While it’s a good idea to have a long-term vision for your business, it’s important not to overlook the benefit of having a ready supply of cash coming in on a regular basis. How can you improve both your short-term and long-term outlook?
1. Be vigilant about collections. You are not a bank. That’s an important concept, and one that small businesses often overlook in an attempt to placate a valuable client. When you offer credit to your clients, you’re financing their purchases, and it’s not just your right, but your responsibility as a business owner, to make sure you collect in a timely fashion. One of the easiest ways to do that is to make a follow-up call shortly after you send an invoice. Start by asking if your client has any questions, then remind them that payment is due. You accomplish two things by doing this: You’re removing any possibility of an excuse about the invoice they “haven’t received," and you're improving customer relations.
2. Set up Monthly Recurring Revenue (MRR). MRR ends up being a win-win for you and your clients. When you can set up your business to bill a set amount each month, your client can budget better and you have a predictable revenue stream. The hidden—and most important—benefit is that you become much more efficient when you’re billing for a flat fee, rather than on an as-needed basis. IT services often work this way because it’s cheaper to pay for an on-call technician than it is to hire an employee. You as the IT provider are invested in providing thorough, efficient service to minimize the time you spend on each client. I’m even seeing doctors' offices setting up health-care services bundled together and billed regularly, focusing on preventative care, rather than a traditional fee-for-service model.
3. Fire bad clients. Identify the clients who eat up all your resources—whether it's time, human resources or goodwill—and cut them loose. By doing this, you’ll free up resources you can devote to getting more out of your great clients. It's another win-win: Your best clients are happier, and you’re providing better service, while increasing your sales to them.
4. Cut unnecessary costs. You can become more profitable in one of two ways—either by increasing your selling price, or by cutting your cost of goods sold. If you can eliminate waste and become more efficient, you’ll see higher profit margins without changing your pricing.
5. Sell or rent your unused equipment. I know a landscaper who owns several large trucks that would sit idle throughout the cold winter months. A few years ago, he started leasing his trucks out to folks who needed them and couldn’t afford to purchase such expensive equipment for themselves. What was otherwise wasted (big truck in winter) became a source of unexpected income.
6. Package offerings together. McDonald's does it with value meals. Computer companies do it by including software bundles. Think about your offerings and find a way to include additional services—at an additional cost, of course. You’ll often find that you can upsell your existing clients pretty easily by offering them greater value.
7. Offer three choices. Consumers want to feel like they’re in control. They want options, but not too many! Present your clients with three options, and use the pricing structure to give them some perspective. A $1,000 option might seem really steep, but not when you sandwich it between a $10,000 and an $800 option. Comparison makes that grand seem perfectly reasonable.
8. Become a subcontractor. Find the big guy in your industry and offer to help out with their workload. You’ll have a steady stream of new clients, and you’ll save money on sales and marketing because the leader’s doing it for you. Sure, you’ll give up a portion of the sales price, but you’ll save a bundle in the long run.
9. Choose your words carefully. Don’t “discontinue” a product; “retire” it. Give your valuable customers “one last opportunity to own” your gem of an offering. Refer to your phased-out item as a “limited edition.” Words have power, and by using them effectively, you’ll be able to let consumers know what a great value your brand really is.
Money is the lifeblood of business, and simple strategies can—scratch that—will make a huge difference in the vital flow of cash through your company.
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