Developing New Products and Services

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Markets are dynamic and constantly evolving, no matter how excellent your current products or services. Therefore, it’s useful to regularly redevelop, replace, upgrade or update your products and services to continue growing your business. Here are some practical methods to uncover a potential new product or service in your business.

Seek Inspiration

To find new product or service ideas try the following:

• Attend trade shows to see what similar businesses are doing. Spotting new trends and products is a great way to come up with new products or services.
• Network by attending business events and conferences. It’s an excellent opportunity to learn about developments in your industry and to stay connected with your peers.
• Search online all the different industries or key words that are relevant to your business and see what other businesses are doing.
• Look at research or government support websites for businesses or industries similar to yours. Often governments profile high growth businesses and there may be ideas that inspire you.
• Look on other US State support sites such as invest.hawaii.gov as just one example. Some have business registries to search for similar businesses.
• Engage on social media platforms and channels by following relevant feeds pages and groups. They are ways to stay up-to-date with what’s happening in your industry.
• Third party ecommerce platforms have a wealth of ideas to spark a new thought or variation on what you’re doing.
• Search for any published university or other industry research findings in case you can apply them to your business.

Finally, contact your customers and ask them what else they need, what are their issues and problems that you can help to solve.

Signs that the idea could work

While a good idea has no guarantee of success, a bad idea will most certainly fail. Here are some signs your new idea could work:

• You can sell it at the price or volume necessary to make a profit. Even the best idea ever will not last if it costs more to produce or deliver than you can sell it for. Find out early the likely cost to create or offer, and if there is a margin to be made.
• Your idea cannot be easily copied. This prevents competitors from quickly copying your idea once you’ve launched.
• You have market power, a great distribution channel and an established brand. This will help customers trust that the new product or service will work, as they already know and understand your business.
• Your current customers have been asking for it or are involved in the design phase.
• Employees are convinced your new ideas will work.  They will often have a clearer insight into what customers are asking for.
• You have the capacity and capability to produce any new product or service and if you need additional equipment, facilities or people to do so.

Project manage the process

Since product development involves time, labor and finance, it’s important to plan carefully in advance. Minimize your risk by applying some sound management techniques to your planning process. Create a team with the skills needed to make the project a success and choose a team leader.

Every new product needs a champion to lead the team. Incorporate the following:

• You or one of your key employees should be appointed as a project manager, so that there’s a clear understanding of how the new product or service will fit in with the overall capabilities of the business, as well as regularly measuring and reporting on progress.
• Give the team leader the authority to run the project—within an agreed budget and timetable—with the responsibility of reporting progress to you at agreed milestones.
• Be customer centered and work closely with your best customers to help develop and fine-tune any idea.
• Protect any innovation with either intellectual property protection, such as patent, trademark or copyright, or keep it as an intellectual asset (meaning don’t tell anyone what you’re doing).

Test the new product

Once a prototype of the new product has been produced, or a new service decided on, it needs to be tested. A soft launch done locally with a few customers is a smart way to test the waters and gather feedback. You can find out what customers think and tweak your new idea, if needed.

Testing will reduce the major risks early so you can decide if it’s worth the potential reward. Minimize the risk by:

• Establishing the likely volume of sales and the marketing and sales cost of achieving each sale to get a satisfactory return on your investment.
• Determining if your target market and industry is growing and will be able to absorb a new product or service.
• Identifying any competing products already in the market and ensuring your business offers something different and unique.

Summary

Successful businesses are those that are continually looking for ways to innovate. This is an essential component for achieving growth. Whether it’s a new product or service, or one you’ve come up with that’s designed to complement existing ones, make sure you consider all the above carefully, as this will help maximize your chances of success.

Next steps

• Contact one of our Business Relationship Managers to see how we can help your business grow.
• Look at your existing product and service lineup to review what could be improved or modified for different application.
• Conduct a focus group to ask customers what they like about your products or services and what could be improved. Ask them what else they’d like to buy from your business.
• Stay current with your marketplace by reading newspapers, magazines and online publications.
• Find ideas and inspiration by attending events featuring industry leaders.

How to Increase Margins

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Increasing sales might make more profit for your business but consider increasing profit margins –especially if there is limited opportunity to increase sales.

Growing your business can be achieved by growing profit rather than sales.

