When it comes to the crunch

With my limited knowledge of the English Language I frequently resort to the Concise Oxford English Dictionary - XI edition. I have lived through the pain of a credit 'squeeze' and now move on to the latest credit 'crunch'.

Used as a verb, 'crunch' is a loud grinding noise made with the teeth. When used as a noun, 'crunch' is both a sit-up, and the crucial point of a situation.

As my overdraft crunches into a steel trap clamped tight after the festive season, my teeth react as predicted, causing an immediate sit-up at the crucial point.

So why was I in trouble in the first place? Quite simply, I lost my way. In my keenness to get franchising I had forgotten to assess my market, control my pricing, check my stock and budget my costs.

Franchises rarely fail from a total lack of sales. More common is a failure to judge the market potential accurately. Much as we love the concept of conducting market research, we are not always in love with the conclusions. We happily believe market research that supports our business plan, but are we as prepared to believe when they indicate our business may sink?

The bravest decision in that case is to not start. Another opportunity will present itself.

The crunch period for any business is the first three years. The first year you notice nothing as you struggle to develop. The second year brings vague doubts, and in the third year could become a frightening reality.

Take full advantage of any training in business, management and operations sand you will extend through to a fourth year and a possible brighter future.

Pricing

I have a simple approach to the problem of pricing my goods and services. The average salary in the United Kingdom is £27,000 a year. Don't ask why you don't get that - but it's true. The average worker is gainfully employed for 2000 hours or less. Average hourly rate is around £13.50 - so much for the minimum wage.

Starting you own franchise could be said to be three times riskier than employment, so you deserve three times the average. The minimum return for any labour you provide to your franchise should be £40 per hour, or about £80,000 per year.

I am not interested in hearing how you cannot ask that amount for your efforts.

At lunch do you grab yourself an inexpensive packet of crisps? Does it cross your mind that you have just spent the equivalent of £26 per kilo, for 20 thin slices from one King Edward?

Calculate your prices with help from the four P's of Marketing, beginning with your Product and then your sales Place.

Take a common product that we all use daily. How many of us could recognise our favourite brand? What colour is it? Has it an aroma which differs from the competition?

We are not talking a litre of Starbucks, but a litre of motor fuel currently selling in excess of one pound when bought at our usual place on the supermarket forecourt.

Change the Place to the hard shoulder of the M25 at 1am New Years morn and will do you really expect to pay one pound a litre?

Consider where you will sell your product, at what time and therefore at what price. Can you add or alter your marketing mix to include an element of premium pricing. Can you up the price to equal £40 per hour.

In conversation with my local Mr. Electric franchisee, I asked where he found most of his customers, only to get the very illuminating answer 'In the dark.' He then asked me 'What would you be willing to pay to get out of the dark?'

On top of standard rate, add an amount to cover your costs and expenses, the profit you require, and also a return on the money you have invested in your franchise. Why should you be expected to pay out a sizeable amount in franchise fees, before paying for stock and capital equipment? A franchise is not buying a job. A franchise is an investment made with your funds, and in view of the risk demands a return. Be mean and add 15 per cent return on your capital. 'I have invested £25,000 and I want 15 per cent return per year, which equals £75 per week.'

Add all the yearly insurances, rentals, leases, stationary, vehicle expenses, repairs and advertising. Add anything you spend on running the business.

Divide this by the number of items or services you anticipate selling. 'I replace one thousand fuses a year and my expenses are £10,000 - so each job will carry a premium of £10 per job.'

I know what you are thinking. 'If I set my prices to high, and nobody buys, do I just sit down and twiddle my thumbs for 60 minutes?'

No of course not. If necessary, agree to work for a price that covers your expenses. So long as every hour worked covers your costs, then you can afford to wait for that 'The night shift are in the dark' job, or that 'We are up to my neck in sewage' job.

You have now understood the principles of marginal costing. Calculate two price lists. The lower is the minimum charge when your franchise is short of sales. The higher is the price when you are fully committed. Begin with your minimum and work upwards.

Franchises often fail to have a clear pricing document, leaving them wide open to competitive pressure. Consulting a printed price list in front of your customer reduces the need to negotiate. Remember that no one argues with the price printed on the supermarket shelf.

Your target is to fill your week with work that covers all your costs. So long as the hours are filled, the profits will come. Initially it may only be a few pounds per hour - but any profit is a good profit.

Ensure that you analyse the strengths and weaknesses of your competitors, including those trading on the internet. Can you position your product to exploit a clear gap in the market? Can you open when they close? Can you deliver when they refuse? Can you split quantities, or deliver greater. Give yourself as many added benefits as you can.

