1. Cash is king
As cliché as it sounds this is the first rule of business. Many a profitable businesses have gone bankrupt because they did not budget appropriately and did not manage their liquidity. The amount of effort you should put in budgeting depends on the size and complexity of your business but as a minimum you should have a record of any significant outgoings in the next 30 days (salaries, tax, large recurring or one off bills) and ensure that you have enough cash in your bank to cover this.
There are various ways you can improve your cash position without resorting to loans. For example encourage your customers to pay upfront. Offer a discount if your customer pays upfront before you complete the work. If you quote £8000 for a job, say in your quote that this is your upfront cost, however if paid in installments the price will be £8500 with the final installment due on completion.
2. Don’t overstretch – Do discriminate
A successful business will quite often find that the demand for their services or products exceed their current abilities to meet the demand. The dangers here are twofold:
- If you agree on more than you can deliver you risk leaving customers disappointed and loose goodwill and reputation
- If you expand too rapidly to meet the demand you may lose control over quality and cash flow which may affect good will and your business viability
As with most thing in life a threat can be flipped into an opportunity. Take a leaf from the marketing strategy of any airline and introduce different service levels – usually 3 levels works best. For example taking the same project that you will normally quote at £8,000 above, you can present it as premium package offering additional benefits such as customer priority (rejig other projects to be able to work on this one straight away) and extended warranty (say 10 years) and price it at £12,000. Your middle ground package should also be showing the extra benefits the client receives (offer a shorter guarantee), less flexibility around timings and price it at £10,500. Your cheapest package should offer value for money – you can price it at £7,500 however guarantee should be much shorter (say 1 year) and commit to finish the project in a time that works for you – for example in a 3 month period. Doing this simple price discrimination can increase your profits significantly while allowing you to manage your workload better.
3. Offer a guarantee
Guarantees are a very powerful marketing tool and work really well with price discrimination as mentioned above. Many people will gladly pay more for a piece of mind that if something goes wrong they are covered. While it may seem risky to commit by offering a guarantee in most cases this is not called upon by a customers and also you can sell off the risk yourself by an insurer.
Remember that you already pay for business insurance which covers some eventualities. Expanding this to cover more risks can be quite cheap.