Business Management - Pricing

Much of your success in business will depend on how you price your services. If your prices are too low, you will not cover expenses; too high and you will lose sales volume. In both cases, you will not make a profit.

Before opening your business you must decide upon the general price level you expect to maintain. Will you cater to people buying in the high, medium, or low price range? Your choice of location, appearance of your establishment, quality of goods handled, and services to be offered will all depend on the customers you hope to attract, and so will your prices.

After establishing this general price level, you are ready to price individual items. In general, the price of an item must cover the cost of the item, all other costs, plus a profit. Thus, you will have to markup the item by a certain amount to cover costs and earn a profit. In a business that sells few items, total costs can easily be allocated to each item and a markup quickly determined. With a variety of items, allocating costs and determining markup may require an accountant. In retail operations, goods are often marked up by 50 to 100 percent or more just to earn a 5% to 10% profit!

Let us work through a markup example. Suppose your company sells one product, Product A. The supplier sells Product A to you for $5.00 each. You and your accountant determine the costs entailed in selling Product A are $4.00 per item, and you want a $1 per item profit. What is your markup? Well, the selling price is: $5 plus $4 plus $1 or $10; the markup therefore is $5. As a percentage, it is 100% ($5 markup = $5 cost of the item). So you have to markup Product A by 100% to make a 10% profit!

Many small firms are interested in knowing what industry markup norms are for various products. Wholesalers, distributors, trade associations and business research companies publish a huge variety of such ratios and business statistics. They are useful as guidelines. Another ratio (in addition to the markup percentage) important to small firms is the Gross Margin Percentage (GMP).

The GMP is similar to your markup percentage but whereas markup refers to the percent above the cost to you of each item that you must set the selling price in order to cover all other costs and earn profits, the GMP shows the relationship between sales revenues minus the cost of the item, which is your gross margin, and your sales revenues. What the GMP is telling you is that your markup bears a certain relationship to your sales revenues. The markup percentage and the GMP are essentially the same formula, with the markup referring to individual item pricing and GMP referring to the item prices times the number of items sold (volume).

Perhaps an example will clarify the point. Your firm sells Product Z. It costs you $.70 each and you decide to sell it for $1 each to cover costs and profit. Your markup is 43%. Now let up say you sold 10,000 Product Z's last month thus producing $10,000 in revenues. Your cost to purchase Product Z was $7000; your gross margin was $3,000 (revenues minus cost of goods sold). This is also your gross markup for the month's volume. Your GMP would be 30% . Both of these percentages use the same basic numbers, differing only in division. Both are used to establish a pricing system. And both are published and can be used as guidelines for small firms starting out. Often managers determine what Gross Margin Percentage they will need to earn a profit and simply go to a published Markup Table to find the percentage markup that correlates with that margin requirement.

While this discussion of pricing may appear, in some respects, to be directed only to the pricing of retail merchandise it can be applied to other types of businesses as well. For services the markup must cover selling and administrative costs in addition to the direct cost of performing a particular service. If you are manufacturing a product, the costs of direct labor, materials and supplies, parts purchased from other concerns, special tools and equipment, plant overhead, selling and administrative expenses must be carefully estimated. To compute a cost per unit requires an estimate of the number of units you plan to produce. Before your factory becomes too large it would be wise to consult an accountant about a cost accounting system.

Not all items are marked up by the average markup. Luxury articles will take more, staples less. For instance, increased sales volume from a lower-than-average markup on a certain item - a "loss leader" - may bring a higher gross profit unless the price is lowered too much. Then the resulting increase in sales will not raise the total gross profit enough to compensate for the low price.

Sometimes you may wish to sell a certain item or service at a lower markup in order to increase store traffic with the hope of increasing sales of regularly priced merchandise or generating a large number of new service contracts. Competitors' prices will also govern your prices. You cannot sell a product if your competitor is greatly underselling you. These and other reasons may cause you to vary your markup among items and services. There is no magic formula that will work on every product or every service all of the time. But you should keep in mind the overall average markup which you need to make a profit.

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Secrets of Successful Small Business Managemen

A business is an ongoing activity that doesn't run itself. As the manager you will have to set goals, determine how to reach those goals and make all the necessary decisions. You will have to purchase or make your product, price it, advertise it and sell it. You will have to keep records, and determine costs. You will have to control inventory, make the right buying decisions and keep costs down. You will have to hire, train and motivate employees now or as you grow.

