Small Business Minute: Pricing and profit

By Brian Leaf

If the laws of economics hold true, lower prices will draw flocks of customers to your shelves.

So, is it wise to lower your prices?

While lower prices are certainly a hit with customers, it might be wiser for you to raise prices.

Sure, small companies want their customers to love them. And lowering prices are a way they can share the love while increasing their revenues. They may even increase market share.

But if they’re not careful, they lower their prices right out of businesses.

Small business can’t operate like Wal-Mart. They can’t go to wholesalers and demand lower prices because they don’t deliver the volume of a big chain store.

While cutting prices can mean great cash flow, it will mean less profit. Unless you get a great deal from a supplier, you’re simply cutting your profit margins.

Many small businesses underprice their products and services to begin with, according to the National Federation of Independent Businesses. They have no idea what the market will bear.

Items they sell for $15 may sell just as well at $18 or $19.

So how do you figure pricing?

The old fashioned way – by trial and error.

Raise prices on an item for a month or two. Track sales. If sales drop, lower the price a bit and try it again.

But if sales don’t change significantly, you’ve increased your profit by selling an item at a higher price.

For small companies, changing prices is a scary proposition. But you can’t stay in business long if you aren’t making money.

Oct. 27, 2004

The empathetic way to collect bills

When your best customers aren’t paying their bills and you’re thinking it’s time dump them, try a little emotion first.

Getting emotional doesn’t mean getting tough with customers. Threatening letters or turning the account over to collections is likely to end business relationships.

But if you show a little empathy you just may get paid and even strengthen your business ties.

That’s the strategy behind emotion marketing. Hallmark Loyalty Marketing, an arm of Hallmark Cards, is a fan of emotion marketing. The company has found that if customers believe you care about their problems, they’ll do whatever they can to remain loyal. That includes paying up.

Here’s an example from the National Association of Credit Management. When a national credit card company was about to lose millions in uncollected debt, it prepared a mailing. Instead of a harsh collection letter, it sent hand-addressed greeting cards to debtors.

The cards acknowledged that the customer was having a tough time and that the credit card company wanted to work with them to solve the situation.

The result: a 10,000 percent return on investment. Customers paid millions in back debt because they felt the company was sympathetic to their plight.

People are emotional about money. Most feel badly about not paying bills.

Bills can be collected with compassion. And if it helps you keep a customer, it’s worth it. As everyone knows, it’s far more expensive to find a new customer than it is to sell to an existing one.

Oct. 22, 2004

Good managers know how to motivate throughout the ages

Good managers are good motivators. They know what makes people tick. But how do you reach employees in today’s workforce, who may range in age from 16 to 76?

The labor pool is changing. Retirees are taking new jobs with small companies or postponing retirement. Young managers may find themselves directing both their age peers and people as old as their grandparents.

And what motivates one generation doesn’t work on another. Small business owners who want to keep employees productive can’t take a one style fits all approach to motivation.

The Harvard Management Update newsletter says four generations you need to understand to be an effective manager today.

There are the Silents. They are in their 60s. They like face-to-face communication. They don’t like e-mail. They’re quiet and logical. Formality is important. Plaques, certificates and other traditional recognition tools work with this group.

Next are the boomers, ages 42 to 58. They like being on a team. Boomers like public recognition — articles on a website or in a company newsletter. Pep talks work.

But pep talks don’t sit well with Gen Xers, those aged 24 to 41. You can tell an Xer what to do, just don’t tell them how to do it. Xers want feedback. They want work to be fun. And they prefer a day off to a plaque.

Finally, there’s the YERs or Generation Y. They’re younger than 23 and are eager learners. Link their personal goals to business task. Be positive, more coach than boss. Communicate informally via e-mail or over the water cooler.

Of course no rule is absolute. But if you use them as a guide, you’ll have a motivational tool to help you manage your people.

Find a mentor and learn from their mistakes

Trial and error is a painful way to learn how to run a business. So wouldn’t it be great if you could learn from someone else’s mistakes?

You can learn from the mistakes of others by finding a mentor.

Business mentors are people who share their experience running companies. The right mentor can be a gold mine of information on the dos and don’ts of running a company.

The Small Business Administration’s On-line Women’s Business Center says mentors are especially valuable when you’re launching a new business or product, or planning to expand.

