Management Memos

Making Measurably More For You Since 1985

Year End 2019
 

Happy New Year The Decade Turns

As 2019 wrings out it's tragic and troubling end, the decade turns, and becomes a brand new opportunity. What can the troubles of the world teach us in each of our businesses for the decade ahead? Our world, that is, not the whole world!


Let's begin by listing the big troubles - and see how they can affect your bottom line.

Heat and Fire

Eastern Australia is on fire as this year-end Management Memos comes to life. That is changing the way we look at the world. It wasn't 'the time' in the cool of April to talk about climate change, and it's still not 'the time' to talk about it when life is lost and lives destroyed. So when is it 'the time'?

Bushfire!

I've been a firefighter for 20 years...

Everyone can see the trend (well, nearly everyone) to the world hotting up. But have you thought of what that will mean to your business over the next ten years?

For example, if you make blinds, you know everyone will have a heightened interest in keeping out the heat, but how is window technology changing, or likely to change, in response? What are the likely transitions that will affect your customers and how they think of the blinds you offer them?

Whatever you trade in, you will be affected - whether it's at the customer end, the supplier end, or by regulation. So what are the technologies emerging in your filed that will change your customers?

It might not be unfashionable to talk about climate change and increasing temperatures, but you do need your business to anticipate, and respond. See 'A Fundamental View of Climate Change' here.

Sales and Profit

Does Uber mean profit?

Uber means sales - but does it mean profit?

A recent article by 'The Age' reporter Cara Waters reviewed the role of Uber Eats as a delivery platform, and its impact on restaurants and other dining and fast food outlets. The review showed that "Of the 656 businesses who responded, 53.9 per cent indicated they had experienced an increase in revenue but a decrease in profit.

Another 2.8 per cent said they had experienced an increase in profit as well as revenue, while 13.3 per cent indicated no change." See the full article here

Note that. More than half (53.9%) reported an increase in sales but a drop in profit.

If you don't consider the profit impact of your decisions, and consider only the revenue effect (sales), your income will take a hit. Always.

On one occasion we advised a client to cut staff, and use overtime working in the peak times. They could see the penalty rates and concluded 'that would cost a fortune', but couldn't see the annual wage expense savings that would have saved them over $80K in each of two branches. They did not consider the profit impact.

Recently, our family bought a cheap set of glass tumblers priced at $29.85 for $15.85. Happy with the price reduction, but a profitless sale.

So, if Uber has done nothing else for you, at least take away your need to focus on profit, not sales.

Wages and Demand

Frustrating, isn't it? During the Great Depression of the 1930s, the conventional wisdom was that we needed to 'save our way out of it'. Ultimately it was seen that spending by government, and putting pay in the pockets of the low paid would get spending going again.

Slow wages - slow sales

Slow wages growth means slow sales

Our government is fixated on achieving a fiscal surplus - which means taking money out of the economy. Depressing wages and spending.  It's as if their heads are stuck in 1929 - so don't expect any relief from Canberra!

What to do? Recognising that the great bulk of Australian consumers are paying down debt, after falsely expecting incomes and wealth to grow ahead of inflation, you'll need to offer special value to get the sale dollar rolling.

Again, remember to factor in the profitability. Recently  a client chose to claw back an expense by adding a surcharge - after thinking about their profit. A bit like adding a fee for EFTPOS. Remember those times?

In a similar vein, a small price increase would have covered-off that cost in spades. An item priced at $28 would need to be $28.56. Round it out to $29. So, would your $28 item sell any less if priced at $29?

The key here for you is that, since sale pricing is killing profitability, and shoppers are choosing to 'unspend' to pay down debt, taking a slightly higher margin all round can give you a magical increase in profitability with no backlash. We've done it to clients over and over again.

And get this - there is no extra fee for your customer - and your competitive advantage is enhanced. You're seen to be offering terrific value - while you grow your profit!

 

Three really big issues that dogged us in 2019.

Fire and Heat: Things will be different. What opportunities will technological advance bring your business?

Sales and Profit: After years of stable margins where 'sales = profit', things have changed. You need sales, but only to grow profit!

Wages and Demand: You have always had a special offer to make to your customers. As low wage growth holds back sales growth, stimulated demand by adding extra value - and remember to price in that extra value.

 

Respond to all these issues with strategic thinking ahead of this new decade, and you'll find ten years of growth ahead. Growth in profit - and in your own wealth!


We can help you explore the challenges you face, and the opportunities they represent. Our 'Full Value Pricing' tool is a way of doing business, not a calculator. Ask us what it can mean to you.

Let's discuss it on a phone call. After that, you can just hang up - if that's what you'd like to do. NSA! Phone us (see the numbers below) or use the contact form here to get help. Absolutely obligation free.

 

Like what you see? Share with friends and contacts

Or Like My Red Zebra on Facebook

McNicol Williams Management Memos is brought to you as a service by My Red Zebra.

Contact Us Here

Click Here to Subscribe monthly.

You can unsubscribe at any time

Management Memos Current Index

Management Memos Archive

Any advice, information or comment contained in this document is general in nature, and should not be relied on as the basis for any specific commercial, business, employment, or financial decision. Specific advice should always be obtained for each individual circumstance. Accordingly any advice, information or comment contained herein is for general guidance only.