So you want to be an entrepreneur? Before we figure out the ‘How’ we need clarity on the ‘Why’. One of the ingredients for entrepreneurial success is knowing the passion for what you do. When you have clarity on your ‘Why’ you can be passionate about ‘How’ you run your business.
For example, my own ‘Why’ is to improve the quality of life of my business-owner clients and their families. Since I don’t have children of my own, my contribution to the world is serving business-owners in a way that supports a stronger family so they can focus on raising their children in the best environment.
An entrepreneur typically starts out in a business they are technically proficient at. A hairdresser opens a salon or a chef opens a restaurant. Sorry, but if you want to make money as a hairdresser or chef you should work for an entrepreneur, not be one. An entrepreneur is a person who can become ‘the conductor of the orchestra’ as opposed to being someone who plays a particular instrument. The goal is to hire people to play the instruments, so you can conduct.
An entrepreneur is by definition a risk-taker. This means you would need to overcome any fears of failure or fears of success. Entrepreneurship requires a mindset of embracing and accepting failure. The key is not to avoid failing, but to fail in the most efficient, controlled and least expensive way! Jim Balsillie, co-founder of Research in Motion (Blackberry) calls this process ‘failing forward’. With each controlled failure you learn and progress forward towards success.
A large majority of entrepreneurs are chronically undercapitalised. This is not an easy problem to fix, but having enough cash is critical. Without sufficient cash reserves, entrepreneurs cannot make the right long-term strategic decisions and actions. A lack of cash impairs your short-term thinking by keeping focused on the looming cash crunch. A decent cash reserve gives you confidence to make strategic decision and be in business long enough to collect the return on investment.
If there were queues at your local Post Office last week, this is why: Royal Mail’s much-talked-about prices increases came into force today. The price of a first class stamp is up 30%, from 46p to 60p. Second class stamps have rocketed by an inflation-busting 38% - from 36p to 50p.
The most obvious and immediate effect of the price rise has been stamp stockpiling. But perhaps more worryingly, research conducted by Pitney Bowes suggest that 81% of small and medium-sized companies think today’s postal rate change will have a negative impact on their business. Of these, 7% say that they fear their business may not survive the threat.
The research, conducted amongst 1,000 businesses, found that 15 per cent of companies would consider moving to a franking machine to avoid the price hike. However, almost half claimed they will be sending less post, or swapping postal communications for email. And 25% reckoned they’d switch to second class more often in an effort to save cash.
Given the widespread news coverage and controversy over the new prices, it’s perhaps surprising to see the research reveal that many businesses were entirely unaware of the changes. Almost three quarters (69%) of those polled said that advance information provided to them was ‘poor and confusing’, and they were not aware that the changes would be so significant.
So, how prepared are you for the new postal rates? Well, it doesn’t spell disaster just because you’re not sitting pretty on thousands of stamps. “It’s important that businesses don’t panic and abandon physical mail in a bid to avoid high postage rates,” reckons Phil Hutchison, marketing director of Pitney Bowes UK.
He says that while email has a part to play, an envelope sent through the post is still a compelling proposition: “Successful customer communications depend on a delicate balance of message, medium and timing. Although digital communications undoubtedly have their place, traditional print campaigns are still critical for most businesses and are likely to remain so for many years to come.”
You may be able to reduce the impact the rate change has on your company by making small changes to how you use the mail. Shifting to a franking machine can save you a significant amount of cash – in some cases, bulk discounts can be more than enough to offset the increased price of stamps.
There are other benefits to using a franking machine too. You can add your logo to the top right of every envelope you send, reinforcing your company identity and perhaps increasing the number of people who open your mailings.
If you’d rather stick with stamps, take a close look at how Royal Mail charges for different envelope sizes. If you fold your documents into letter format, you can cut the cost of first class postage from 90p to 60p.
For more help dealing with the postage increase, you can check www.ratechange.co.uk, where Pitney Bowes has published advice.
Lord Sugar drops in on the candidates at home this week on The Apprentice. They look a bit shocked but they perk up when he tells them they’re taking a trip. They’re off to Edinburgh to make and sell gourmet street food.