Counseling, problem-solving, constructive criticism and stories on the trials and tribulations of entrepreneurship are all part of a mentor’s role.

Groups such as SCORE or the 80 Women’s Business Centers around the country link entrepreneurs with mentors. Wisconsin has centers in Milwaukee, Madison, Independence and Eau Claire.

What makes a good mentor? The SBA says find someone with knowledge and experience in your weak areas. Make sure the relationship works, personally and professionally, for both parties.

Be honest with would-be mentors. If there are conflicts, find someone else. Mentors have needs and limitations, too. While they may take great joy in helping someone else succeed, they are often busy with their own interests.

Be sure you’re ready to accept an outsider’s advice. Asking for a mentor’s help when you aren’t ready for it is a waste of time for everyone.

Oct. 6, 2004

Improving your meetings can help your bottom line

Meetings are essential. Why, then do employees think they’re a waste of time?

The biggest beef about meetings is that they last too long. That’s what a quarter of the respondents to an Office Team survey said.

Small talk, interruptions, poor organization and topics unrelated to the meetings eat up time that might be used more productively in the office.

Sales and Marketing Management magazine says there are simple ways to shorten meetings.

Appoint a facilitator to keep time and keep the agenda on track. Good ideas that come up at the meeting should be recorded and dealt with later.

Eliminate chairs from the meeting room. People will be motivated to get through more quickly.

Give everyone a bell to ring when someone goes off on a tangent.

Replace regular meetings with team huddles – 15-minute sessions where attendees rotate in and out of the room as they are needed.

Other suggestions: Limit the number of people in a meeting. Assign times to agenda topics. When time is up, move on to the next topic.

For more suggestions on how to run a better meeting, check out The 3M Meeting Network on the web:

The site is full of tips on how to run a great meeting.

Meetings are essential. But spending time talking about things unrelated to business costs you money you don’t need to spend.

Make your meetings efficient. Your bottom line will thank you.

Sept. 20, 2004

Retain key employees by keeping them happy

As the economy picks up, keeping key employees happy may take more than just money.

If your employee retention plan is just a paycheck, you may be in trouble. While money is important, paychecks aren’t the top reason for job happiness. According to a survey of 150 executives by Accountemps, it’s a relationship with the boss that matters most.

Accountemps says 43 percent of respondents say employee-manager relationships have the greatest impact on job satisfaction. Workload and responsibilities ranked second with 24 percent. Compensation and benefits ranked third.

Max Messmer, Accountemps chairman and author of Motivating Employees for Dummies, offers these tips to building better relationships.

  • Communicate with employees and teams so they can contribute ideas. Offer feedback.
  • Trust them. Let them make decisions and determine how to accomplish objectives.
  • Support them through problems. Help them learn from mistakes so it doesn’t happen again.
  • Recognize achievements. Praise and recognition reinforces behavior throughout an organization.
  • Help further their career through training, development, or mentoring.

People are the most valuable asset many small companies have and losing them can be costly.

The Cincinnati-based Sasha Corp., a human resources firm, reviewed 15 turnover cost studies, threw out the five most expensive reports and averaged the rest. It found that replacing an $8 an hour employee costs a company $5,500. Those costs include recruitment, interviewing, training, productivity decreases and other direct and indirect expenses.

So if you’ve got a staff of 20 and an annual 10 percent turnover rate, conservatively it will cost you $55,000 over five years in employee turnover costs.

That’s expensive, and a reason to get serious about building relationships with key employees happy. After all, motivated and productive employees are in demand. If you can’t give them what they need, they’ll go out and find it somewhere else.

Sept. 14, 2004

Mom and pops have the edge in down times

Who says bigger is better? When it comes to growing in iffy times, mom and pops have the edge.

The economy has been showing sings of life between periods of malaise. But through it all, family-owned firms have been a bright economic spot.

A survey last year by Mass Mutual Financial Group and the Raymond Family Business Institute found strength among small companies despite a lousy economy. Revenues at two-thirds of respondent firms grew more than 11 percent over the past three years.

Mom and pops flourish when much of the business world falters for several reasons.

For one thing, small companies take a long-term approach to business. For another, they’ll take smaller returns on their investments. And most reinvest in their companies, even in down times.