Small Business Management - Setting Goals
Good business management is the key to success and good management starts with setting goals. Set goals for yourself for the accomplishment of the many tasks necessary in starting and managing your business successfully. Be specific. Write down the goals in measurable terms of performance. Break major goals down into sub-goals, showing what you expect to achieve in the next two to three months, the next six months, the next year, and the next five years. Beside each goal and sub-goal place a specific date showing when it is to be achieved.

Plan the action you must take to attain the goals. While the effort required to reach each sub-goal should be great enough to challenge you, it should not be so great or unreasonable as to discourage you. Do not plan to reach too many goals all at one time. Establish priorities.

Plan in advance how to measure results so you can know exactly how well you are doing. This is what is meant by "measurable" goals. If you can't keep score as you go along you are likely to lose motivation. Re-work your plan of action to allow for obstacles which may stand in your way. Try to foresee obstacles and plan ways to avert or minimize them.

Source: Managing a Small Business

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The Profile of a Successful Business Manager

The latest study by Assignments Plus of the business apppointments of leading companies throughout the world has identified the following defining characteristics of a successful senior manager:

� Exhibits a real knowledge of the company, an empathy for its mission, and a genuine commitment to its goals and values. � Has significant direct experience of the business and a proven, demonstrable record of achievement in the relevant management areas.
� Possesses outstanding planning, organisational and project management skills. Is a strategic and visionary thinker with a successful track record in developing, implementing, monitoring and evaluating strategies and initiatives.
� Has a disciplined and methodical approach to handling multiple projects simultaneously.
� Has the confidence and ability to prioritise and address a wide range of goals and issues.
� Thrives in a demanding working environment and is committed to setting and meeting tight - but realistic - deadlines.
� Is committed to building a strong team and creating a culture that recognises and rewards teamwork success. Respects and shares ideas and knowledge. Has a natural talent for establishing enduring relationships.
� Adapts readily to changing roles, methods, and situations. Is flexible, open-minded, and responsive to new ideas. Embraces challenge as welcome opportunity and displays a positive "can do" attitude.
� Is a logical thinker with strategic and pragmatic analytical skills. Has an innovative, imaginative and creative approach to problem solving. Is equally comfortable applying logic, reason and lateral thinking to tasks and challenges.
� Has the ability to engage with individuals and groups at a variety of levels and from wide-ranging backgrounds.
� Possesses outstanding verbal and written communication skills. Can assimilate and translate complex information into concise and lucid formats. Displays excellent presentational skills.
� Is an articulate and persuasive negotiator with dynamic influencing skills.
� Has the self-confidence and ability to take the initiative when required.
� Is passionately committed to high-quality customer care and service excellence.
� Manages resources effectively. � Is computer literate and conscientious in updating Web knowledge and research skills.
� Possesses excellent time-management skills.
� Demonstrates a real commitment to continuous improvement; and sets programmes in place to ensure the structured development and progression of all other members within the company or organisation.

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Five Rules for Fixing Customer Service

Companies both large and small often spend time and money on big customer service ideas intended to woo new clients in the door only to lose their regular customers over little service slipups. “Customer relationships are made or broken when something goes wrong,” says customer service expert Maribeth Kuzmeski, founder of Red Zone Marketing in Chicago. “If you don’t have well-developed service recovery techniques in place, you’ll lose the customer every time.”

In an age of social media, it takes only one disgruntled customer to create a disaster for a small company. The internet has greatly amplified the customer’s voice. If someone were to “go viral” with a negative story about your business, you might lose a lot more than one sale, so it pays to have a strong service recovery plan in place.  “You can absolutely keep and create loyal customers in today’s economy, but you have to have the service chops to take care of them,” says Kuzmeski. “When you do so, you can create clients for life and guarantee the success of your business.” Here are five things you can do:

1.    Learn to recognize and truly understand your customer’s situation. Provide an individual care approach for your customers. For example, someone with children will have very different concerns from a busy businessperson and vice versa. So you must train your employees to recognize these key differences and adjust their responses accordingly. “Teach service employees to understand the context of a situation and to sympathize with customers,” says Kuzmeski.

2.    Deliver on what you tell the customer after a slipup. Customer service is more than reciting a tired phrase such as “someone will be right there to help you.” Be specific about how the problem will be resolved. When handling a service issue, let the customer know what’s going to happen and when. The more information customers have, the less anxious they feel.