First, increase prices

Increasing the price of your goods or services seems the obvious answer when trying to improve margins. And it is. Nothing will improve your margins more than a price increase (with the understanding a price increase could cause a drop in sales if you’re over-priced). 

However a price increase will always improve your margin. Try:

• Increasing your prices by a very small percentage, even 1-5%, will still generate improved results.
• Using an external event (such as a new tax change, the fluctuating US$ exchange rate) to justify why you’re charging more.
• If you do face increasing costs, customers often understand the need for rises.

Price sensitivity

If you have price sensitive customers, then consider the impact on sales that a price increase may have.

There will always be a threshold where customers will switch for a lower price regardless of how great your business is, especially for products and services where customers have a fair idea of the cost.

If you do sell items that are price sensitive, keep your major products or services at competitive prices. Instead, think about increasing margins on supplementary products or services where customers are either not so familiar with the price or don’t compare you with the competition.

Second, lower the cost of supply

The other main way you can improve your margins is by lowering the cost of supply – finding ways to pay less for any of the costs associated with bringing your products or services to consumers.

To achieve lower costs, consider:

• Sourcing raw materials from a less expensive supplier if they offer the same quality. It’s easy to fall into a routine and always order from the same supplier. Consider every year (or two) to re-tender or seek new quotes from suppliers.
• Purchasing in bulk if discounts are available, you have the storage space, and you don’t stock perishables.
• Importing – if your business can get similar raw materials or products from overseas at lower cost, it’s worth looking into.
• Ensuring you take advantage of any early payment or cash payment discounts.
• Taking steps to reduce theft and wastage – make sure your inventory system is efficient and links through to sales, and there is less room for fraud.

Third, focus on larger margins

Concentrate on the products or services you sell that have the biggest margins – by selling more of these items, your business will gain more profit. Train your employees to be aware of which items have the biggest margin and are therefore best to sell if the customer is unsure. If you need to, allocate incentives or bonuses for selling high-margin items.

Likewise, begin to phase out goods that have low margins. If you’re selling plenty of them but not making much profit, it might be best to use that space or time for something more profitable.

Other options for focusing on larger margins include:

• Changing your product or service mix and giving customers more choices to buy high-margin items and fewer choices on low margins.
• Promoting items with the highest margins above those that have low margins.

Remember the 80/20 rule outlines that 80% of your profits comes from 20% of your goods or services. Make sure they are the high-margin products.

Finally, try these ideas

Target better clients

Change the customers you are targeting to ones who will spend more money or who are less price resistant. They may be quite happy to pay a higher price for what you offer.

Consider only doing business with those customers that pay on time, or in cash, or don’t always want a discount. By not having to wait for your money, you will enjoy higher margins by either paying less interest on any financing or receiving interest on spare cash.

Are there any clients that cost less to service (such as closer to your location or don’t require on-going support)? Having more of these customers will lower your overall costs and, therefore, increase your margins.

Attract new clients

You could open new locations or target new regions where customers are willing to pay a higher price. If you focus on local consumers who are price sensitive, can you find commercial or government customers who may be prepared to pay more for what you do?

Review how you work

Some businesses are able to reduce their fixed overheads, such as replacing salaried staff with part-time or contracted workers. In addition:

• Assess if any staff can work from home, possibly lowering any lease costs as you’d need less room to operate.
• It could be possible to sub-contract any non-essential manufacturing to other businesses, to save you holding fixed costs or raw materials.
• The world is increasingly a global marketplace. What else can you source cheaper than your current supplier? This could be service tasks such as accounting services, subscriptions and training.

Summary

Realizing higher margins removes some pressure from sales because it means you can sell fewer products and services, or the same amount, and return a higher profit. Get in the habit of regularly reviewing your margins to make sure they haven’t changed due to creeping input costs or sales discounts. Repeat these strategies often to keep enjoying healthy margins in your business.

Next steps

• Contact one of our friendly Business Relationship Managers to see how we can help your business.
• Ask your suppliers to re-quote prices on materials, products or services to make sure you get the best price.
• Invest in quality accounting software to accurately track your sales, expenses and margins. Review financial reports every week or month.
• Speak with your accountant to explore additional ideas to improve your margins.
• If you plan to significantly increase your prices, consider selling to existing customers at the current price and charging the increase to new customers only.

Ways to Increase Revenue

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Keep in mind that a profit increase doesn’t always have to focus on driving sales. Often improving a number of things a little better has more impact than making one large change.