Set sales targets that are simple to understand. 'We need to sell one extra service contract each week' or 'We need to make each customer buy 50 pence more'.

Pareto's Law states that 80 per cent of your sales are produced from 20 per cent of your stock and that 20 per cent of your sales come from 80 per cent of your stock. Therefore in the best traditions of Wal-Mart; if I get rid of the 80 per cent of my slow stock, will I manage to increase my sales for a lower investment?

The problem is that Pareto operates again, so you still sell in the proportion 80/20, but on a reduced range of goods. Concentrate on examining your sales on a daily basis. If an item is not selling reduce the price to cover expenses, or at cost, and get rid of them. Use the cash to purchase products which sell faster.

Take a quick check on your selling skills

Have you developed a personal style and presence? People buy from people.

If they don't like you - they don't buy you.
Manage your selling time by setting aside 45 minutes a day to make new sales calls. After a few weeks of panic and fear it will become part of your day-to-day activities.With my limited knowledge of the English Language I frequently resort to the Concise Oxford English Dictionary - XI edition.

I have lived through the pain of a credit 'squeeze' and now move on to the latest credit 'crunch'.

Used as a verb, 'crunch' is a loud grinding noise made with the teeth. When used as a noun, 'crunch' is both a sit-up, and the crucial point of a situation.

As my overdraft crunches into a steel trap clamped tight after the festive season, my teeth react as predicted, causing an immediate sit-up at the crucial point.

So why was I in trouble in the first place? Quite simply, I lost my way. In my keenness to get franchising I had forgotten to assess my market, control my pricing, check my stock and budget my costs.

Franchises rarely fail from a total lack of sales. More common is a failure to judge the market potential accurately. Much as we love the concept of conducting market research, we are not always in love with the conclusions. We happily believe market research that supports our business plan, but are we as prepared to believe when they indicate our business may sink?

The bravest decision in that case is to not start. Another opportunity will present itself.

The crunch period for any business is the first three years. The first year you notice nothing as you struggle to develop. The second year brings vague doubts, and in the third year could become a frightening reality.

Take full advantage of any training in business, management and operations sand you will extend through to a fourth year and a possible brighter future.

Pricing

I have a simple approach to the problem of pricing my goods and services. The average salary in the United Kingdom is £27,000 a year. Don't ask why you don't get that - but it's true. The average worker is gainfully employed for 2000 hours or less. Average hourly rate is around £13.50 - so much for the minimum wage.

Starting you own franchise could be said to be three times riskier than employment, so you deserve three times the average. The minimum return for any labour you provide to your franchise should be £40 per hour, or about £80,000 per year.

I am not interested in hearing how you cannot ask that amount for your efforts.

At lunch do you grab yourself an inexpensive packet of crisps? Does it cross your mind that you have just spent the equivalent of £26 per kilo, for 20 thin slices from one King Edward?

Calculate your prices with help from the four P's of Marketing, beginning with your Product and then your sales Place.

Take a common product that we all use daily. How many of us could recognise our favourite brand? What colour is it? Has it an aroma which differs from the competition?

We are not talking a litre of Starbucks, but a litre of motor fuel currently selling in excess of one pound when bought at our usual place on the supermarket forecourt.

Change the Place to the hard shoulder of the M25 at 1am New Years morn and will do you really expect to pay one pound a litre?

Consider where you will sell your product, at what time and therefore at what price. Can you add or alter your marketing mix to include an element of premium pricing. Can you up the price to equal £40 per hour.

In conversation with my local Mr. Electric franchisee, I asked where he found most of his customers, only to get the very illuminating answer 'In the dark.' He then asked me 'What would you be willing to pay to get out of the dark?'

On top of standard rate, add an amount to cover your costs and expenses, the profit you require, and also a return on the money you have invested in your franchise. Why should you be expected to pay out a sizeable amount in franchise fees, before paying for stock and capital equipment? A franchise is not buying a job. A franchise is an investment made with your funds, and in view of the risk demands a return. Be mean and add 15 per cent return on your capital. 'I have invested £25,000 and I want 15 per cent return per year, which equals £75 per week.'

Add all the yearly insurances, rentals, leases, stationary, vehicle expenses, repairs and advertising. Add anything you spend on running the business.

Divide this by the number of items or services you anticipate selling. 'I replace one thousand fuses a year and my expenses are £10,000 - so each job will carry a premium of £10 per job.'

I know what you are thinking. 'If I set my prices to high, and nobody buys, do I just sit down and twiddle my thumbs for 60 minutes?'

No of course not. If necessary, agree to work for a price that covers your expenses. So long as every hour worked covers your costs, then you can afford to wait for that 'The night shift are in the dark' job, or that 'We are up to my neck in sewage' job.