Lord Sugar picks the team leaders, clearly trying to get some of the quieter ones to step up. So Jenna is put in charge of team Sterling and Adam gets to lead team Pheonix.
The brief is clear. “No junk” says Lord S. But you can’t take the market trader out of Adam — he wants to keep costs really low by using dried herbs and corned beef in his meatballs. Thankfully, sensible Tom puts a stop to that.
Adam continues to come across as a bit of a male chauvinist pig. He grins lasciviously as he wonders where the “trolley dolly” is on the train. And when Katie and Jade offer their services as marketing experts, he takes them on but puts “good manager” Stephen in charge of them.
Meanwhile on team Sterling, Jenna is confused about Scotland. She’s worried that they’ll struggle to sell to customers that only “speak Scottish”. Scottish Laura is laughing so hard she can’t say anything, in any language. Jenna’s maths is a bit dodgy too. It takes her ages to add up £200 and £68.82. Mathematical genius Ricky has to help out.
This task highlights the importance of the classic marketing mix, the four Ps — product, price, promotion and place. So how do the teams do?
Team Pheonix makes meatballs and pasta. It’s not exactly gourmet. Put it this way, Lord Sugar compares it to elephant droppings.
And it’s way too expensive at £5.99. Especially next to the cheap burgers and chips on offer outside the Hearts football club stadium. “They don’t pay that for a striker there,” says Lord Sugar.
So the price is too steep and their choice of place isn’t great either. What’s more, their branding is bland — Utterly Delicious Meatballs. In short, they manage to get all of the four Ps wrong.
Over on team Sterling, the product is a gourmet beef casserole using Scottish beef, served with haggis mash. It’s a high quality product that tastes delicious and the name is great too — Gourmet Scot Pot.
Their prices are pretty steep though and that’s the main challenge for Jenna and co. Luckily, they park their mobile kitchen in Parliament Square and then Princes Street — where they get lots of passing trade. So, when it comes to the Ps, they do pretty well on all counts.
In the boardroom, the numbers are in. The meatballs are incredibly cheap to make (£90.25) and sales reach £388.29, giving Adam and his team a profit of £294.04. The casserole costs a staggering £268.82 to make but with sales of £588.60, team Sterling makes a profit of £319.78.
The right team wins. The big question is, whose head is going to roll on team Pheonix?
Adam is struggling to pick his victims. He’s obviously tempted to bring back two girls, Katie and Jade. Stephen, who was supposedly in charge of them, has come out unscathed. But then Lord Sugar and co spot quiet Azhar and he comes under fire for under-delivering.
But in the end, it’s a case of three strikes and you’re out for Katie. She’s been here twice before and it’s time she left. So Katie is fired.
We’re down to ten candidates and several of them have yet to make much of an impression — hopefully next week we’ll find out what Jade, Azhar, Nick and Tom are made of.
Next week: Buying and selling wholesale goods in Essex — classic Lord Sugar territory.
Here are five things a small-business owner can offer to motivate their employees.
The old school philosophy is you have to put in long hours because that’s what the boss had to do when he/she was young. Well, the world has changed. The next generation wants flexibility in their schedule and they are willing to work hard to get more freedom to plan their time. I know when I am going on vacation, I get a lot more done the day before I leave. This proves employees will work harder if they are motivated by the flexibility of getting time-off.
Employees want to be led. They want you to plan for the future of the business, make good strategic decisions and run the business well enough so they don’t have to go looking for a new job. This is why the good leaders communicate their vision of the future with clarity and focus. The team follows easier if they know where they are going.
There is a direct correlation between fun workplaces and productive workplaces. If you can create some fun in your work environment, the result will be happy and productive people.
If there is a perception of unfairness in the workplace, employee habits may become dysfunctional. A business-owner must make sure he or she is fair to employees. Although perceptions can’t be controlled, the effort to be fair can be.
Respect goes both ways. As the business-owner you have to go first. When you are respectful to others, you typically get respect back. In multiple surveys of employees I’ve done, respect always scores higher than money in importance.