Consider implementing the following tactics at the same time to achieve an accumulative effect on your profit.

The rule of 10%

If you can increase or decrease ten percent of your business that links to profit (or even five percent), then possibly customers will either not notice (unless you are in a very price sensitive market), or be fine with the changes.

Increase prices

Raising prices can lift your profit, but take care to check with your customers to see how they’d react to a price increase. If such a change lowers your demand and you lose customers, your profit margin may go up (as you’re charging more) but your overall profit may drop. To reduce a drop in sales while increasing prices try:

• Increasing prices on those items where customers are less price sensitive.
• Not increasing prices on items that you know customers compare with competitors.
• Gradually phasing in a price increase. To get to a 10% rise, you could try 1% each month for ten months.

Always monitor the effect of a price rise to detect any unhappy customers.

Increase revenue

A simple increase in sales (without discounting) should increase your profit. Some ideas to help you increase turnover include:

• Look to add new markets and distribution channels to your sales strategy. Identify any partners or ways to sell more.
• Use tactics that cost very little (if nothing) to increase sales such as asking for referrals, visiting existing customers, calling potential customers on their phone (yes, even in the digital age, selling on the phone can still work).
• See if there are any digital market places who will re-sell what you do.
• Form strategic alliances with complementary businesses or joint venture to tackle work you don’t have the resources to handle on your own.
• Maximize the value of your sales by moving upmarket and providing a premium product or service. Customers just may say yes when asked if they’d like the more expensive option. Add features if the perceived value to customers is greater than the cost to you.
• It could be possible to extend your product range by asking suppliers to provide you inventory and only pay for it when it’s sold. If you are the supplier and have excess stock, then you could do the same.

Reduce costs

Identify the steps you can take to minimize your direct costs, such as:

• Negotiating lower prices with your suppliers.
• Reviewing processes and systems to minimize waste.
• Implementing additional security to reduce the chance of theft.
• Make sure you get paid by putting systems in place to ensure that invoices are sent and paid promptly.
• Review fixed business costs such as insurance, power, and telecommunications and check if there are newer cheaper providers.
• Check any on-going subscription services (often via the internet) in case they are no longer being used, or you’re paying for more capacity than you need.

Categorize your customers

Divide your customers into four categories and put different effort and resources into selling to them depending on their value. For example customers that have a:

• High percentage of sales and high profit margins – nurture these customers and put most of your sales effort into them. Put in place customer loyalty programs so there is less chance they will get lured away by the competition.
• High percentage of sales but low profit margins – seek to raise the margin they return to you such as a price increase or examine how you can cut costs. It could be something simple like charging for freight when in the past it’s been free. Remember these customers are getting a good deal already.
• Low percentage of sales but high profit margins – consider a sales push to try and get them to buy more regularly, as for some reason they’re not buying as much as they could.
• Low percentage of sales and low profit margins – consider nurturing them to buy more or pay more, so you can move them up the profit scale.

Take into account any possible effects of increasing profits before making decisions. For example, a low-profit product might be the one that brings other business from a major, highly profitable customer.

Have staff focused on profitability

Focusing staff on profitability can have also a dramatic impact if they are aware that small savings can benefit everyone. Develop incentives if they assist with:

• Reducing power costs by switching off equipment or items that have a heavy power drain when not in use.
• Finding causes of waste and eliminating to increase overall margins.
• Referring and supporting new and existing profitable customers even if they are not in a sales role.
• Manage to exceed any sales targets.
• Sell items or services that have the highest margins while delivering a great customer experience.

Summary

Operating efficiently is essential to a sustainable, profitable business. From negotiating better terms with suppliers to nurturing your most profitable customers, your efforts can pay off.

Consider changing a number of things in your business all at once, to gain that cumulative effect on your profit.

Get started today for a more profitable bottom line.

Next steps

• Review every part of your business in detail to gain every cent of savings that you can.
• Find an external advisor to help you identify ways to build profit.
• Consider gathering like-minded small business owners to brain-storm ideas for building profits.

Six Numbers to Measure Success

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There are so many financial ratios and indicators that it can be a difficult to keep track of everything. Here are six important numbers to pay attention to when it comes to the success of your business, including ways you can improve them.

