Reduce Inefficiencies
That Drain Your Time & Money
Make your business effective and efficient. Do it on purpose and not by chance:
Go lean: stop using up resources that don't increase your profits or foster good will
Improve quality: eliminate avoidable mistakes
Make decisions based on facts, not on "how its always been done"
Your time is precious! Productive people are efficient ("lean"). They have more time for family, training, volunteer activities, hobbies, and retiring early. learn more
Waste is costly! Productive people are effective (make fewer mistakes). They have more money to invest, travel and grow their business. learn more
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Make sensible improvements today to put more money into your pocket.
Your clients won’t complain about increased prices when you help them understand the outstanding value they receive for their money. When clients perceive your prices as reasonable and fair they will not look elsewhere. It is difficult and time-consuming to do price comparisons between your prices and the prices of your competition, especially for custom work.
Don't assume your clients have an accurate - or even a reasonable - perception of the complexity, skills and risk associated with your unique business. Educate him/her about what makes your business special by adding informative details about your services and products to the job estimate or handing out promotional brochures about your business. Make sure to highlight the training/certifications and years of experience of your employees and supervisors.
Value (what a customer is willing to pay for a product or service) is a personal perception. Clients look at the price of an item or service in terms of desirability to them. This is how they arrive at their own personal definition of value.
Too low a price on a high end product devalues the product and the service in a client’s eyes. They may suspect a problem or feel they settled for an inferior product. Too high a price will damage your credibility. However, realize some clients are never happy with prices even if the products are free. Don't aim to please everybody.
To get more bang from your precious marketing budget, target only those clients or teaming partners who best fit your business long term strategic plan.
If you don't have a strategic plan, start one now. You can't know how your business is doing without a measuring stick.
Design a rating scheme to help you identify optimal clients and business partners and to weed out those that will bring you down. Use the rating scheme to prioritize work schedules so existing clients who meet your ideal model get your very best service.
If your strategic plan includes stabilizing cash flow, reducing costs and continuing to grow, your ideal clients and business partners might be:
Perk your client’s interest in alternative products and services by suggesting options they didn’t request but truly fit their needs. This is the best way to build client loyalty and outlast the competition.
Clients ready to buy are often willing to spend a bit more to get an exciting feature or benefit they hadn’t thought of themselves. They may even be grateful to you for thinking of a particular option; it shows you understand their needs. Insert a note in an invoice, email or mailing to remind the client again of an unselected option if there had been any sign of interest previously.
If the client doesn’t buy an available option now, he/she may come back to you later after their confidence in your company has been established. If the option isn’t ever purchased, it didn’t cost anything to present the idea. No risks and yet great potential for gains. Win/win for everybody.
Examples of options clients might appreciate learning more about:
Ask your clients if they would like to receive free periodic notifications about product updates or special pricing offered by vendors for related products. Add their names and addresses to your e-mail list or hardcopy/electronic newsletter. A client’s agreement to future notifications opens the door to welcomed, on-going communication and potential marketing opportunities. When agreement is reached, don’t delay in sending out periodic notes. This builds long term business relationships with valuable clients.
Also, nurture positive client relations by keeping in touch with current and previous clients at least once every six months through cheerful and friendly birthday cards, holiday cards, thank you notes and requests for referrals with discounts, promotional items, drawings or other incentives. Your clients need to know you care about them and they will care about you.
An impressive savings (10% off products and materials – but not off labor charges) will get your clients’ attention. Encourage them to pay a large portion (such as 80% or more) of the job estimate in advance.
Offer a smaller savings (5% off products and materials - again, not off labor charges - never discount labor charges unless the customer is a non-profit or relative) to clients who pay invoices in full within 14 days, for instance, of receipt of their bill.
Charge a late payment fee (at least 5%) for invoices or remaining portions of invoices over 30 days delinquent. Don’t allow partial payments to exempt the late payment penalty on the remainder. This practice will encourage clients to put your invoice on the top of their TO-DO pile. Clients expect to pay a penalty for late payment. Give them the option of paying on time or paying later with the significant penalty.
To show you are serious about your business, invoices more than 6 months overdue should be referred to a collection agency and/or repossess the products – with a repossession fee.
Charge a minimum of $50 for each returned check or credit card charge denied by the bank. This reimburses your business for some of your handling costs. It may cost your business $35 or more just for each returned check by the bank plus the cost of any other transactions impacted by the domino effect of a bad check plus accounting labor charges.