What is the financial cost of providing flexibility, leadership, fun, fairness and respect to your employees? It’s zero, but the benefits are huge!
Paul Foster is founder and CEO of The Business Therapist, an online business coaching resource.
Cashflow is one of the most important aspects of business finance and no business can afford to ignore it. In harsh economic times, it is a sad fact that even businesses with healthy sales and good order books can find themselves without cash in the bank.
There are many reasons why a business might find itself without enough cash. At worst, it’s a simple case of more money being spent than the business can support with sales. When times are tough, there is also the possibility that customers will take longer to pay.
When bills must be paid yet invoices have yet to be settled, a business can suddenly find itself with serious cashflow problems.
Some businesses use an invoice-financing or factoring company. These take over management of invoicing and credit control by paying the business a percentage of the invoice value, with the remainder paid when the customer settles the invoice.
There are fees associated with these services, but the knowledge that a good portion of sales will be converted into cash in the bank makes this an attractive option. Factoring can also make business finance much less stressful, as the service company will chase customer debts, meaning a good relationship is easier to maintain.
Businesses can also make use of the credit terms they have with their own suppliers to ease cashflow. It’s worth checking what the payment terms are and not paying earlier than is necessary. This keeps cash in your bank account for longer.
When a sudden injection of cash is needed to either overcome a short-term problem or make a purchase, then businesses should not be afraid to speak to their investors or their banks and to go out into the marketplace to source loans. This should, of course, only be done where repayments will not be a problem.
Effective financial planning is the cornerstone of business finance. It can prevent cashflow problems arising in the first place. Cashflow forecasts that accurately predict months ahead what will come in and flow out of your business bank account are invaluable.
Many businesses do not want to upset their customers, particularly in hard times, but it is essential that payment profiles among customers are studied and that customers are encouraged to adhere to payment terms.
Continuing to supply a customer when payment is not forthcoming, or accepting a string of excuses to avoid payment, can only be harmful in the long run. Encouraging customers to make payments on account can also make a real difference.
The gloves are off this week on The Apprentice. The candidates are really starting to spar with each other. So it’s handy that Lord Sugar has gathered them together in the East End’s famous boxing venue, York Hall. Or Your Call as the boys hear it, in a classic bit of fork handles-style comedy.
The challenge, as Lord S reveals, is to develop a “noo fitness programme”. They’ll be trying to sell it under licence to three British gym chains.
There are no changes to the team configuration and so they look like this:
Team Sterling: Ricky, Duane, Nick, Gabrielle, Laura and Jenna.
Team Pheonix: Jade, Katie, Adam, Azhar, Stephen and Tom.
As the candidates bid to be project manager, you have to wonder whose rash promises are going to become famous last words. Stephen, a sales manager for a chain of health clubs, says it’s a “no brainer” that he should lead the task. Meanwhile on team Sterling, wrestler Ricky puts himself forward saying, “you’ll always witness the fitness with Ricky Martin”.
If there is one thing you can rely on in the Apprentice, it’s that the candidates will come up with the most appalling slogans — for themselves. Has no-one mentioned that having your own slogan is deeply naff? Surely that’s what Stuart “the brand” Baggs taught us, if nothing else?
But back to the task. The teams have two days to come up with a new fitness concept, make a promotional video and pitch it to Fitness First, Virgin Active and Pure Gym.
So how do they get on?
Team Sterling comes up with an exercise mash-up — martial arts crossed with dance. Ricky does well. He researches the market, works out the numbers and delivers three very polished pitches. His mistake, though, is to delegate the task of directing the video to Duane. Let’s just say Duane isn’t exactly a team player. He doesn’t want to hear squat from anyone. Laura and Nick try to get their views heard but Duane’s having none of it. By the end of the day, Laura and Duane aren’t speaking to each other.
On Team Pheonix, there’s someone else whose voice isn’t being heard — Tom. Katie has come up with the idea of a retro exercise class using skipping ropes, hoops and space hoppers. It’s lots of fun. But no-one has thought about the cost of the equipment — or how much space all those space hoppers will take up. Except Tom. He spots the flaw in the plan. But his words of caution, delivered too quietly, are quickly dismissed.
