the people around you as well as from
within yourself. Curtailing time wasting
activity will allow you to earn top income in
minimum time so you can enjoy the fruits of your
work. Setting aside some time to think about how
you could save time, most definitely will not be
a waste of time.
To Top
Discounting Is Dangerous
Offering a discount in the heat of negotiations
may seem like a good idea at the time but
thoughtless discounting is an easy way to lose
money fast.
Before you succumb to the temptation to win new
business by offering a discount take a moment to
consider these ten problems associated with
discounting.
-
Discounting eats away profit margins!
-
Negotiating a discount focuses the customer’s
attention on your price. If your only
competitive advantage is price you are in
trouble because price can always be matched by a
competitor. The focus should be on the benefits
of the product to the customer that make the
price, if not irrelevant, then at least not the
primary influencer of the decision to buy.
-
Discounting can affect the customer’s perception
of the value of your product – the "you get what
you pay for" syndrome. The less they pay, quite
likely the less they will value it.
-
Discounting may affect the quality of your
service. If you have offered a discount and
realize your profit margin is going to be slim
if you do the job to your usual standard then
there’s the temptation to cut corners. That
compromises the quality of your work and if it
results in customer complaints it eats into your
margins even further. Poor work gets talked
about and you risk your reputation and the
referred business that can come out of being
known for quality.
-
Discounting can result in reduced demand.
Customers might see the opportunity to buy at a
discount as an opportunity to really stock up on
the item and that can decrease their need to buy
for some time into the future. Altered buying
patterns can effect sales predictions and cash
flow forecasts.
-
Discounting increases work hours. In effect,
discounting means lower income per hour, so to
maintain your profit level you are going to need
to put in extra hours to compensate for the
narrower margins on your sales.
-
Customers can gouge you. Word of discount deals
gets spread around and if you did it for one
customer, what is your justification for
refusing it for the next one who tells you they
"know you did it for Person X"?
-
Discounting can be addictive. To make a sale
it’s easy to fall into the habit of offering a
discount as a first resort instead of as the
last. It’s possible to win custom by offering to
negotiate on things like after sales service, a
longer guarantee period or an added accessory
rather than resort to a discount offer. Some of
these may never turn into an extra cost to you
but are valuable to the customer and may be
preferable to a discount in their eyes. Before
you discount, stop and think: is this the only
way I can give value?
-
Guessing wrong. If you make up your discount
offers on the spur-of-the-moment you are going
to guess wrong. It’s very easy to underestimate
costs and end up out of pocket. Discounts, if
offered at all, need to be based on an itemized
costing of the job and include a buffer for any
extras incurred should things not go as smoothly
as expected.
-
Discounting starts price wars. The company that
usually wins is the one with the biggest balance
sheet—the one who can afford to hold out the
longest. That’s a dangerous game to play.
Unfortunately, discounting as a business
practice has become so entrenched because of its
supposed ability to win sales that it is
difficult to break the habit. But think about
how many times offering a discount has actually
been an investment that paid off in the long
run.
Of course, there are some valid business reasons
to discount, such as liquidating obsolete or
seasonal stock or to meet cash flow
requirements. But smaller businesses should have
carefully calculated strategies for discounting
so it’s not done thoughtlessly with a disregard
for margins or retaliatory action by irate
competitors. If you want to follow best practice
then develop a price policy that includes your
discount deals and the exact amounts to be
offered in each circumstance and stick to it.
Base it on an understanding of the real costs of
production and your profit margins. If you
employ salespeople, make sure they know about it
and stick to it as well.
To Top
The Power Of Numbers: Profitability Ratios
In this final article on ratio analysis we look
at profitability ratios. Profitability ratios
are probably the most important indicators of
your business' financial success. They reveal
both its actual performance and its growth
potential. No doubt all business owners are
familiar with some of these, such as gross and
net profit margin, but others, such as Return On
Equity, can give you an entirely new perspective
on your business.
Net Profit Margin:
shows you the bottom line on profitability – how
much of each sales dollar is ultimately
available for you to draw out of the business or
to receive as dividends.
Formula: net profit / turnover
Reference to industry norms will provide a
baseline for gauging if your profit margin is
adequate. Analyzed over time, the year-to-year
variations may be due to abnormal conditions or
expenses. Variations may also indicate cost
blowouts which need to be addressed.
A decline in the ratio over time could be
indicative of a margin squeeze suggesting that
productivity improvements need to be initiated.
In some cases the costs of such improvements may
lead to a further drop in the ratio or even
losses before increased profitability is
achieved.
Return On Assets:
indicates how well your business is using its
assets to produce more income by relating how
much profit (before interest and income tax) the
business earned to the total capital used to
make that profit.
Formula: net income / total assets
The ratio can be used on an annual basis to
compare your business' performance to that of
firms in a similar line of work. A low ratio in
comparison with industry averages indicates an
inefficient use of business assets. A high ROA,
indicating high return on investment in assets,
can be attributable to high profit margins, a
rapid turnover of assets, or a combination of
both.
Return On Equity Ratio (ROE):
also known as Return On Investment (ROI) it
shows you what you’ve earned on your investment
in the business over the accounting period.
Formula: net income / owner’s equity
In short, this ratio tells the owner whether or
not all the effort put into the business has
been worthwhile. All other things being equal,
the higher the ROE the better the company and
the more value you are getting from the effort
you are putting into running it.
You can compare your business’ ROE to what you
might have earned on the stock market or a bank
savings account during the same period. Over
time your business should be generating at least
the same return that you could earn in these
more passive, relatively risk free investments.
Otherwise, why are you spending your time,
trouble, and capital on it? Would you be better
off selling, putting the money into a savings
instrument and avoiding the daily struggles of
small business management? The alternative is to
work at improving ROE through developing a clear
strategic plan for growing the business.
The bottom line on your income statement is not
the only important figure on it. It may not even
be the most significant. Ratio analysis provides
a whole extra dimension of valuable information
obtainable from the data in your statements that
can be used to evaluate your company’s
performance, its current status, and its
evolution over time by monitoring progress
against predetermined internal goals (as in your
strategic plan) or by checking on how you
measure up against competitors and the industry
overall.
Ratio analysis is a proven way of identifying problems in a
business. The information they reveal can be
used by owners to make the right decisions for
improving operations and building a stronger and
more successful business.
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