Charge a prorated fee for returned merchandise (restocking fee) for returns due to issues beyond your control like general client dissatisfaction, change in scope of work after installation or repossession due to unpaid invoices. The fee needs to cover most labor costs for travel/from to the location, de-install, inspection, repacking, shipping costs, loss of business discounts or promotional benefits, etc.
Add a comment about these charges to the disclaimer portion of your estimate template so your clients get fair notice in advance of your terms and conditions.
Clients should pay the full cost of pricey products and shipping you buy on their behalf using your company's good credit before the order is placed - unless you are willing to charge your client's to act as their finance company. Charge at least if not more than the interest rates finance companies charge – at least 13%. Get a credit report prior to taking on this obligation.
This is risky business to get into. Do you really want to float the cost of buying custom or high end equipment as well as tying up the time and effort spent over the life of the transaction when you could have been making money doing other business?
Errors are wasteful and waste directly and painfully reduces your profits. Errors impact your customer’s perception of value (worth for the money). A few mistakes are human but many mistakes indicate poor workmanship, bad character or carelessness.
At a minimum the labor cost to your business for each mistake is three times the cost of doing the job right: the time to make the mistake, the time to fix it and the time that could have been spent doing something else right.
The cost of lost business is huge. Will a wronged client recommend your business or be willing to do business with you in the future? And, unhappy clients talk. A lot.
After the first minimum labor hour charge is accounted for (assuming each job has at least 1 hour minimum cost), invoice customers in fractions of labor hours.
This detailed accounting enhances a perception of being a more authentic and reliable record of time spent. This eliminates the temptation to throw in free labor for work that takes a few minutes more than a full hour (or half hour). Ten minutes here and there add up substantially to the business’ bottom line and gives a more accurate historical record of the actual cost of doing the job.
Regardless of whether labor is billed in fractions of hours, every business should be able to prove their labor charge by workers reporting hourly details on their timecards (including salaried employees). This is required not just for clients but for audit purposes and as protection in case of litigation when the business needs to show who was working where, why and for how long.
Work performed at a distance from the main office location, work that is unusually risky or adds unusual wear and tear to equipment/vehicles - like the beach four-wheel drive area where salt and sand corrode exposed metal - or other work with negative impacts unique to a specific customer or set of clients are suitable for reasonable compensation.
Establish yourself as the local expert on some aspect of your business by offering interesting seminars on popular products or timely, new technology. Get published – add the reference to the webpage and advertising. This is an inexpensive way to promote your company.
Customers like jumping on the bandwagon of companies with a positive reputation. Another inexpensive way to publicize your business in a positive manner is to sponsor a local charity event or little league team. Get the photo and description of the event published in the local newspaper. Post it to your webpage.
Sincerely congratulate your clients on how smart they are for using your company and remind them of the incredible value they received from your selection of products and services.
The term “post tan affirmation” is taken from the success story of a tanning salon. The salon reported that it greatly increased sales when its employees started affirming the attractiveness of their clients’ tans as they were leaving the facility. These few kind words made the clients feel good about their purchase and the time they spent at the salon. It added a sense of personal interest and intimate friendliness to the experience. Their clients wanted to return and wanted to recommend the salon to their friends.
A few kind timely sincere words cost you nothing but are worth a million dollars in marketing when it is genuine. And, it works . . . !
Keep a detailed record of what it costs for you to do business. Record hours spent on timecards and record all expenses in QuickBooks or other smart accounting software program.
Review the data. Do the records show your profit margin over time matches your business plan? If not, you may need to put into play a recovery plan if you are going to stay in business. Perform periodic analysis to see if profits are increasing or decreasing. Determine the cause of any change. Prepare a plan to keep your profits growing.
Sales are often lost just because of not asking for the client's business or asking the client for a referral. Ask every caller, every contact and every past client for their business. Make periodic phone calls and send notes. They’re going to buy from someone – why not from you?
Don't depend on your own expertese for marketing or process improvement. Your time is too valuable - get an expert who has already been through the ropes. They've made their mistakes on someone else's time. If they are not worth their money, fire them and get another one!
Use every potential client contact to inquire what their needs are or if there are questions about some new technology. For past clients, assure they are still happy with your service and products. If not, promise some sort of remedy (such as a discount on a future purchase) and then do it immediately. Statistics confirm your past clients are more valuable to your business than going after new ones.
To avoid the expensive habit of underbidding just to get the business, be realistic about what it really takes to do a job.