At the pitches, Stephen looks shocked when the gym managers question the cost of the kit. To one lot, he offers everything as part of the package — a sure-fire money loser. To another, he plucks some costs from thin air. It looks desperate. Surely, they’ve lost the task.
But no. In the boardroom, it is revealed that Virgin Active are keen to develop the retro idea to appeal to families as a way to get kids involved in exercise classes. It’s not exactly what team Pheonix had in mind, but they’re not complaining.
So team Pheonix generates £12,810 despite rejections from two other gym chains. Team Sterling makes £7,970 from two interested parties but misses out on the Virgin Active deal.
Poor Ricky. He is gutted. He brings back Laura (for reasons that no-one quite understands) and Duane (for stuffing up the video). Lord Sugar questions his decision to let off the team players that contributed the least, the three quieter ones that couldn’t wait to get out of the boardroom — Nick, Gabrielle and Jenna.
With feedback from Karren Brady and Nick Hewer, Lord Sugar makes his final decision. He says, with his usual eloquence, “In summarising, I don’t want any interference. I’m going to give you as I see it.”
He’s mainly talking to Laura, who is one of those candidates that doesn’t know when to shut up in the boardroom. But she keeps schtum and he eventually points his finger of doom at Duane.
Next week: Selling gourmet street food in Edinburgh. What could go wrong?
Recently I wrote about understanding and calculating your own customer retention and customer churn figures. These figures are crucial performance indicators and if you have no idea how many customers buy from you more than once, forecasting growth and future performance of your business becomes unfathomable.
This follow-up covers some of the best ways to maximise customer satisfaction levels – and increase the likelihood that they’ll reorder.
Customer service... for the customer
How clearly can you remember businesses with amazing customer service? What about terrible customer service? Run-of-the-mill service? Odds on you’ll remember the amazing and terrible businesses, but will struggle over those offering so-so customer service.
You must focus on the customer first, and put your business second. It sounds simple, but in reality you’ll discover it’s a struggle – but worth fighting for. (However, be aware that suppliers of essential services, such as banking or utilities, are not required to do this as there are numerous barriers for switching to a competitor.)
Unite employee goals
To improve your customer’s experience as a browser, purchaser and/or when using after-sales support, every team member must work towards the same goals and give consistent messages.
If you make promises or claims that aren’t matched by you customer service, the odds are you’ll be waving goodbye to customers after their first purchase, especially if your product is readily available from other suppliers. Every employee must know the benefits your business offers and how far they can go with a customer.
Do “a Ronseal”
It’s hard to overestimate the value of a clear message, and wood stain and preservative manufacturer Ronseal nailed this with their famed slogan – “Does exactly what it says on the tin”.
If you make promises to your customers you must deliver. Whether it’s product quality, speed of service or simply after-sales support, customers expect clarity and honesty.
Things such as hidden terms and conditions don’t go hand-in-hand with happy, loyal customers, so look into every customer touch point and consider whether you’re misleading them.
Have a clear communication plan
Even happy customers may not return if they forget about you, so how do you deal with customers once they’ve finalised a purchase – what is your “post purchase plan”? Do you send a confirmation email once it’s despatched and that’s it or do you follow this up with a “we hope everything's okay” email? How about a special deal around the time you’d expect them to need the product/service again?
What about when they contacted your support team? Do you hope no reply means the issue has been resolved or do you follow up to check and give them a clear point of contact if not? Treat customers like they’re the most important thing to you – at any and every stage of their experience.
You may hear these referred to as “nagging plans”, that almost hassle customers into submission with repeated “come back to us” messages, but these are the bad ones. A well structured “care campaign” can maximise customer satisfaction and create amazing long-term loyalty.
If you don’t know... ask
Even with your best efforts you may not pick up on all the reasons why customers don’t come back to you. I’d suggest creating an element in your post-purchase plan where you can see the customers you have lost.