No. 1: Gross margin

Gross margin is the difference between what you pay for a product and what you sell it for. Look to improve your gross margin by considering:

• Increasing your prices. If it’s small enough, it may not cause too much disruption, but it may result in significant gain.
• Reducing cost of goods sold by using lower-cost materials where possible, without affecting quality. Research lower cost providers or ask your current supplier to renegotiate for your business at a lower price.
• Reducing waste. Examine any areas where there might be excess waste and devise ways to minimize. Recycle and reuse any materials you can.

No. 2: Average revenue per customer

The average revenue per customer is the total revenue divided by the total number of customers. Here’s ways to help increase this number:

• Predict customer needs by using your sales data to identify trends such as seasonal fluctuations and items frequently bought together, therefore helping you plan marketing promotions.
• Learn to up-sell and cross-sell.
• Make it easier for your staff by bundling products and services together.
• Target customers who you think have the most potential and develop a specific plan to sell more to each of them.

No. 3: Revenue growth

Steady, predictable revenue growth is the sign of a healthy company. Consider the following to further increase revenue:

• Generate more sales by selling more to existing customers. Set up a campaign to keep in touch with your existing customers.
• Look at developing new products or services for your existing customers.
• Create a marketing plan to identify, locate and sell to new customers.
• Look for new distribution channels to expand your customer base, including on your website and third-party ecommerce platforms.
• Consider exporting to gain new customers and increase revenue.

No. 4: Revenue per employee

Revenue per employee can be affected by several factors, including average revenue per user, better systems and processes, and automation. Here’s ideas to help increase revenue per employee:

• Set goals for your employees. Help them put a sales plan in place and measure their success.
• Incentivize your employees by providing either individual bonuses for sales achieved or run a combined sales revenue target (especially when you have employees in non-selling roles but they are still crucial to the business succeeding).
• Ensure your sales data is transparent so there is some measure for employees to track how they are doing. It doesn’t have to be sales information which may be confidential. It could be things they can easily see such as numbers of new customers, number of coffees sold per day, number of products finished and off the work floor.

No. 5: Net profit percentage

The net margin that accrues from all the effort of a business is the ultimate measure of how a company is being operated. Consider the following to increase net profit:

• Identify costs that occur each month on a subscription basis or are charged to you every month such as power, internet and phone. Look for ways to reduce these regular fees.
• If rent or lease payments comprise a large portion of your overhead, consider relocating all or some of your business to cheaper areas, especially if it’s not essential to your business, or customers don’t come to visit you directly.
• See if there are any costs you can share with other businesses: employees, marketing agencies, floor space, exhibiting or travel costs.
• Consider outsourcing any full-time tasks that you only need every now and then. For example, administrative tasks like payroll may not need a full-time (or part-time) person, and it could be cheaper to contract a specialist firm. See what else doesn’t require a full-time resource that would be overall cheaper to buy only when you need it.

No. 6: Net customer satisfaction  

Track customer satisfaction by asking for opinions, feedback and ratings. This can give your business invaluable information about customer preferences, and what they like and don’t like. The higher the satisfaction of your customers, the more likely they are to come back again and again and refer your business to others.

Consider the following to help your customers spread good news about your business:

• Find out what people are saying about your competitors and use that information to improve the customer experience in your own business.
• Keep track of customer complaints. Document who the customer was, why they were unhappy and what was done to resolve it.
• Engage with customers on social media to measure their levels of satisfaction. You can talk to them directly, create customer surveys, and incentivize them to visit your website.
• Use email to send out customer satisfaction surveys. Incentivize them to participate in the survey by offering a discount or small gift.

Summary

Most businesses do not need a long list of ratios or numbers to track with spreadsheets, accounting software, applications, and dashboards sending unlimited streams of data to you each day. Instead establish a few numbers that mean something to your business, then set up a system so you can monitor what is happening to each of these every month.

If you can improve each one in small increments, you may see substantial improvements in profitability.

Next Steps

• Contact one of our Business Relationship Managers to see how we can help your Hawaii business grow.
• Set up monthly reporting so you can see if the numbers are improving each month. If not, take steps before the number further decrease.
• Talk to your accountant or financial adviser if there are other numbers you should measure and track.

How to Value Your Business

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If you’re selling your business, one of the main challenges is what you think the business is worth and what the person on the other side of the bargaining table thinks it is worth, are usually two different figures.

