Posts Tagged ‘make money’

Last week, my business made £1,180 from a customer without doing any work. All it took was for this particular customer to pay their invoices late.

I know that Late Payers are a constant worry for the majority of freelancers and small businesses. The majority of my own customers pay late. However, on the whole, my late payers are only 2 or 3 days late in making their payments – which I can live with.

But this one customer was over 80 days late in their payment, and the amount was large – very large. In fact, the original invoice was nearly £60,000 in value. As you can imagine, when the amount is so large, and with payment being so long overdue, it can lead to a lot of sleepless nights – will they pay at all? Will I have to take them to court? Will they eventually turn around with 1,000 reasons why they are not paying (delivery was not as they wanted, etc)? In short, would I ever see the money?

I had a signed contract – so was covered from that point of view. In the contract, it talked about my terms and conditions, which included my late payment penalties – so was covered there. And my online accounts system (the wonderful FreeAgent was regularly sending them chase notifications).

After the invoice was 30 days overdue, and after a lot of worry – I bit the bullet – and raised a late payment invoice for 30 days of interest (8% over the base rate – so maths = (((amount of invoice + 8.5%)/365 days) * 30 days) plus my £50 admin fee.

30 days after that, I raised another 30 days of interest and another late payment fee, and then a third late payment invoice. They now had four invoices outstanding (the original plus 3 late payment invoices)

After the third invoice, it did seem that I was wasting my time – I was calling them and was being given more and more complex reasons for the late payment (we have a new accounts system, the payment manager is on holiday, its in the next payment run) – I even started to research on Google which debt collection company would have the most success (and which would cost me the least).

And then, guess what…. they paid. There was no email or call or anything – the money just magically appeared in my company bank account. Not only did they pay the original invoice, but also the late payment invoices – so an extra £1,180 into my bank for no effort from me.

And you know what – that’s more money than I would have gained in interest in having it sit in a bank – so I am very happy.

We all suffer bad payers – but don’t give up. Chase, chase, and chase some more. When things get too much, threaten and then do it – raise that late payment invoice. Don’t put up with those late payers. And don’t wait until they pay to raise a late payment invoice – raise one a month – it acts as a reminder to pay the original invoice (and that you are serious).

As long as you have a signed contract and a clear set of terms, the law is on your side.

When I am contracting on a customer site, one of the things I find most helpful to me is the alarm on my watch.

As per my last Freelancing verses Contracting post, with contracting we are being paid for our time, not for the products we produce.   So when I contract, it makes sense to me to ensure that I leave their offices each day as soon as the agreed hours have been met.

That may sound harsh or inflexible, but look at it this way – if a contract for resource time is for 7.5 hours a day and you end up skipping lunch and staying for an extra 30 minutes at the end of every day, that can add an extra hour or 90 minutes of effort a day.  Over a week this can add up to 7.5 hours – or an extra day of work.   You are not being paid for that time, so what you are effectively doing is either discounting your rates by 20%, or you are reducing the length of the final contract by a day a week.   If you do an extra week a month of unpaid work, its one week sooner when the contract will end (or wont get renewed).

Of course one of the problems of leaving on time is that you are running out of the door when the permanent workers may still be working.  But wait a minute – they are doing that not for the love of the work – they are doing it in the hope of a pay rise, or to further their career or just to keep their jobs.  As a contractor, you have none of these to worry about.  So why shouldn’t you leave on time?

I have found the best method of easing into the ‘leave on time’ is to initially work the hours agreed plus a bit more for the first week, and then to explain to everybody how I will miss a transport connection by leaving after the agreed time (oh the traffic is so bad after 5:15pm around here, oh I just miss my train connection, etc).  Then make sure you leave on time.  But to signal the exit by setting a discreet (but audible) alarm on my watch to signal and remind me when its time to end the day.

That way you do the hours, do the job, but your alarm is the one nagging you that it’s time to go.

Of course some contracts do pay overtime – in which case this is not needed.   But generally that’s not the way contracts work – you have a day rate for a fixed length of day.  So stop robbing or short changing yourself, and get out of the office on time.

PS – In case you are worried that this may effect any contract extensions, I have used this system on all my previous contracts, and never have I not been renewed or extended.