Getting in touch with these customers via unobtrusive means, such as a simple “goodbye” email or phone call, provides a nice human touch and can be used to find out why they left. Though you’ll probably have a low response rate, you’d be amazed at people’s honesty when you’re not trying to sell to them.
Noticing themes and trends in this feedback is crucial. Are they all linked to customer service or perhaps delivery times? If you see these growing after you introduce new measures or features in your business, it is a fantastic indicator of something being missed, and will have a noticeable effect on your bottom line if fixed early.
Some issues may just be incurable
Sometimes you just have to accept that some customers go elsewhere – no matter what. It’s inevitable you can’t win ‘em all and it can happen for reasons beyond your control, such as postal delays.
Ultimately, what I’m saying is common sense, yet it’s amazing how many businesses don’t apply it. Have you had any success stories about changing how you approach your customers or wish to add any points to this list?
A recent survey by BestVendor of more than 550 US start-ups found that 57 per cent were using Google Apps for email, 71 per cent were using QuickBooks for accounting, 59 per cent were using Salesforce as customer relationship management and 39 per cent were using Dropbox for storage. All exist ‘in the cloud’ – so what is the appeal of cloud computing?
A major attraction is cost, of course. Some applications are free, and those that aren’t allow businesses to pay monthly. These applications also require no space on your computer, while businesses don’t have the hassle of upgrades or the worry of losing data if their computer should get lost or broken. Let’s face it – many start-up owners don’t want to think about their IT. They just need it to be there – and work – so they can focus on running and growing their business.
Start-ups aren’t alone; established businesses are also making the move toward the clouds, but more slowly and with slightly more anticipation. A recent survey of 511 IT professionals by InformationWeek revealed that 27 per cent said they won’t be moving to cloud computing, while only a third were actually using it.
Why are larger businesses taking their time? Aside from questions about security, they already have their software needs taken care of in-house and although they see a future ‘in the clouds’, the initial transfer is likely to be a huge task.
Start-ups are in the best position. They can start as they mean to go on; they often have little or nothing to transfer, which means they can start quickly and cheaply. Plus, as they grow, they can continue to add additional software and users.
These are the five main reasons why start-ups are reaching for the clouds.
When a start-up reached a certain size, traditionally they would have considered investing in their own office-based server, which could cost between £500 and £2,500. If they use the cloud, the server is managed by a supplier, which eliminates that large initial outlay.
Another cost benefit for start-ups is there are no surprises. New software can be added when you need it, new users added instantly. And although the monthly payment will rise to reflect the additions, there are no lump sums; it works just like your mobile phone bill and so forecasting can be done easily and accurately.
Cloud computing allows expansion in line with your business growth. Many start-ups grow quite quickly, but can shrink with equal speed. With the cloud, software and users can be removed as quickly and easily as they can be added and so the bill is reduced accordingly. As soon as you grow, you don’t need to invest in further servers or software, you simply let your provider know and they’ll expand your cloud again.
In the early stages, many business-owners work from home. Collaborating with partners, associates, even employees, can be done very easily with the cloud. There is no need to work at the same location. Documents can be shared, computers remotely backed-up, and your software can be accessed anywhere.
Not all of course, but many start-ups advocate sustainability. Clouds have been proven to be green and so this provides another incentive for start-ups to consider the cloud.
Making the leap into business is a big one and all would-be franchisees should have a good tick-list of what they need to consider before making the leap. Here's what to do when considering buying a franchise:
1. Research the franchise
2. Research the franchisor
3. Research the demographic
4. Crunch the numbers
5. Talk to other members of the franchise
6. Ask to see their figures
7. Get a good business plan
8. Be conservative in your estimations for the first year
9. Read the small print
10. Research the competition
11. Grill the franchisor
The last point is important. This should not just be an interview to see whether you are a suitable franchisee, it should be an interview by you to see if you are able and willing to work with the franchisor.
If your franchisor is not behind you 100 per cent and providing continued support it should ring alarm bells. The best franchisors are the ones who know that you have to succeed for the franchise to succeed and will do their very best to make sure that happens. Happy hunting.