You have now understood the principles of marginal costing. Calculate two price lists. The lower is the minimum charge when your franchise is short of sales. The higher is the price when you are fully committed. Begin with your minimum and work upwards.

Franchises often fail to have a clear pricing document, leaving them wide open to competitive pressure. Consulting a printed price list in front of your customer reduces the need to negotiate. Remember that no one argues with the price printed on the supermarket shelf.

Your target is to fill your week with work that covers all your costs. So long as the hours are filled, the profits will come. Initially it may only be a few pounds per hour - but any profit is a good profit.

Ensure that you analyse the strengths and weaknesses of your competitors, including those trading on the internet. Can you position your product to exploit a clear gap in the market? Can you open when they close? Can you deliver when they refuse? Can you split quantities, or deliver greater. Give yourself as many added benefits as you can.

Set sales targets that are simple to understand. 'We need to sell one extra service contract each week' or 'We need to make each customer buy 50 pence more'.

Pareto's Law states that 80 per cent of your sales are produced from 20 per cent of your stock and that 20 per cent of your sales come from 80 per cent of your stock. Therefore in the best traditions of Wal-Mart; if I get rid of the 80 per cent of my slow stock, will I manage to increase my sales for a lower investment?

The problem is that Pareto operates again, so you still sell in the proportion 80/20, but on a reduced range of goods. Concentrate on examining your sales on a daily basis. If an item is not selling reduce the price to cover expenses, or at cost, and get rid of them. Use the cash to purchase products which sell faster.

Take a quick check on your selling skills
n1 Have you developed a personal style and presence? People buy from people.
If they don't like you - they don't buy you.
n2 Manage your selling time by setting aside 45 minutes a day to make new sales calls. After a few weeks of panic and fear it will become part of your day-to-day activities.
n3 No doesn't mean No forever. Take a refusal as the first step in a long relationship and continue to contact potential customers every eight weeks with something of interest. New products, new prices, new places are certain winners.
n4 Get back to your customer quickly. One in three enquiries is never followed up. Your competitors are giving you 33 per cent of their potential turnover.
n5 One in three estimates is wrong. Your competitors are giving you 33 per cent of their business.
n6 Make a point of phoning your franchise as a potential customer. See the reaction you get, and ensure that any problems are resolved.
n7 Make it a rule this year to give everyone two or three of your business cards. Encourage customers to give them to their friends and colleagues.
n8 Make sure everyone knows you. Use every method you can to promote yourself. Internet, search engine advertising, mail shots, press releases and flyers. Make them personal to you by adding a sense of style.
n9 Utilise voicemail for when you are away from the franchise, and ensure you respond on your return.
n10 Learn to smile. A friendly face encourages customers to linger, allowing you more time to sell.

Finally, at this time of credit crunch, ensure that your have sufficient 'working capital'. The investment you make in your franchise needs to be backed up by a substantial amount of free money. Expect that it will take twice as long to get into profit. Expect that payments from customers will take longer to materialise.

Arrange an overdraft facility with your banker to cover all eventualities. Nothing is calculated to upset a banker more than knocking on the door to ask for yet more cash. Their first question is always 'Where has the last lot gone?'

No doesn't mean No forever. Take a refusal as the first step in a long relationship and continue to contact potential customers every eight weeks with something of interest. New products, new prices, new places are certain winners.
n4 Get back to your customer quickly. One in three enquiries is never followed up. Your competitors are giving you 33 per cent of their potential turnover.
n5 One in three estimates is wrong. Your competitors are giving you 33 per cent of their business.
n6 Make a point of phoning your franchise as a potential customer. See the reaction you get, and ensure that any problems are resolved.
n7 Make it a rule this year to give everyone two or three of your business cards. Encourage customers to give them to their friends and colleagues.
n8 Make sure everyone knows you. Use every method you can to promote yourself. Internet, search engine advertising, mail shots, press releases and flyers. Make them personal to you by adding a sense of style.
n9 Utilise voicemail for when you are away from the franchise, and ensure you respond on your return.
n10 Learn to smile. A friendly face encourages customers to linger, allowing you more time to sell.

Finally, at this time of credit crunch, ensure that your have sufficient 'working capital'. The investment you make in your franchise needs to be backed up by a substantial amount of free money. Expect that it will take twice as long to get into profit. Expect that payments from customers will take longer to materialise.

Arrange an overdraft facility with your banker to cover all eventualities. Nothing is calculated to upset a banker more than knocking on the door to ask for yet more cash. Their first question is always 'Where has the last lot gone?'

test test