At the end of January, I carried out my companies year end.   Using the small business accounting package (Freeagent), I was able to complete my year end accounts in less than an hour, and passed the figures to my accountant for sign off and submission.   Job done!   Then once everything was complete in my year end, I did some detailed year end analysis, looking for trends, costs which could be reduced, small profits which could be nurtured in the new financial year, and any other changes that I could make for the better.

Once my analysis was complete, I then did something which I have never done before – I fired 4 customers!

You see, by using the timesheet analysis in Freeagent and comparing the time spent on the customer against the revenue they had brought in, I worked out that these 4 customers were costing me money to support them.  The effort of support, answering emails, quoting for new work (work which was never taken up) and other day to day maintenance did not meet the invoices I raised against them.   Put it another way, each of these 4 customers was a drain on my company.

Worst than that though – not only were these 4 customers costing me money to support them, but they were actually taking up the most expensive commodity I had – time.  Every moment that I spent on their maintenance, was hours and days which I could not spend on new or more profitable customers.

So one at a time, I called up the principle contact for each of the customers, and as I say, I fired them.  In a nutshell, I said “Sorry to trouble you, but I have been going through our records and it appears we haven’t done any real business in the last year or so.  It also appears we are spending a lot of time providing free maintenance for you in the way of emails and other support, so I regret that we have reached the point we need to terminate our relationship”.  Yes, I know – fairly heartless right??

The effect of the conversations was as follows:

One customer got really upset.   They was some name calling, they hung up on me, and I have never heard from them again.

The next two customers said they understood, they could see my point.  They said that their finances did not allow for any new purchases, so there was nothing they could do.  They asked for a hand over meeting (which I provided free of charge), and they were happy to call it a day.

The final customer of the four was shocked.  He didn’t realise that his staff called on my company so much, and was very apologetic.   He asked for a figure to provide the support to them for a year, and promptly raised a purchase order.  They remain a customer – and I now get paid to answer their query emails, to raise quotes and attend meetings with them.

But the point is, by removing the non-profitable customers from my customer pool, my company has gained some 180 hours or so of extra time a year which can be directed to profitable customers and projects, with no impact on my balance sheet.   Now you can say that maybe I should have held on to them until a new customer came along to replace them, but then where would the 180 hours come from to allow me to deal with the new customers?

I am also in the process of firing a pet personal project – a project which I spend a little time on yet doesn’t generate any revenue or return.   It’s not easy because I have invested time, money and effort into this project, but it’s important not to get emotionally attached to customers or projects.  If they are not working.  Much better just to cut the ties and move onto something which is more fulfilling, responsive and ultimately profitable.

Don’t you think?

If you happen to follow me on twitter, you will have seen that I have been on holiday in Kenya.  Whilst I was there, I landed 2 new sales – actually the quotes had been sent out just as I was flying out on holiday, but I got the email confirmation whilst I was out there.  In my business we have a rule – we get a new sale and we do a little dance to celebrate.   As both emails arrived, my wife and I did the ‘new sale boogie’ on the beach with cocktails in hand – nice!

So how did I find these new customers?   Google Adwords!   Let me give you some numbers for the adwords campaign since I started it in early September…

• Adword Campaigns running (groups of search terms) : 9 – see the screen shot of my ad groups
• Total impressions : 9,988 (as at the time I type this now)
• Total Clicks from ads : 60 (again, as of now)
• Cost of the clicks : £163.57
• Enquires from clicks : 23
• Confirmed Sales : 2
• Ongoing conversations : 7
• Value of the 2 sales in total : £34,600!!

Not a bad return – £35,000 of sales value from £163 marketing cost and 6 or 7 hours of time.   So I am here to say, Adwords does work….. if you do it right.

I have posted about Adwords before, saying it can get out of control – and it can.  It’s like a wild animal, you have to keep your eye on it, keep grooming it (refining the styles, ads, words, etc), pull it back when it goes too far, and most of all, get it house broken when you first set it up.

Yesterday I wrote about defining your ideal customer – and this is the most important bit.  Once you have your ideal customer defined, you can then plug this into adwords – for EACH AND EVERY advert group you run, set the restrictions as much as possible on things like view times (mine run Monday to Friday, 9am to 5pm), location, language etc.