This week, the challenge for the candidates on The Apprentice is to turn trash into treasure. The teams have to source cheap second hand goods — from auctions, car boot sales, junk shops and house clearances — and sell them from their very own pop-up shop in the uber-trendy Brick Lane in east London.
Lord Sugar mixes up the teams again and this is how they look this week:
Team Sterling: Ricky, Duane, Nick, Gabrielle, Jane and Jenna, with Laura as team leader.
Team Pheonix: Jade, Katie, Adam, Azhar and Stephen, with Tom as team leader.
Like any episode of the Apprentice, a story soon starts to emerge. Laura’s team seems to be firing on all cylinders. They’re buying lots of stock and they’re planning to upcycle them by adding value — painting and reupholstering chairs and creating cute tables from old suitcases. Gabrielle is in charge of the creative efforts, ordering materials and painting union jacks on everything.
Meanwhile, on team Phoenix, Tom is keeping a very tight hold on the purse strings. He doesn’t want to buy much and he’s very particular. His minimalist approach is not going down well with Nick Hewer, who calls it “foolish”. Mind you, Nick describes the typical customer as “the young trendy with the gelled hair” which leaves you wondering how much he really knows about the cool urban crowd that shop on Brick Lane.
Team Sterling continues to look good as they talk about branding the shop and adding cushions and candles to the mix. But then, quite quickly, it goes pear-shaped. It starts with their odd decision to scatter dead leaves around their shop. Then it becomes clear that a bit of paint and a staple gun haven’t turned their trash into treasure. They have actually turned everything into cheap tat. Cheap tat in a sea of dead leaves.
Up the road, though, Tom’s less-is-more approach is reaping rewards. A half-empty shop with a few old bits and bobs is hitting the spot with the Brick Lane shoppers. Nick Hewer actually apologises at this point. “I thought their product selection was poor. What do I know?” he muses.
Back in the boardroom, the numbers are in and Tom’s team Pheonix is streets ahead with a profit of £1063.40, having spent just £360.10. Team Pheonix spent £660.76 (about half of this on materials) and made just £783.49.
It’s abundantly clear that Tom has been incredibly fortunate. His minimalism may have won the day but it was inspired by extreme caution not by some clever insight into the market. This was an accidental win.
Laura and Gabrielle probably had a better grasp of the retro/vintage market than Tom and certainly they put much more effort into the task. But they misunderstood the market and tried to make up for it with some hard selling — quite the wrong approach for the laid-back crowd wandering up and down Brick Lane.
So Laura brings back Gabrielle (for over-ordering materials and painting too many union jacks on the furniture) and Jane (for scaring the customers with her unappealing sales patter — half desperate, half aggressive as Karren Brady points out).
But who goes? It’s never just a numbers game with Lord Sugar. He always goes with his gut instinct. Yes, Laura and Gabrielle made mistakes.
But Lord Sugar says, “I have to judge it on the person that has got the most potential, coming into business with me, yeah?” It’s a bit garbled — like many of Lord Sugar’s sentences — but the message is loud and clear. Jane gets her marching orders.
Next week: The candidates have to come up with a new fitness programme.
Over-50s unemployment is an increasing problem. In fact, the increase in the unemployment rate for this group is growing twice as quickly as the rate for the widely lamented 18-24 year olds.
My colleague, Kay Gorman, and I founded skilledpeople.com when we retired. We had amassed a wealth of invaluable skills and experience we realised was of most value to SMEs and start-ups. Both can benefit enormously from instant experience and know-how.
We believe that the over-50s can help galvanise the economy if small businesses know they are available and how they can connect with them. The concept behind skilledpeople.com is a particularly good one for SMEs, because small business owners simply don’t have the time or resources to train poorly educated young people.
The over-50s come ready packaged with a quantifiable skill base, a good education and a willingness to put their experience to good use. Unfortunately, the issue of the unemployed over-50s has gone largely unnoticed by the press. Youth unemployment, it would seem, has taken precedence and as a result in the public mindset. However, the problem is real and it’s getting worse. There are many initiatives to get Britain’s youth working but besides skilledpeople.com I can’t easily name any for the over-50s.