Deciding on a market value

Regardless of the method anyone uses to value a business, it’s simply a matter of finding someone who will pay what you’re asking. Theoretically if no-one wants your business then it’s worth nothing (apart from the second hand sale of any assets or inventory).

Past cash flow, profitability, and asset values are the starting points but it’s often the hard-to-measure factors such as key business relationships, reliable suppliers, loyal customers and goodwill that provide the most value.

To assist in this process it’s usual to arrange a business valuation with a business broker, accountant or valuation expert with experience in your industry.

Factors influencing value

Individual circumstances

Tangible assets

Intangible assets

Intellectual assets

Length of time

Agreements

Management stability

Valuation techniques

Remember, the true value of a business is always what someone is willing to pay for it. To arrive at this figure, buyers use various valuation methods, often to give a sense of reassurance that they are not paying too much. The main methods are as follows:

Asset valuations

Add up the assets of a business, subtract the liabilities, and you have an asset valuation – nice and simple. So if your business has $500,000 in machinery and equipment, and owes $50,000 on equipment finance, the asset value of the business is $450,000.

A buyer could decide to just buy the assets of a business rather than take over the business as a going concern. Take into account:

• Property or other fixed assets that may have changed in value. Just because an asset is ‘valued’ at a cost on the balance sheet, doesn’t mean that’s what you should sell it for.
• Assets that you’ve added value to, for example that have been installed, or improved. These may be worth more than just book value.

Entry cost valuation

An entry cost valuation reflects what it would cost someone to start the business from scratch, as it’s always an option for them. To make an entry cost valuation, calculate the cost of:

• Purchasing or financing assets and developing the products or services.
• Recruiting and training employees.
• Building up a customer base and generating repeat business.
• Knowledge of networks, suppliers, competitors and processes.

Industry rules of thumb

In some industry sectors, buying and selling businesses is common. This has led to industry-wide rules of thumb that are typically considered in valuing the business. These rules of thumb are dependent on factors other than profit. For example:

• Turnover for a computer maintenance business or monthly recurring revenue for a subscription business.
• Number of customers for a mobile phone airtime provider.
• Number of outlets for a real estate agency business.
• Net profit multiplied by an industry standard number.

Buyers will work out what the business is worth to them especially if they can merge your customer base with their existing business.

Next steps

• Determine which method of valuing your business creates the most value for you.
• Get expert advice as there are other valuation methods such as price earning ratios. Talk to your accountant, lawyer, a business broker, your banker or small business adviser about possible valuations of your business.
• Search online for similar businesses that are for sale to get a feel for the market of similar businesses for sale and what they were sold for. Remember that ultimately, your business is worth whatever someone will pay for it.

How to Manage a Cash Crisis

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There are many reasons why small businesses experience sudden cash flow crunches. A (usually) reliable customer might take longer to pay than anticipated. Essential gear breaks down and you must pay to replace it. Or, if your business is new, it could simply be taking longer than expected to turn a profit.

Figure out the cause of your crunch and take action

Identify the reason for your cash crisis and move quickly to address it:

• A major customer hasn’t paid on time.

Implement stricter credit control and better debt collection procedures. Contact them to ensure you have the right purchase order and the invoice has been sent to the right person. Check if your contact has gone on vacation and forgotten to process your invoice.

• A rise in the cost of production has eroded your profit margin.

Try and source less expensive materials or supplies or decide if you need to raise your price.  Monitor your gross profit margin for any further profit slippage.

• Your business overheads have increased.

Identify specific expenses and see how you can reduce them. Regularly monitor your net profit margins to spot any out-of-proportion increases so you can take action.

• Your business is growing quickly.

You don’t have the capacity to fund the growth with your working capital. There’s usually a time gap between selling goods or services and getting paid by customers. Meanwhile there are bills to pay. See if you need to slow down growth to avoid failure.

• Sales have been slower than predicted.

Review your marketing plan and sales campaigns.  Alternatively, if you can’t see any future improvement in sales, make sure your business still viable.

There may be other causes such as the loss of a major contract or you bought a large asset at the wrong time and you now need that cash reserve for working capital. In each case, understand the cause and the action you’re taking to avoid repeating the crisis, such as diversifying your customer base or using your cash flow forecasts to time purchases more appropriately.