Other things I recommend when using Adwords are:

• Use Adword rotation – don’t just have one ad per group – have 3 or 4 to rotate, turn off the google optimisation of placement (where it only uses the best), use them all, see which is the worst performing, then change the words to make it more attractive.
• Change the bid amounts to be lower than the suggested average Price Per Click (PPC) – you will still get exposure and clicks, but for less money.
• Turn off (in the settings) under Networks the Search Partners – stick to the main Google Search.  Also, change the Display Network option to Relevant pages only on the locations you manage (so google takes account of your previous location/language settings)
• When you get an enquiry from your call to action on your web page – follow it up as soon as possible.   Whoever tries to contact you, they will also be contacting other companies so you want to be the first to respond.
• If you have never set up Google Adwords before, get a book on how to do it properly (or sub-contract the set up).
• Keep control of your costs.  If you link your Adwords into an online accounting system (such as the fabulous FreeAgent), your costs will be imported for you and will detailed in the accounting analysis.
• If you run Google Analytics, link the Adwords to Analytics (in the Analytics site) – this will then provide further information on which search terms and adverts are working best, bounce rates per advert etc.  All of this can be used to refine your adverts and improve the return on investment.

If somebody asked you to define your ideal (or target) customer, could you do it?  Have you even given it any thought, or is it one of those business concepts which are there for the big boys, and you are really looking for anybody, anywhere, that has money to spend and needs your service or product?

The reason I ask, is that earlier in the year, I had to define my ideal customer – for a number of marketing activities, and it was a difficult exercise for me.   I provide IT database software services to companies with… well…. databases.   Should that not do?  Does that not cover it (I asked)?  Actually, no – it turns out that being vague is one of the worst answers.   Without defining the target, how could I hope to know my customers when they come along, or hope to get my message across to the right people.

Take for instance, the concept of location.  That’s a fairly easy one I guess for most people.   They will say that their target customer is say, in their own country, or if you are completely virtual -anywhere in the world.   But let’s think about this.  If it’s anywhere in the world, do you want to deal with people in countries that can’t speak English?  And what happens if it all goes wrong?  Do you really want to travel around the world to sort out a problem for a few hundred pounds of sale value?

So I started to get specific.  I realised that because 90% of the time I have to meet the customer at some time, I didn’t really want to travel to Scotland, or Wales, or Ireland, or even spend 7 hours travelling too far north for a prospect sales meeting.   So I worked out that for me, my ideal customer lived within 127 mile radius from my home office.   I know that sounds specific – and it is.  127 miles from me, is 2 miles off of the French coast, yet includes major UK cities – London, Bristol, Birmingham, Southampton etc.  127 miles can be travelled in a couple of hours.   If I said 130 miles, I would be getting prospects in Northern France, if I said 120 miles, I cut off half of Bristol and Birmingham.

Once I had this concept sorted, the rest fell into place.   Other categories which I then defined were:

• Language – English speaking
• Company Size – over 30 people, but less than 200 (don’t want to waste time on small SME’s with little budget, nor go for the bigger companies that the big consultancy companies target)
• Industry – Private sector or NHS (my services don’t work for charities, or government offices, etc)
• Turnover – from £100,000 up to £5m – again see the company size logic
• Type of person I need to speak to – IT manager, information manager, Development Manager, CEO or MD
• Working Hours – Monday to Friday 9am to 5pm (don’t want to be working for companies that only operate at weekends, or out of hours)
• Requirements – Must use databases such as SQL Server or Oracle, maybe smaller databases like access, Informix or DB2

I could go on, but suffice to say that by defining as many categories as I could, and then refining them down as much as possible, when my ideal customer appears I know them and know that I can work with them.

Now it could be argued that by creating restrictions (such as location) I am reducing the number of potential customers, but then do I really want to travel 600 miles to Scotland or Ireland to try and sell my services, when there is a person 40 miles from the prospect who has a better chance of the sale and less costs to service them?

Tomorrow, I will talk about how I used the above information for land £10,000’s of revenue for less than a £100 investment.

If you haven’t spend the time to define your ideal or target customer, take 10 minutes and define them now.  I promise, it’s worth the effort.

I have just returned from a wonderful 3 week holiday to Kenya.  It was great not only because of the wildlife, relaxation and the time away from small business hassles – it was also good because it gave me 3 weeks to reflect on my small business and where I wanted to grow.