Culture also plays a role in survival. Many small companies are paternalistic. Owners believe they exist to take care of their employees – not to payback shareholders.

So is not surprising that few respondents reported laying people off the past several years, despite the worst downturn in a decade.

Family businesses are survivor businesses. The typical family business was founded just after World War II. Seven out of 10 are controlled by the founders or a second generation.

With that kind of longevity, it’s no wonder that mom and pops are at the top of their game when times are tough.

Sept. 6, 2004

Tips for managing in a crisis

There is nothing like coming to work to find customers leaving, sales reps panicking and that your signature product is defective. What’s a boss to do?

It’s a crisis. And how you react may well determine whether your small company weathers the storm. has several tips for managing in a crisis.

First, admit your mistake. Blaming someone else won’t gain you anything. Apologizing shows you want to repair the relationship.

Be sincere. Show emotion. Let customers know you’re upset and will do what you can to make things right for them.

Confess quickly. Don’t wait to fess up about problems you’ve discovered. You don’t want to appear that you’re covering up.

Be decisive. Pulling a defective product from the shelves, closing a plant or firing the person responsible for the problem shows customers you’re serious about fixing things.

Show no self-pity. Make sure your actions and words show concern for customers, not that you’re not trying to protect corporate interests.

Listen. Hear what people are saying about you. Monitor media coverage. See how the crisis is perceived outside your circle of associates. Don’t forget that perception is reality. You may have to adapt your message to make sure your message is clear.

You’ve spent a long time building your company and solidifying relationships. Don’t ruin things denying that a crisis exists. In the long-run, your customers and your employees will applaud your efforts at doing the right thing.

Aug. 31, 2004

Balancing work and family

Raising a family and pursuing a career can be like working two full-time jobs. What comes first – work or the kids?

But many small business owners believe employees are their most valuable assets. They often say they are willing to help employees find balance in their lives. says there are solutions that keep both bosses and families happy. Here are some options:

  • Try flextime. Flextime is the most popular work option. By changing starting times, employees can gain extra hours in the morning or afternoon to take care of family matters. And they won’t lose visibility in the office.
  • There’s telecommuting. You split time between home and the office, avoiding long drives to work while staying connected to the office via computer.
  • Need a day off? Compress the work week. Four 10-hour work days can give someone an extra day each week to manage personal affairs.
  • Over scheduled? Downshift and go part time. Working fewer days each week means you’ll recapture family time.
  • Job sharing is a popular option. Job sharing can keep a career on track while freeing more time outside of work.

Employees and small business owners have to be on the same page for any flexible arrangement. Flexibility has to benefit the company, too. If part-time or job sharing policies don’t exist at a company, informal arrangements are often set up for valued employees.

So employees, don’t despair. Your out of control life may be flexed back into shape with a scheduling change.

Aug. 25, 2004

Colleges can help take your company to the next level

This is the age of lifelong learning. And for a company that needs help, a good college or university can do more than just find you employees.

Universities and colleges are great resources when it comes to training employees, too. According to SCORE – the Service Corps of Retired Executives – institutions of higher learning can help small business owners learn about their companies, too.

Experts abound at colleges and universities. With the right approach your business can benefit from their knowledge. SCORE offers the following tips:

  • Volunteer your company to be a business school case study. Letting a group of students examine your company is like getting a team of consultants-in-training. They’ll tell you what you’re doing well or doing poorly. Outsiders often spot new business opportunities that entrepreneurs miss because they are too busy with details of business ownership.
  • Get management and technical assistance from a Small Business Development Center. These centers were created to provide management assistance to current and prospective small business owners. Many are affiliated with colleges or universities.
  • Take advantage of university seminars. Schools hold venture capital fairs, family business programs, entrepreneurship forums and other events that you or your key staffers can learn from. And you’ll find that they’re great places to network.
  • Offer an internship to a graduate student. A business student is likely to be up to date on topics ranging from management to technology, providing you with ideas that may help your company. And you might find a potential employee for your firm.
  • Find someone at the school who has experience in your field. Then, bring them on as a board member or consultant.

If you aren’t taking advantage of your proximity to a college or university, you’re missing an inexpensive way to help your bottom line.

And that’s a lesson you can ill afford.

Other resources from WisBusiness:

–Leaf is a contributor who writes frequently about small business issues. Contact him at