If you’re looking to cut costs, our experts agreed reducing spend on marketing and training is often too easy a target.
Ord says it’s okay to cut costs in marketing, but only if you understand which areas are generating the returns.
“It’s a general thing if you’re in trouble, cut marketing first. That’s okay, so long as you look at how your marketing dollars are being spent and do some measuring to work out what methods are generating the most revenue. Generate some data about what people are attracted to and are using. When you know what’s successful, then you can cut the unsuccessful methods and focus funds on the ones which are actually generating customers.”
Barned agrees it’s important to know which marketing areas are successful.
“Review the costs and understand what you get for your dollar, you need to understand what is working for you. If returns are coming from your website, don’t cut that cost,” she says.
But Barned says staff training can be too expensive.
“Staff training is an expensive exercise for small business and most don’t do it because it can be between $500 and $1,000 a day. That’s a big expense,” she says.
Sewell says businesses need to know which costs are important and which ones are discretionary.
“People often cut marketing and training. They’re soft targets, but if you’re not telling people what you’re doing, how are you going to sell stuff? And training, when you train staff they’re more productive. But what do businesses do, they go straight for the easy stuff,” he says.
Reid says cutting marketing and training is a “false economy” and gives the example of Stork margarine.
“Stork margarine after World War II had 95% of the market. During the war, they marketed every day during the downtime and publicly said they were supporting the troops, so when the market picked up again in England again they dominated against competitors who had slashed their marketing budget and consequently burned.”
Reid says more SMEs should consider employing training firms.
“What SMEs are terrible at is they don’t employ HR or training firms because they don’t think they need it. But you want your staff to be trained up to the eye balls. If you treat your staff well they will give you a lot more back. In small business you often don’t have a name to trade on and your staff are gold. It’s your staff that people will come to and often it’s word of mouth which is the best way to go.”
He says it’s a mistake for businesses to cut their training and promotional costs.
“They cut their promotional costs, they cut training, they cut their advertising, and they cut marketing – but all these things impact service. You ride out the tough times, because if you can service you’re going to make money in the good times,” he says.
It’s normal for a business owner to become attached to their products, but the experts warn against being too emotionally attached.
Ord says business owners should examine their product lines and see which are most profitable.
“You need to concentrate on the profitable ones and perhaps cut the least profitable. For example, Kmart went from around 100,000 products to 40,000. This results in less buying of the products, less purchasing staff and the shelf space is focused on the more profitable items.
“A small business like this (a café) may have cakes and things like that. Have a look at which ones are actually selling and cut out the ones which aren’t. Find out which products and services are profitable and look at ways of removing non-profitable ones,” he says.
Clowes says convincing businesses to slash products is a challenge.
“Businesses are often emotionally attached. You’ll see warehouses full of pallets or other products, when only 20% of them are actually selling. You’ve got to know the products which are good value.
“Trying to get them to cut their product offering is like killing their baby. It’s really hard to let go of a product. Equally the same thing happens with really bad customers. Businesses end up selling to them at a loss and they should push them onto a competitor, but try telling them they have to do that,” he says.
Reid says businesses should analyse their product inventories and examine the numbers.
“Most businesses don’t do business by numbers, they do it by emotion. A retailer might think ‘oh I’ve always carried Calvin Klein jeans, even though I don’t sell any. I’ve always had them and I like the reputation they carry’.”
If you’re cutting costs, chase up your debtors. Sewell says businesses should try and cut their debtor days because having extended debtor payment times can encourage debtors to take advantage of this.
“People don’t look at debtor days hard enough. The average is probably about 40 to 50 days and big companies are really good at not paying small ones. Usually small companies say if you’re going to pay us 50-60 days we’ll wear that because we know we’re going to get our money. But they get touched up twice because they don’t get the proper margin and all the other debtor days will start to drift to that time as well.
Ord says not collecting from debtors can cause businesses to “dip into their overdrafts and pay interest on that”.
“If you’re collecting the debtors efficiently it reduces the chance of you having to go into your overdraft,” he says.
Sewell says instead of being a “bank for your lazy customers” the money which the debtors owed can be used for investments and production costs.
Look out for the second part of this feature on Thursday.