3.    Treat any second complaint like a dire emergency. Most people are fairly forgiving after one mistake—assuming you address it promptly. But when you get a second complaint, well, it’s time to go into emergency mode. At that point there’s no room for further delay or error. If you want to keep your customer, you must make sure the problem is taken care of immediately.

4.    Make sure the service concept permeates from top to bottom at your business. Make it a team effort. Don’t let employees “silo” your business by approaching customer service only from the narrow perspective of their own particular job or responsibility. Make sure that everyone understands the customer service plan and that everyone knows how to work together to solve customer problems.

5.    Don’t assume your customers will give you a second chance. Think about it this way: If a customer has taken the time to call you about a problem, you are already getting lucky, so you’d better take care of it fast. You don’t always get a chance to make it right. Often, customers will just move on.

“Remember that your competition is constantly trying to sell the same product cheaper, faster and better than you,” says Kuzmeski. “Don’t make it easy for them by providing inadequate customer service.”

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Six Steps to Better Business Execution

Many businesses have quality products and services, a realistic strategy, well-defined mission and skilled people.  Yet they can’t seem to gain traction, deliver consistent results or grow.

So what’s up?  In most cases, the problem comes down to this: Execution. Some businesses are structured for results, and the people who run them know how to execute.  “If an organization can’t execute, nothing else matters — not the smartest strategy, not the most innovative business model, not even game-changing technology,” says Rick Lepsinger, president of OnPoint Consulting and someone who’s studied business execution for years.

So how can you make your business the “git-er-done” type rather than the “can’t quite git-er-done” variety? Try these six steps:  

1.            Create and Use Action Plans

Action plans are the cornerstone of effective execution. They help you translate broad objectives into specific activities. First clarify your goals. This provides direction for the work and helps determine when a project is complete. A good goal statement is specific, measurable and time bound.

A good action plan helps you manage the workload, review progress and communicate about the work to be done. Its basic components include:  action steps that break down the work to be done into tasks and activities; who’s responsible for each step; a schedule with start and completion dates; and resource requirements.

2.    Expect (and Get) Top Performance

You need everyone at your business working at full potential. When we believe people are capable, we treat them like they are capable, and they come to believe it themselves. Too many businesses fall into a “low expectations” mindset. Get rid of it. If you have low performers, focus on what they do well. Set a modest stretch goal that is easily attainable and provide appropriate coaching and support.

Catch people doing something right. Providing recognition for a job well done has a powerful effect on people’s ability to execute. It reinforces good work and shapes future behavior.

3.    Hold People Accountable

All business owners know accountability is important, yet many don’t hold others accountable. In the heat of the moment it seems easier to just do it yourself or “let it go.”  Create an environment that helps others operate at a higher level of responsibility. For example, you can boost accountability by setting people up for success. Three simple actions will help:

• Clarify expectations. Here’s where you explain “what good looks like.”
• Establish clear due dates. Saying things like “as soon as possible” and “by next week” lay the foundation for misunderstandings.  
• Schedule periodic check-ins. Agree to these upfront and you won’t be viewed as a micromanager.  

4.    Involve the Right People in Decisions

Decision-making is a complex activity and there are things you can do to improve the quality of decisions your business makes. First understand what “delegate” truly means. Avoid the “dump and run” approach to delegation as well as the “over-engineered” approach.  Sometimes it’s okay to be an autocrat. Other times you need to build consensus. Rather than relying on instinct or going with your gut, try a systematic decision-making process. This helps you avoid letting emotion or bias cloud the issues or simply defaulting to choices you’ve made in the past.

5.    Build “Change Readiness”

Execution often requires people and processes to change.  One reason businesses fail to execute is that the people who need to step up and get things done have fallen into a pattern of resisting change.  It’s far easier to talk about things than actually do them, which can require taking risks. You may need to help employees “talk themselves into” wanting to change. Reinforce “change-talk” within your business whenever and wherever you can. Emphasize that without change, growth can’t happen.

6.    Pave the way for Collaboration

Even small businesses can have complex structures with one department relying on others to get things done. That means cooperation and collaboration are keys to success. First make sure everyone understands what you’re saying. When you demonstrate you want cooperation, others will sign up. Establish common ground. When everyone is working toward the same goals they’re more likely to cooperate – and execute.