During these 3 weeks, I found myself propped up in a bar in Nairobi, chatting with another business owner (also on holiday) who was doing very well for himself.   We got chatting about business (as you do) and I asked him the question I always ask other business owners – “what is the one tip you would give small business owners”.  Unlike other answers I have heard which talk about cash flow, or invoicing, or getting your USP sorted, this one had a different answer.  Which was…

Don’t be scared of the word NO!

Without repeating the entire conversation here, he went on to explain that without doubt, the biggest problem small business have is staying true to themselves, staying on target to their goals, and not being dragged into directions and projects that do not fit with that the company does.  Therefore (he explained), if you are not happy with a project, if a customer wants too much, if a work co-worker walks in and asks for help (interrupting you), if an employee pushes the bounds or you feel you are being pulled in the wrong direction, don’t be afraid to say “No”.   Many small businesses are just so grateful for the money or so scared of making the wrong move, they will agree to anything or at least try to turn it into an advantage for them, even though the right move was to just say no and walk away.

However, he said it was a bit more complex than this.   No (he said) was a harsh word – a brutal full stop of a word.  “No” can cause resentment, embarrassment, arguments and hostility.    So when using the No word, the other word to use is “Because”.

Because is the reason.  Because tells the story and keeps things friendly.  Because makes it a professional decision.

If a conversation went along the lines “Can you create a product for me?  No!”, it’s the end of the conversation.   But, if the answer is “No, because this is not what we do, but let me point you to somebody who can” – this sets your credibility and keeps the door open for doing what it is your company does best.

One of the hardest questions that a contractor, freelancer or a small business owner has to answer is how much to charge for your product or service.   Even if you manage to initially answer the question, it’s not something you can set and walk away from; pricing needs constant reviews to make sure you are making a profit, that you are generating business, and that the competition is not taking your sales.

There are all kinds of ways to work out the cost model for your product/service, depending on the uniqueness of your offering, and how you want to generate revenue.    Whilst not every option will work for every service, the following are the most common methods of working out the sales cost for business:

Cost by Return
The most common method is the cost by return – how much you need to sell a product for and by how many to cover the costs and make a profit.  For contractors or freelancers with a service, this is normally your yearly costs (salary, tax, etc) divided by the number of workable days (242 when you take out weekends, public holidays and 4 holiday weeks a year).   For manufactured or web based products this is more of a tricky calculation as you need to get a balance between number of units sold multiplied by a price, to see if this covers the material/creation costs to provide a profit.

Cost by Competition
Another simple way of pricing a product or service is to cost by competition; what others are charging for a similar product or service.  Again, for contractors or freelancers this is easy, as the typical day rates will be listed by agencies or job sites.  For small business, it can be a bit more tricky as it means speaking to competitors to see what features their version has and its price.   Also, it can be difficult to find a competitor with a true like for like service, but it can give you an indication of what ball park figure you need to charge.

Drop Your Pants
Not sure where the business term of “dropping your pants” comes from, but it basically means selling as cheap as you can in the hope of winning lots of business and therefore make profit through quantity of sales.  One disadvantage of this approach is that no matter how cheap you can sell for, there will always be somebody cheaper.  Plus, some customers will actually stay away from your products through a drop in perceived value.

Ad Generated Revenue
This is the principle of the internet and smart phone applications – provide it for free with lots of advertising, in the hope that you will get sufficient traffic which will lead to a relatively high number of advert clicks which in turn generates revenue to cover the costs.   Personally, I have never met anybody who has made money from this method (I would really love to hear from somebody who has), so I consider this a very, very high risk gamble.

Freemium
Freemium products are becoming more and more common.  Freemium is where your product comes in two forms; a free to use version (with or without the ad revenue generation as described above), and a premium version with more bells, whistles and functionality.  The idea is that people use your product for the free version, become hooked and some will eventually pay you for the premium content.   With this method, more thought needs to be given in the cost of the premium version as not only do you need to work with the cost/conversion numbers, but you also need to factor in the features you add (or hold back) to differentiate the two modes.  Some companies even make this more complex by providing different scales of premium content.   Whilst Freemium is highly used now for a lot of products and services, get the numbers wrong (and there are a lot of numbers to juggle) and your business will not last long.