In February, Office of National Statistics unemployment figures revealed that vacancies and skills demand is increasing. It is well documented that one of the biggest hurdles facing SMEs and start-ups is finance. The feedback we have received from our site members is that this directly affects recruitment, with many small businesses unable to afford salaried employees despite needing their skills.
Skilledpeople.com has a reservoir of talent that SMEs can tap into at very economic rates. We offer a unique service supporting both business growth and getting experienced people back into productive employment – a true “win-win”.
Our ‘Project Assignment’ service covers short project work (1-20 days), where SMEs can take advantage of the skilled specialist services of candidates to help them with activities such as HR, marketing and business planning, but without employing them full time. This makes it viable for small firms to get the right skills at low costs.
Small businesses need support if they are to help the UK out of recession. We are also in danger of losing a tremendous amount of knowledge and experience from professional people aged 50-plus who find themselves out of work.
David Hiddleston is chairman of skilledpeople.com, which connects small businesses who want to expand and improve with skilled, experienced people, typically 50+ who add value and quickly become productive. Contact them on Twitter – @skilledpeople
Two of the most important metrics a start-up needs to look at are customer retention and churn. These figures should be two of your key performance indicators (KPIs), and getting systems in place early to track and minimise issues in these areas will set you in great stead for your business life.
Customer retention is a measure of how many of your customers are loyal to your brand and return for another visit. Customer retention only deals with existing customers, with no consideration for new customers.
All companies spend a lot of money to acquire customers so sometimes it can be shocking how easily we let them walk away. It costs an estimated seven times more to acquire a new customer than it does to sell to an old one, due to factors such as lack of brand recognition, offering new customers incentives (e.g. a discount) and not having contact details to initiate a conversation.
First things first, decide on a ‘churn time’, i.e. a period in which you would expect a customer to make a repeat purchase. Where I work an average user would be expected to re-order every three months, and in total we’d expect the vast majority of customers to have ordered at least every six months before thinking something is wrong.
This will obviously vary by product, so a supermarket’s churn time will be vastly different to a holiday booking’s company.
Next, you simply take whatever date period you wish to calculate retention for, and compare how many existing customers ordered within the expected time frame.
For example: to calculate our recent retention rate, we’d look at existing customer repeat orders in the past three months, and compare these customers to how many ordered in the three months before.
Customers ordered from Jan to Mar = 500
How many of these customers ordered again between Apr-Jun = 400
Customer retention rate - 400 / 500 = 80%
Churn, sometimes known as customer attrition, is the opposite end of the spectrum, i.e. how many customers don’t return to your company after making a purchase. Customer churn takes into account new customers in its calculation, which is a major difference to retention metrics.
Churn is obviously something you want to avoid, as it’s nigh on impossible for a business to grow with a high churn rate. Thus it is a fantastic indicator of whether something is wrong with your product or service.
Again, the first step is to decide on a churn time as we did above.
Next, ensure you can accurately track the total customers you have in a given time period. Don’t forget to include all the different ways a customer can reach you. For example, website, fax or phone orders all count as conversions in our system even though they are processed and recorded differently.
Now to calculate! Imagine a company with a churn period of 30 days.
Day 1 - you have 100 customers
During the next 30 days you acquire 30 new customers.
During the same 30 days, 5 of your existing 100 customers do not convert, or cancel a subscription for whatever reason (assumed lost).
Total customers = 100 + 30 - 5 = 125
Churn rate = 5 / 125 = 4%
Monitoring these two metrics gives a great performance benchmark that you can aim to better each period. If you implement any service changes or new features, these two KPIs will give you an accurate idea of the possible benefits to your company's performance. Couple this with some long-term customer value estimations and you’re well on your way to some fantastic performance data!
In my next post I’ll cover some easy methods of reducing churn and increasing your customer retention rates.
Pinterest now has an estimated 11 million users, with statistics showing that it’s already driving more traffic than Twitter, which is an astounding feat considering it’s only been around for two years as an invite-only service.