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10 Tip offs Your Small Business needs a Server

Suddenly the world is awash in low-cost, high-powered, easy-to-install computer servers designed especially for small business.  For example, HP and Dell have both rolled out new small business server offerings putting these powerful devices within reach of many small companies for the first time. The HP ProLiant – small enough to sit on or under a desk and priced at just $329 – is a great starter server aimed at businesses with up to 10 employees. Meanwhile, Dell’s new R415 and R515 PowerEdge servers pack an even greater storage (up to 8 TB), speed and reliability punch, starting at about $1,200.

But how do you know when a server is suitable for your business?   Here are 10 tipoffs:  

1)      You have multiple PCs.  Bottom line:  if you need two or more PCs (or Macs) in your business, it’s already time to consider a server. By storing and organizing documents and data in one place, you’ll be able to access and share files easily.

2)      Running software is vital. I you have important business-related software applications you need to run on more than one computer, a server can help.  No need to waste time and money installing software (and frequent updates) on each individual PC.

3)      Employees can’t share software, computing power and broadband access.  A server lets employees share documents and software, access company databases and share broadband internet.   A server will help you store and organize documents and avoid multiple-version confusion so you always have access to what you need, when you need it.

4)      Customers think your business is owned by Go Daddy.  If you’re still using one of the mass market website hosting companies such as GoDaddy and you want your company website to break out of that cookie-cutter mold, using a server to host your own site will present a more professional image and let you build a better web presence.  Ditto for email.

5)      You do business outside the office:  If you work from home, travel frequently or have mobile or remote workers, a server will allow you and your employees to remotely connect to your company network and access information and resources no matter where you are.

6)      You’re drowning in wires and cables:  If you have two or more computers that share access to peripherals, such as printers and fax machines, it may be time for a server. Not only will a server help you eliminate the mess of excess cords, it also saves the cost of buying them. 

7)      Your business creates and/or stores lots of data: Even today’s lowest priced small business services offer tons of storage space, and the processing speed to help you get at it quickly.

8)      Your PCs are going gray: Whether you want to replace your old PCs or just help them function better, a server can help.  Using a server to shift files from an old PC to a new one is a cinch.  This frees up memory and storage, helping older PCs function better.

9)      You want better backup and stronger security:  If you have valuable files and data that can’t be replaced, a server will help protect them from loss and corruption. You’ll be able to back up information easily and restore files that were accidentally deleted or misplaced. A server also lets you more easily restrict access to sensitive information, such as financial records and personnel information, by storing it away from prying eyes.  

10)   You want to look better to your customers and accountant.  A server lets you easily add powerful new software solutions and platforms — such as customer relationship management (CRM) and accounting programs — which allow you to schedule group meetings, share financial information, and manage clients and vendors.

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New Tax Law Expands Small Business Equipment

The Small Business Jobs Act of 2010 (SBJA), signed into law in September, adds or renews several attractive tax incentives for small business. This is Part II of our series explaining key provisions of the SBJA with tax experts from CBIZ.

Expensing Election Extended and Expanded:  Under prior law, the Section 179 expensing election allowed businesses with active trade or business income to immediately expense (write off)up to $250,000 of tangible personal property placed into service in the 2010 tax year. The maximum amount of the deduction would begin to phase out when total eligible purchases exceeds $800,000. SBJA enhances this deduction in several ways for assets placed in service in tax years beginning in 2010 and 2011:

1. The maximum amount subject to the election is increased from $250,000 ($25,000 in 2011) to $500,000;
2. The phase-out starting point is increased from $800,000 ($200,000 in 2011) to $2,000,000, and;
3. A taxpayer may elect to expense up to $250,000 of qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property.

According to CBIZ, this provision marks the first time that the expensing election has been extended to any type of real property. It does, however, come with some caveats. Generally, if a taxpayer cannot deduct the full amount of the Section 179 deduction due to taxable income limitations, the excess carries forward to future years until there is sufficient taxable income to absorb the remainder of the deduction. With respect to qualified real property, any amount subject to the election that cannot be utilized in the tax year beginning in 2010 will be carried forward to 2011.

Any amount subject to the election that cannot be utilized in the tax year beginning in 2011 (including any carryover from 2010), will be deemed to be placed in service as of the first day of the year and will be subject to normal depreciation rules for the ensuing tax years as if no Section 179 election had been made.

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