To ensure your business is on solid ground, you need to be able to answer the following seven questions about your customers, your industry and your overall operations.
1. Who are your most and least profitable customers? Many owners find that paying attention to the allocation of labor and other costs on a per-customer basis uncovers resources that aren’t allocated to the most profitable channels. Using accounting software, such as Quickbooks®, you can identify the most and least profitable customers and allocate expenses accordingly. Sometimes, the customer that appears to be attractive does not benefit the bottom line.
2. What are your most and least profitable products? It is also useful to allocate cost by product to include both direct and indirect costs. A direct cost is specifically associated with the product, such as raw materials or labor. Indirect costs include the allocation of overhead for customer service or order processing, where hidden labor costs sometimes lurk.
3. What are your most and least profitable markets? Often, market profitability is driven by the cost of deployed resources, such as customer service vehicles, sales territory representative or competitive pricing. By evaluating profit by market, you can uncover market opportunities and deploy salespeople efficiently to increase total profits. Similarly, market-profitability analysis can reveal pricing gaps — where products may be underpriced relative to the cost of servicing a market.
4. Which marketing investments generate more than $10 in revenue per dollar invested? SunTrust business owner research finds that eight out of ten small business owners do not calculate return on marketing spending. The inability to measure which marketing investments generate revenue hinders profitable growth. Consider technology-driven marketing investments that demonstrate and quantify a marketing program’s effectiveness, including search engine optimization (SEO), Google AdWords and email marketing services. These programs make it easier to quantify how many people actually saw an advertisement or clicked through for more information.
5. Which leads are worth your time? Most organizations don’t value leads properly and, consequently, don’t track and follow up on them. A good tool for quantifying leads is the B.A.N.T.S. scoring system. Evaluate each lead on the following criteria:
6. Who are the 100 people who matter most to your growth? It is helpful for you to consider the 100 people who matter most to your business’ growth. Think of these 100 people as a sales channel. Cultivate the relationships to generate word-of-mouth referrals. Identify which customers contribute most to your profit, which customers/vendors/ distributors are your net promoters and which customers generate the most referrals.
7. How much growth can your current cash flow sustainably support? Knowing your “sustainable growth rate,” or the amount of growth you can support with current cash flow, helps create a growth plan without the risk of running out of cash for existing operations.
About SunTrust Business Owner Research: SunTrust surveys small business owners and advisors as part of its ongoing business seminars and symposiums. The small business owners attending these events include both SunTrust client and non-client business owners and are representative of the broad spectrum of businesses located in the SunTrust markets. The research cited in this report is extracted from these 5,425 small business owner surveys collected between 2007 and 2011.
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