Premium
At the other end of the pricing spectrum is the premium cost offering.  A lot of brands actually market themselves as a premium product or service, with one expensive price tag in return for an implied quality above and beyond the competition (look at brands such as Stella beer, Twinings Tea, BMW, etc).  If your message is strong enough, this can be a good tactic as it means you need fewer sales to make a profit, and will not get distracted by the customers who will spend less money.

Need First Curve
The Need First curve is ideal for companies with very exclusive or sought after products.  The idea here is that on launch, the price is high as people demand the service and MUST have it regardless of cost.  Then, once the must-haves have been dealt with, the price is generally lowered over time with the excuse of ‘cheaper production costs’.   Brands that have used this in the past include Apple (iPAD, iPhone, etc), Sony with the PS3, Microsoft with xbox etc.   If your product or service allows for this curve, then congratulations.

Tempt in Curve
As the name suggests, prices are set cheap for new customers by the way of promotions, discounts and trial offers, and then raise once they are hooked and know the quality of your product.  A large number of both product companies (i.e, printers which are cheap, but have high ink costs) and service companies (i.e, Sky television, free box for new customers) use this technique.

Ask the Customer
The method of costing that I like more than any other is asking the customer.  Its simple – find a target customer (or a handful), put a price structure together and ask them if they would pay.   Feedback from customers is the best way to find out if the price structure will work – if they tell you its too expensive, ask them what they would be willing to pay.

Try Different Mixes
But if in doubt, why not try all of the above, and mix it up.  If you have a web site with your price list and a ‘buy now’ button, have different web page versions to rotate and see which makes the best sales/profit margin.  If you are making real face-to-face sales, try some quotes as low ball, some as premium, some with an introduction offer, some with your calculated return price, and see which sells and makes money.

You want a solution developed?  You can have it delivered quickly, you can have it delivered cheap, and you can have it work without problems.  But you can only pick 2 of the 3.

Source of Quote: Unknown.

Over the last few months, I have been actively looking to grow my small business using a lot of the techniques previously detailed in this blog.   I did this because I could see things drying up, so wanted to make sure there was work for the future.  Unfortunately for me, the work didn’t in fact dry up, and I generated more work with the result that I now find my company with too much work to do.

Don’t get me wrong, it’s a very nice position to be in, but at the same time, it can be stressful with so much to do, so little time, and so many expectations set.   Many freelancers and small businesses live in a cycle of famine or feast; periods of time with either too little work or too much.

So what can be done to smooth over the work bumps and create a more balanced schedule?

The Lead Time Tactic
Have you ever wondered why when you purchase goods, some say “Allow 28 days for delivery”?  It’s because the seller does not actually have the goods you want, so you pay and they make (or buy in) to order, which has a lead time.   The same trick is used by big companies who detail in their quotes for work standard lead time to development start (i.e, “Any quotes accepted have a current lead time to start of 9 weeks”).    Giving a lead time can set an expectation.  The advantage is that everybody knows where they stand (and you can always do it earlier if you have slack time), but the disadvantage is that if the customer really wants it now, they may go elsewhere.

Honesty
Sometimes, being honest can be the right approach.   To say something like “I would really like to work on this project, I am just finishing something else, but give me 4 or 5 weeks to wrap this up and I will get started” has the same advantages and disadvantages as the Lead Time Tactic.  However being honest may mean you can sleep better at night.

Outsource or Extra Resource
Where you are overworked and the customer can’t or won’t wait, it may be worth looking at outsourcing or hiring temporary extra staff.  Yes, this has a cost, but as long as the cost of the staff is below the cost to the customer, its still profit and far better than a lost sale.

Lower Quality
You may be tempted to reduce the quality of the delivery to reduce development/production times and so reduce the amount of time you need to spend on a project.  This can be a risky option if the end delivery is unacceptable to the customer, not fit for purpose, or at the end of the day the customer won’t pay.

Phased Approach
A middle ground between the lead time and the lower quality is a phased delivery.   By breaking the project into stages, and putting a slightly exaggerated customer review phase between phases (review, beta testing, etc), it allows you to phase the project over a longer time period whilst still delivering chunks to the customer.  This can also have the advantage of appearing to follow a good practice of alpha, beta and final releases of a delivery for customer approval/feedback at each phase.

Burning the Midnight Oil
Of course, you may prefer to try to do it all by working all hours on as many projects as you can, or working extended days to complete projects as quickly as possible.  Whilst this may work for short bursts of time, it is ultimately unsustainable in terms of personal health, relationships and quality of deliveries.

