8 Pitfalls To Avoid To Ensure The Success Of Your Business
Before all Circuit City stores closed in November of 2008, employees were already seeing the writing on the wall. Years prior to the closures, the CEO had announced that they would no longer have commissioned salespeople or sell appliances. Needless to say, employees no longer had big ticket items to sell and thus had no reason to gain a deep understanding of the products.
Why was it that employees saw the danger signs before the managers and owners? You might say that they viewed things from the perspective of the customers, not to mention the lens of their own paychecks.
1. Endless Discounts
When you think of retail brands that are in trouble, you might think of GAP and their endless “40% off this weekend only” sales or Bed, Bath, & Beyond with their perpetual 20% off coupons.
Constantly offering sale prices fosters an expectation of future discounting, as well as devaluing your products, eroding trust, and ruining your profit margins.
2. Ineffective KPIs
“The most important metric everyone still looks at from smaller to larger stores is simply, did you sell more this year than last?” says The Retail Doctor. You may have an online store, offer BOPIS, and other services to attract customers, but the only thing that really matters is that they buy from you.
If you’re not experiencing the success you’d hoped for, you may need to re-evaluate your KPI’s. Your KPIs should represent the following:
- They should act as a simple framework of “The Way Success is Achieved Around Here” to support organizational values.
- They should be a way for newer or mid-level employees to structure their day so they can grow towards hitting company targets.
- They should serve as an objective way for managers to look at the effectiveness of their team’s performance.
3. High Employee Churn
Every time a business has to spend resources on recruiting, hiring and training a new employee, it is paying out money or losing the opportunity to make more money. In fact, turnover can cost companies 16% to 213% of the lost employee’s salary.
Turnover also burdens other employees to fill the void. That added burden doesn’t completely lift until the new employee is at 100% capacity, increasing stress levels for good employees that can no longer handle the anxiety of doing everything themselves.
For managers, turnover steals time away from building the company with strategic plans and marketing. Instead of spending time and resources in growth areas, the manager must focus on keeping productivity up while looking for replacements.
4. Customers are an Inconvenience
A struggling business is one that views customers as a “distraction” from their tasks or their conversations. If a customer in a wheelchair enters your store and asks the associate behind the counter for help only to be told, “I’m on break,” there’s a really good chance that customer won’t be back.
Not only that, but the customer will probably go to your competitor next time, as well as share his or her story with friends and family.
86% of buyers will pay more for a better brand experience, but only 1% feel that vendors consistently meet expectations
Never forget that customers have lots of other shopping options. If you’re not treating them right, they’ll find someone else who will.
5. Too Much Inventory on Hand
It may seem like your business is functioning just fine at the moment, but if you have too much inventory on hand, trouble could be looming.
“Holding too much inventory ultimately affects the cash flow of the business, especially when the inventory is sitting in storage and is not being sold for profit.”
When you invest too much capital in products, it leaves you without the cash you need to pay creditors, making you vulnerable to losses if inventory lingers on the shelves.
6. Bills Aren’t Being Paid On Time
Every business has bills to pay, including rent and utilities, payroll, suppliers, or financing providers like the banks. While it’s not unusual to struggle over the occasional payment, if you’re regularly receiving payment requests from creditors it could be indicative of a major cash-flow problem.
“Never take your eyes off the cash flow because it’s the lifeblood of business.”
Simalarly, late payments from customers are one of the primary reasons businesses are unable to pay their own creditors on time. Offering unnecessary long payment terms or not having an established collection procedure in place could result in a cash shortfall that affects your business’s ability to operate effectively.
7. Investing Too Much Money on Acquiring New Customers
According to Forbes, it can cost five times more to attract a new customer, than it does to retain an existing one.
On the other hand, increasing customer retention rates by 5% increases profits by 25% to 95%, as per research done by Frederick Reichheld of Bain & Company.
These statistics should be considered when budgeting how much to spend on new customer marketing versus taking care of your existing customers.
8. Lack of Accurate Financial Information
Without accurate and timely financial information, it’s difficult to make important decisions about the future of your company or pinpoint particular problems, suggests AllBusiness.
As a result, your understanding of situations that may arise is severely limited, and reduces your ability to deal with them effectively. Reports on cash-flow and sales forecasts, as well as aged debtors reports, are just a few examples of the types of information you should be able to readily access.
Do you recognize these warning signs in your own business? If so, it’s crucial that you act quickly. If you have a viable business, with the right help, these challenges can be resolved.
The longer you wait, however, the fewer options you’ll have, and the greater the impact will be on the solvency of your business.
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