Finding money in a cash crunch

If you do find yourself in a cash crisis, there are a number of funding options to consider, ranging from self-financing or bank loans to finding a business partner. The relative attractiveness of each option will depend on the size of your cash flow shortfall and how long you’re likely to need the cash. Talk to your accountant, tax advisor or legal counsel for advice.

Explore these sources of internal funds

Before you look for external sources of funding however, can you free up cash from within your business? For example:

• Offer customers a discount for early payment or ask them to pay up-front.
• Ask customers to pay by credit card now rather than invoice for payment later.
• Hold a sale of surplus or slow-moving stock to raise cash.
• Ask suppliers to take back excess stock and a credit or give you longer credit terms.
• Sell under-used assets and rent the equipment instead.
• Downgrade or sell vehicles and lease them back instead.
• Reduce your drawings from the business until revenues improve.
• Your accountant and advisors may be able to suggest other ways to release the locked-up cash in your business.

Apply for a bank loan

If you need a business loan and have a good credit history, consider a higher line of credit or access to a business loan to tide you over. If you’re going to need quite a lot more money, you’ll likely have to present a more detailed business plan and financial forecasts.

Invoice factoring

Factoring involves selling your invoices for immediate cash. Factoring companies may take 5% or more of the value of your invoice. The factoring company will collect 100% payment from your customer when the invoice comes due.

Taking on partners and investors

A business partner might be a source of quick cash. There are advantages but also pitfalls to taking on a business partner, so get expert advice first from your accountant and your lawyer – they may also know suitable investors. Be aware that you’ll need to share the ownership of your business if you go down this path.

Family and friends

You could ask family, friends or business colleagues to help out with a temporary or longer-term loan. It’s best to put the agreement in writing and get everyone to sign it, so that both sides are clear on what has been agreed. Be aware that this sort of agreement could strain personal or working relationships if things go wrong, so treat it as a last option.

Summary

A cash crisis is stressful for any business owner. Take a deep breath, and be reassured that you do have many options available to you. You’ll feel better about your situation when you take immediate steps to pull your business through what will surely be a short-term cash flow crunch.  

Next steps

• Contact one of our friendly Business Relationship Managers to see how we can help your business.
• Update your cash flow forecast to make sure you are working with fresh numbers. You’ll want to see exactly how much money your business requires to stabilize cash flow.
• Talk openly with your banker about your situation. Don’t hide your cash flow crunch. Chances are, your banker will have solutions to suggest to you.

Five Strategies to Make More Money

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Here are five key strategies to increase your business, and your profit. It’s best to build up by 10 percent using these methods, but the slow and steady approach will be worth the results.

1. Increase Your Leads

Grow your number of prospective customers. By interacting with more people, you’ll increase your chances of turning them into customers. Here’s a few tactics to increase leads and make more people aware of your business:

• Document your most successful promotional tactics. Repeat those successes by putting more budget and effort into those marketing strategies.
• Profile your target audience and contact them directly.
• Attend industry events and conferences to meet potential customers.
• Redesign your website to increase opportunities outside the Islands.
• Develop new distribution channels. Think about using agents, licensing your goods or utilizing new distributors.
• Ask current clients to give you referrals.
• Use search engine marketing and buy AdWords.
• Run webinars or speak at local events.

2. Convert Leads Into Customers

Once you have more leads, increase your conversion rate by making them your customers. Even converting 10 percent more into customers will generate significant sales.

Measure your current conversion rate. For example, calculate the number of unique users visiting your website divided by the number of your online sales and then consider the following:

• Organize local staff training on selling techniques and closing methods.
• Provide your staff with incentives or bonuses for higher conversion rates.
• Run demonstrations for potential customers to see what you can offer them, how they can benefit and then sign them up.
• Ask people to connect by creating calls to action or incentives through promotional materials, your website, blogs, social media and free trial offers.
• Create whitepapers or research content to encourage people to register or download content for you to then follow up and close the sale.

3. Increase the Number of Items You Sell

If you can entice your customers to buy another item, hour or extra service from your business, your sales—and your profits—will increase. On-selling is a classic tactic to improve your profit. They include:

• Add impulse or lower-cost products at your checkout or offer a final sell when closing.
• Ask customers what else they would be interested in buying from you and then widen your product range to accommodate their needs.
• Bundle your products together.
• Offer complementary services.
• Research your competitors to find new product or service opportunities.
• If you sell products, add a provided service; if you provide services, add products to sell.