Discounts for Delayed Starts
Whilst customers generally come to you because there is a demand for your services NOW, they may be tempted to delay the start and delivery of the completed products for a discounted day or project rate.  Whilst the discount needs to be sufficient to be tempting for the customer, and it of course means less cash for your company, it does mean that you have better control of the scheduling of work.

Last week, I attended a sales conference for small business owners.  About sixty of us attended the conference.  As part of this event, twenty people were selected to stand up and give their elevator pitch and then the rest of us scored their pitch for impact.   This little exercise was used by one of the guest speakers to illustrate a powerful way to get your foot in the door.

Out of the 20 elevator pitches given, most rated a 5 or a 6 (nobody wanted to give anybody a 2 even though there were some shockingly bad ones), but 2 or 3 stood out as 10s.

The difference between these winners and the rest was simply that the best ones included a metric.

Most of the elevator pitches went along the lines of…

“Hello, My name is Sam Smith of Such-and-such advertising, and I help small companies just like yours increase sales through targeted awareness campaigns which result in more quality enquires”

Nothing wrong with that – says who he is, the company he works for, what he does and the results he can achieve.   As I say, most people rated this type of pitch a 5 or 6 out of 10.   But then compare it to a 10 out of 10 result….

“Hi, my name is Sam Smith of Such-and-such advertising, and I help small companies just like yours increase sales by, on average, 30% a year through targeted awareness campaigns which result in more quality enquires”

According to the marketing and sales consultant giving the presentation, adding the one simple average metric gives a massive boost to interest through:

• Causing the listener to pay attention – numbers call for mind action, whilst words can just wash over us
• Makes the listener mentally project the same metric onto their own situation.  This means that they start to sell to themselves after you stop talking
• Gives a subconscious reassurance – its not just a casual claim in the pitch, but a fact based on numbers
• By providing an average, this leads to a listeners best case scenario planning – averages mean that there will be high returns AND low returns, but human nature means we always project the best

Of course, you really need to have some facts to back up the metric you quote, but even if you base it on just your last completed project, it adds value and is more likely to get you to the next step of the sales process.

Regardless of the size of your business, as either an owner or a manager, you need to have a plan and a goal for your business.  Initially, this goal may just have been to start or manage a business (and get you out of the rat race), but once your business is up and running, you need something else to keep you motivated and moving forward.

When I meet other owners of businesses, most have business goals that they have set themselves.    Clearly, with the economic environment being what it is at the moment, a lot simply have the goal of staying afloat, but many want more than just survival.    From experience, business goals tend to run in phases….

Phase1 – The creation. Creation of a business is the biggest leap, either by setting up your own business or joining a small existing company, this phase is leaving the standard ‘working for somebody’ job and going it alone.  Most small business owners and managers complete this phase normally not by small steps, but by a push or a big jump.   Redundancy seems to be the biggest push owner/managers get.

Phase2 – Survival. Once a business is up and running, for the first year or so, the game is survival – to get enough customers and money in to keep afloat.  It’s as simple as that.

Phase3 – The Money. Once a business has been running for a few months through to a couple of years, then it becomes about the money – making as much as possible.  A lot of companies wind up stuck in this phase, including a lot of multinationals.  If money is what drives you, then maybe this phase is the natural place for you.

Phase4 – The Goal. And this is the hardest phase – deciding what you need, what you really want, and what you want your company to become.  Some people I have met have wanted to just run a business and end up not doing any actual work, some want to have a business that only takes 2 days a week of their time, some people want their business to be the best in a market, or supply the best quality product or service.  Money clearly helps to allow your business to reach the goal you set, but in order to have a really successful business (from your point of view), you need to define the goal and work out what you need to reach that goal.

For me, my business goal is for my company to supply the best products and services it can, to assist other companies in reaching their goals, to provide honesty and integrity where others fail to deliver, and to eventually allow the company to feed into my own personal retirement goals.

Now and again, you need to step away from working in your business, and spend a few hours or a few days working on your business – working out what phase you are in, what you need to do to reach the next phase, and make your business what you want it to be.  Doesn’t matter if you run a one man consultancy company, a partnership, or like me, a small business which employees a handful of staff – you need to take the time.

So why not schedule a few hours in your diary to work on your business today.