Once the estimate is accepted by a client, it’s too late to remember a labor-intensive step or find out a part is no longer available. Use diagrams or role playing based on experience to model each step noting time requirements, materials, training, risks, etc. Ask others in your organization to review your estimates as a reality check. Analyze your bid estimation data after the fact to see how accurate your historical estimates are. Did you make the profit you expected to make on each one? If not, why not?
Be careful not to estimate the number of required labor hours or material costs on just a single aspect of the service (like on-site installation). Consider all aspects for the lifecycle of a typical - not optimal transaction. Never estimate the cost of doing a job on performing a seamless job. Perfection may feel good to the ego but it costs dearly when something unpredictable happens. Be realistic.
The full lifecycle of a business transaction involving products and services might include:
Don’t be squeamish. Somebody pays for all your company’s labor hours – it needs to come from this client or from an aggregate of client invoices - or it comes from PROFIT.
A rule of thumb based on your company's economic statistics might be to multiply the anticipated number of installation hours – for instance - by 30% to account for the other typical labor hours. Add to those hours the time required to travel to and from the customer location once to do the installation and at least one follow-up visit for sizable or complex jobs.
Also based on your company's economic statistics, multiply bids by a percentage to cover overhead costs like electricity, accounting services, taxes, and office supplies. An example of the cost of doing business might be 8%.
What is an acceptable level of profit for you to stay in business? 15%? 20%? What is the industry standard for your type of company? Are you settling for less? Are you ready to manage your business or do you need a professional business manager who can assure a reasonable level of profit for you?
The cost of gross errors or sloppiness made by you or your employees should never be billed to clients. This comes out of profit or the employee who made the error should compensate the company in some reasonable manner. This is a lesson that won't be repeated.
Given the choice between an underbid and an overbid, go with the overbid. If a job is significantly overestimated the final invoice to the client can always be edited for a reduced amount, a refund or a discount on future purchases. Clients are thrilled to pay less than they expected. No client will tolerate being hit with unexpected charges after the fact.
If you competition underbids you to get the business and you are confident with your bid, don't sweat it. That client is likely to come back to you after the competition sends them a revised cost or does a poor job. There's more than one way to play the bidding game.
Hourly employees working at the office or on-site cost your business less than hourly employees in transit. The difference is the cost of using company vehicles and the loss of meaningful productivity while they are driving/riding to the job location. Charging a flat hourly labor rate for on-site and off-site means the difference in the cost of having and using vehicles and tools to serve your client comes from your profit.
Charge a premium for the use of vehicles per hour or charge mileage to account for wear and tear, gas and depreciation.
The current government rate is $.501/mile. The government website for calculating personal vehicle mileage is http://www.gsa.gov/Portal/gsa/ep/contentView.do?P=MTT&contentId=9646&contentType=GSA_BASIC
Clients should pay for any unusual expenses associated with their purchase. Unless training, testing or tools will be used on several other jobs or to win new business, include the cost in the estimate and the invoice. If this requirement on the client is unacceptable to him, refer the client to your competition rather than “eat the cost" of expenses you may never be able to reuse or recoup.
Once a job estimate has been accepted by a client (and this is done in writing, of course), any change costs your business precious time which could have been spent doing something else for another current client or finding a new one.
To recoup the costs, if significant, consider a change of scope fee – whether it is a decrease or increase in scope. Many businesses charge 30% just to revise already approved contracts. The business rationale for this charge is the burden of labor hours needed to reconfirm interaction of different parts with vendors, the impact to procurement recordkeeping and other costs. This practice will help to discourage cavalier changes once a deal has been made – especially if products have been ordered.
If the details of every job you collect money for is not in writing, then you are not really serious about your business. In the real world, every company needs an audit trail. Include times and dates, names, parts, problems, material costs and exceptions/promises unique for that client or job. Sign it. Keep the record as a legal document to protect yourself, your employees and your clients.
Don't forget to count your hours toward a job. Whether it is bidding, accepting deliveries or follow-up with the client - your time is not FREE!!!
Use practical tools that have already proven themselves, like Six Sigma, to speed up your improvements. Projectize the work to assure your success and to keep the cost of improvements low. Take measurements showing definitive benefits. These records will give you the lift you need to ease into other necessary improvements. Keep benchmark records showing your progress. Remember to reward people for helping you become a more profitable company.
Use these tips to help your company achieve higher profits while using fewer resources (like your time and money).
Make improvements to those areas that affect your urgent business needs first. Take measurements before and after to ensure the changes are working favorably over time. Gradually make other new changes to continually progress toward your objectives.
Get more time and more money for you and your family. God bless.
Email your requests and comments to mjlawson(at)GetMoreTime4You.com
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