8 Costly Mistakes In Small Business - Part 1 Of 2
Heres an interesting notion: Do you realize that there are mistakes you can make
at various stages of your business growth that can be slowly killing it for months or even years if you dont watch for them?Well, these mistakes are real and they don't just affect new businesses. A lot of functioning businesses, including the ones you consider "successful" based on how long they've been around, often make these mistakes and are posssibly wasting a lot of time and money because of it.
Even though some of these mishaps tend to be aimed more at companies in the service industry, they really do relate to many other industries. Ive done my best with the listings below to give examples to prove it.
Underestimating Project/Service Time: This one is huge and it pertains to both service companies as well as businesses that sell a product. For service companies, this is critical. If you underestimate the time it will take to perform all of your services, you will lose money and there is nothing you can really do except to learn from your mishaps. The best way to estimate time is to do it once yourself or watch your best employee do the task and then throw in a little fudge factor on top of it. For businesses that sell a product, time is an issue when it comes to logistics, so you should be aware.
Not Knowing YOUR Company Numbers/Incorrectly Setting Prices- Notice I emphasized the word your. Its a common mistake to use a competitors as your pricing gauge without actually knowing why they use those numbers. Think about what would happen to your company if you took your competitor's prices, lowered them by a few percent and began selling. What if the competition has a bad pricing structure and is barely making money or even losing money?!?! What happens if your overhead is more than theirs?!?! If you need to, you can use your competitors pricing as a place to start, but you need to test and cannot base your whole business aproach on it.
Different industries have their own variables as far as costs go and you need to be aware of them for your project or product pricing. When you are setting your price-points, you should not be concerned solely with what it costs you for the product. How much your labor and materials cost for a service is only a piece of an hourly rate. Employees cost more than just salary and not every employee is part of your labor cost. Every company has insurance to pay for. There are tons of overhead expenditures that need to be part of your price. The biggest point individuals miss when setting their price point is the quality of what they are selling. What you include as standard services or standard product features as well as job site etiquette or in store service or warranties all need to go into your pricing. Ill get to more on why in the next segment.
Your Time & Costs; Not Charging for ALL of It - This may seem like a silly thing to say to some but I am sure that most business owners would say that they have given away too much at times. Hey, there is nothing wrong with giving a little extra here and there to show you care. But either way, thats not what Im talking about here. The thing that I'm concerned about are those who put a lot of quality into their products or services and do not account for the cost of it. For example, you operate a company that provides a certain standard service that your competitor doesn't provide. You cant just undercut their price to steal a job; you need to have that cost covered in your rate and advertise the fact that it comes with the price upfront. Stores undermine themselves, for example, when they put more people on the floor for customer service but dont charge for it. These things cost you money and when your competitors dont do them it costs them less money. If you provide better service and undercut your prices it will not take long for your competitors to watch you fall on your face.
As a business owner you need to believe that you are providing your clients worthwhile wares that deserve to be paid for. If you get the chance to explain why your prices are higher, then take that opportunity and do it. If they dont like the fact that you include things that others charge extra for later or that you treat them better, then they are most likely completely price shoppers. You dont want them as regular customers anyway. Trust me.
Wasting Money on Advertising Just to Say You Advertise: It is almost better to not advertise rather than to waste money without making sure to track the results There is no point in a marketing campaign if you do not put things in place that allow you to measure how well the plan is working. The other wasteful part of marketing that many people make the mistake of doing, is not tracking their previously successful campaigns. Why some people think that just because a $400 dollar a month ad worked once very well for one busy season, that it will automatically work every year after that is beyond me. This discussion is continued in part 2 of the 8 Costly Mistakes in Small Business article.
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