4. Increase Your Average Sale

If you can increase the average value of each sale, you’ll directly improve your profit. Here’s what you can try:

• List all your highest margin products and services. Check that they are profiled on your website, that they have the most promotional budget allocated to selling, and that they are the first products to be sold.
• Ensure all employees know to sell those products with the highest average sale price, and that there are incentives when they sell.
• Increase prices. Even small improvements, such as one to five percent, will show direct profit results.
• Introduce new premium products or services that have a higher value.

5. Increase Net Profit Percentage

Net profit can be improved by looking carefully at your gross and net margins. To increase net profit, try these tactics:

• Review all of your main suppliers and determine if you can swap any for lower-cost providers. Ensure any new supplier can match the quality and service you expect..
• Assess if there’s any parts of your business that can be sub-contracted out to lower-cost suppliers, or can be imported from more affordable producing countries. Make certain this tactic won’t impact what your customers expect. (For example, Hawaii-made versus imported).
• Identify your top five overhead costs to explore savings. Overheads such as insurance, office supplies, internet, subscriptions and communications often reduce in price year by year. Make sure you’re getting these reductions.
• Trim employee costs, if possible. Review job descriptions to find any overlap; you may be able to get by with fewer people on the payroll.

Summary

There are several simple, practical steps you can implement to improve your business’ profitability. Review these five strategies to increase your profits at least once a year. Repeat any strategy you find to be successful.

Next Steps

• Contact one of our friendly American Savings Bank Business Relationship Managers to see how we can help your Hawaii business grow.
• Meet with your employees, accountant and any other advisors to brainstorm additional tactics to increase profits.
• Ask your employees to contribute ideas to sell more and spend less.
• Monitor your main competitors to see what they are doing to increase sales, reduce costs and improve profits.
• Keep up to date with industry trends and look to adopt any new ideas or technologies that will lower your costs and improve your profit margin.

Find New Customers

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Find out the main sources of local help and advice, including  incentives and initiatives to encourage small business development.

It’s always beneficial to seek new customers. When new competitors enter the market and try to steal market share or old customers no longer need your business, it’s important to draw upon a fresh customer base. Here are five strategies to win clients. 

1. Look for New Customers in Your Existing Market

Chances are, there are several new customers in your existing market, they’re just hidden. Profile the best customers you have now. What do they look like? Where they are located? What do services or products do they utilize? Also include if they have any buying cycles, whether they attend conferences and what process they followed to become your customer.

Next, list how your best customers prefer to be contacted, and what worked when you originally marketed your business to them. Using the profiles of these ideal customers, find more that match. Set a marketing budget and develop a shortlist of targets that have potential for your business.

Don’t forget to ask for referrals. Your customers are likely to know other people just like them who could benefit from your products and services. Many customers are willing to refer your business if you ask.

2. Look for New Distribution Channels

To seek new ways to expand your customer base, identify other ways you could sell your products and services. Here are some strategies:

• Expand beyond Hawaii into different geographical locations by opening new locations, outlets, a franchise or a joint venture with other businesses.
• Go up or down the supply chain. If you’re a wholesaler, add a retail outlet—going up—or start importing direct—going down.
• Go online. You’ll be able to create a new avenue for your customers and widen your audience and therefore potential customers.
• Join contracting bids or open tendering opportunities in different markets.
• Consider any competitors or complementary businesses looking to exit. You might be able to buy them out to extend your reach and customer base.
• License what you do to similar businesses in other markets or countries. You own the intellectual property and they pay you a royalty.

3. Find New Markets

Define your market area or region, such as Hawaii or the Pacific, and then using local statistics or your industry knowledge, look for other areas, such as on the Mainland or overseas in Asia, to expand.

• Consider exporting: Overseas markets offer opportunities to expand your business. Conduct on-the-ground research in the countries you’re considering. Make sure to find out what regulations, tariffs and business risks are present in your new target market.
• Explore new market models: If you sell to consumers, consider if you can sell to businesses as well. Similarly, if you sell to businesses, find out if there is a way to sell to individuals.
• Look at nontraditional markets: The government or education sectors have opportunities worth exploring.
• Review your online strategy: While the internet offers a potential worldwide market, identify what’s practical for you to target. Otherwise your marketing efforts will be ineffective because your message is off-market or spread too thin.
• Focus on Selling

Every local small business owner should be placing emphasis and budget into selling strategies. It may sound obvious, but if you don’t sell anything, you’re out of business fast.  Assess your tactics and improve your sales success rate by:

• Host workshops, webinars or events to talk with customers directly and close the sale.
• Call or visit existing and potential customers at their business to direct sell.
• Offer discounted products or services to get new customers, and then up-sell and on-sell once they have signed up.
• Attend industry events and trade shows.
• Create content for new customers to download in exchange for their email addresses, and then add them into your email marketing campaign.
• Develop a sales plan, train and encourage everyone in your business to be a sales person.
• Using direct marketing software or engaging third party companies to send you qualified leads.

