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| 8 Costly Mistakes in Small Business - Part 1 of 2 |
By:
Steve Teta |
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Here’s an interesting notion: Do you realize that there are mistakes you can make at various stages of your business’ development that can be slowly killing it for months or even years if you don’t watch for them?
Well, these mistakes are real and they don't just affect new businesses. A lot of functioning businesses, including the ones you consider "successful" based on how long they've been around, often make these mistakes and are probably losing a lot of time and money as a result of it.
Although some of these big and sneaky mistakes seem aimed more at service type companies, they really do fit the bill for almost any type of industry. I have tried my best below to list examples to help prove it.
Underestimating Project/Service Time: This one is huge and it relates to both service companies as well as businesses that sell a product. This is a service company’s bread and butter. If you don't properly estimate the time it will take to perform all of your services, you will lose money and there is nothing you can really do except to learn from your mishaps. The best way to estimate time is to do it once yourself or watch your best employee do the task and then throw in a little fudge factor on top of it. For businesses that sell a product, time is an issue when it comes to logistics, so you should be aware.
Not Knowing YOUR Company Numbers/Incorrectly Setting Prices- Notice I emphasized the word “your”. It is a big mistake to copy a competitor's price-points without first testing or knowing why to use those numbers. Think about how it would affect your company if you took your competitor's prices, lowered them by a few percent and began selling. Suppose that competitor has bad pricing and is hardly making a profit or worse, losing money?!?! What happens if your overhead is more than theirs?!?! If you need to, you can use your competitors pricing as a place to start, but you need to test and cannot base your whole business aproach on it.
Every industry has it's own numbers when it comes to cost and expenses and you need to be aware of them when it comes to your business strategies. What you pay for a product you are going to sell is not the only cost to have in your head when you are pricing products. How much your labor and materials cost for a service is only a piece of an hourly rate. The expenses of employing workers cost more than just their salery and not every worker is part of your labor costs. Companies also have to pay for the expense of insurance. A number of overhead expenses need to be part of the price point. The biggest point individuals miss when setting their price point is the quality of what they are selling. There is a lot that needs to go into your pricing, such as, "standard product features" or "standard services" as well as job site etiquette or in store services or warranties. I’ll get to more on why in the next segment.
Your Time & Costs; Not Charging for ALL of It - This may seem like a silly statement to some but I am sure that most business owners would admit that they have given away too much at times. Hey, there is nothing wrong with giving a little extra here and there to show you care. But, that's not what I'm referring to anyway. What concerns me are those that put a lot of quality into their work or products or stores and do not cover the cost for it. As an example, say you run a service company and your competitors don’t do a certain standard service that you do. A business cannot just lowball their price to win a job because they need to have those additional costs included in their price and they need to tell the customer that their price includes an additional service. Stores undermine themselves, for example, when they put more people on the floor for customer service but don’t charge for it. When you provide additional services they cost you money and if you're competitor doesn't provide them their expenses are less. Put out better service and then under price them, and your competition just has to wait a little bit for you to fall on your face so they can swoop back in.
When running a business you need to know that you are providing your clients products or services that are worth paying for. You should take the time to explain that your prices are higher because of the additonal services you provide. If they don’t like the fact that you include things that others charge extra for later or that you treat them better, then they are most likely completely price shoppers. You don’t want them as regular customers anyway. Trust me.
Wasting Money on Advertising Just to Say You Advertise: It is almost better to not advertise rather than to waste money without making sure to track the results A marketing plan is bascially useless if you do not have the proper systems in place to measure how well the campaign is working.. Another wasteful mishap that is frequently made while advertising is not tracking previously successful campaigns. Why some people think that just because a $400 dollar a month ad worked once very well for one busy season, that it will automatically work every year after that is beyond me. This discussion is continued in part 2 of the 8 Costly Mistakes in Small Business article. |
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