It’s already home to thousands of leading companies and organisations – including Coca Cola and the US Army – and many more are looking at how they can benefit from using this photo-sharing platform.
If you’ve never come across Pintertest until know, it’s a photo sharing service with a social twist. It allows you to “Pin” images to boards of your choice, whether from another person’s board, a website you’re browsing or photos from your computer. Basically, it’s the ultimate photo-sharing hub.
Okay, you might be wondering how your startup business can benefit from using an image-sharing social network. The answer is quite simple: every sector has imagery associated with it. Whether it’s pictures of a new product or staff member, almost every organisation has unused pictures. You can share these with your customers.
Pinterest is especially good for businesses operating in sectors such as fashion and clothing, photography, architecture, even the likes of tatoo artists.
If your startup is involved in women’s fashion, for example, you can create a specific board where you could share images of your latest clothing collection, with a handy description and link pointing back to your website. This would create great opportunities to share and interact with potential customers, not to mention keep them up to date with all the latest trends and clothes you offer.
Pinterest also features a handy “Pin it” toolbar that enables you to save images of interest that you have found while browsing other websites. These pinned images are automatically saved to a board of your choice and can then be looked back on for inspiration, ideas and further viewing at a later date.
Matthew Lobas, Account Manager at Pressat
There’s always a touch of the Generation Game when the candidates on The Apprentice have to cook something up. This time it’s condiments — table sauces, chutneys, pickles and so on.
You can’t help but think that they’re trying to do a “Reggae Reggae sauce” — the most successful product to come out of the Dragons’ Den.
And, last night, if you stuck around for the Apprentice after-show “You’re Fired” you’d have seen Levi Roots, the entrepreneur behind Reggae Reggae, on the panel. Without wanting to give too much away, let’s just say he doesn’t look like a man who is worried about this new competition. The only time he stops smiling is when he tastes the two concoctions.
But back to the task. Lord Sugar jiggles the teams about a bit. Katie joins the boys on Pheonix, while Duane and Nick head for team Sterling to work with the rest of the girls.
The new arrivals clearly feel like Lord Sugar’s chosen ones and so Katie and Duane both step up to be team leaders. But Adam, bless him, is worried that the task may be “too complicated” for Katie. Women, know your place.
Actually, there’s some sexism on both sides to be fair. Katie has already bragged about her ability to manipulate men. Meanwhile, Ricky reckons it won’t be hard “to influence all her decisions”. But Adam really is the limit with his patronising offers of help that are clearly intended to undermine.
The production stage is a bit of a farce for both teams. Pheonix is making a rival to ketchup but it’s too gloopy to go into the bottles. Thanks to unambitious targets and considerable wastage, they only manage to make 300 bottles.
Sterling is working on a pineapple chutney recipe. But someone has used a very heavy hand with the chilli.
But the production problems are hardly surprising — they’re trying to create a successful recipe in a matter of hours. What they should have got right is the name, the branding and the positioning.
Team Sterling doesn’t do too badly. InFusion is not a bad name for their tangy chutney made from pineapple and ginger. The product and branding impresses the upmarket grocers Partridges and they get an order for 300 jars.
Pheonix, meanwhile, has created “Belissimo” — a spicy table sauce with an Italian twist. Unimaginatively labelled with a picture of a red pepper on a white background, it looks more like a pasta sauce. It’s supposed to have mass-market appeal, but there’s no slogan to explain what it actually is. And, worst of all, the name is spelled incorrectly — a crucial detail that stops Partridges from putting in an order.
And so, team Pheonix fails to rise from the ashes. It makes just £585.56, compared to team Sterling’s sterling effort —£1028.
Incredibly, Stephen — the man responsible for the branding and the spelling mistake — slips under the radar and escapes the scrutiny of the boardroom. Instead, Katie brings back Michael (poor at selling) and Ricky (poor at production).
In the end, Lord Sugar points his famous finger at the person that just doesn’t look like they can hack it — Michael.
Next week: Turning trash into treasure.