5. Partner with Other Businesses

• Form marketing partnerships: Jointly promote with another business. It’s even better if you can get in front of their customer base. Working together gives you instant credibility to their clients.
• Constantly network: Attend events, conferences or exhibitions your customers attend. Invest in any speaking opportunities to enhance your profile.

Summary

Finding new customers is one of the most common growing pains for small business owners. Over time it’ll get easier, because you and your staff will know what sales and marketing methods work best for your business. It’s important to actively market to new customers on an ongoing basis to ensure your business never runs short of buyers.

Next steps

• Contact one of our friendly American Savings Bank Business Relationship Managers to see how we can help your Hawaii business grow.
• Generate a list of practical tactics to add new customers that are relevant to your business and industry.
• Ask new customers how they found your business so you can focus on marketing activities that yield results.
• Make a list of non-competing businesses serving the same customers and approach each one about forming a strategic alliance.
• Invest in sales training for you or your sales team to improve selling skills.

Check that your business idea will work

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Although the only real way to find out if your business idea will work is to actually start your business, there are a number of things you can do to help research your business idea before you take the leap.

Working through this process methodically will give you a better sense of your businesses chance of success .

Reality Check 1

Have a key competitive advantage

Your business ideally needs to stand out from the competition. If your business has a unique selling point (USP) or competitive advantage, it will give customers a reason to go to you, rather than anyone else. Businesses which do not have a clear and strong USP, often have to resort to competing on price. This typically means lower profit margins.

Consider basing your competitive advantage on something the customer values. For example:

• First to the market and no one else sells what you do.
• Being the most reliable with the best guarantee.
• Having exclusive products or a contract so you are the only supplier.
• You have the best quality or longest warranty.
• Having a cost advantage so you can be the cheapest yet still make a profit.
• Being the healthiest or most sustainable.
• Knowing more than anyone else and being an expert
• Being made in Hawaii.
• Organic or use recycled materials.

Reality Check 2

Research your target market

It makes sense to ask the people you’re likely to be selling to, what they think of your business idea. Try and find out:

• Whether people actually want what you’re selling.
• Which people or businesses are most likely to buy.
• Which group of customers are likely to be the most profitable.
• What prices you could charge for your products or services.
• How often people will buy.
• The benefits that people want to receive when they buy your type of product.
• What needs people have which are currently not being met by any other businesses.
• The best ways to market to potential customers.
• Where people currently buy from and why they choose to support those businesses.

Much of this information can also be used to determine whether there will be sufficient demand for your business’s products and services for your business idea to work. It can also be used to figure out how you can modify your original idea so it will be viable, perhaps by identifying ‘gaps’ in the market.

Test the market

Trial marketing can be one of the most reliable ways to test your market potential. If you are introducing a new product or service, you could:

• Set up the business part-time while still working.
• Test the response by selling at trade fairs, weekend markets or short-term contracts, depending on the type of business you’re running.
• Launch a limited marketing campaign in a selected town or area.

Reality Check 3

Make sure your business model will work

It’s relatively simple to determine whether you can sell enough to make a profit, but can you physically make enough?

For example selling a product which takes four hours to build, means you have a capacity of two a day (around ten a week or five hundred a year). Is this enough to make a profit from the price you’re selling them for? If you’re a retailer then calculate how many people you need per day spending the average amount for a customer in your type of business. Is the business viable?

Conduct a break-even analysis to show the minimum amount of sales that your business needs to make in order to cover all of your costs. Then work it out again, this time with your profit margin added in. If you can make at least this amount of sales, the idea may be financially feasible (assuming you can still get customers of course).

Reality Check 4

Do you have the money

Calculate how much money you need, and how much money you have. If there is a gap then you’ll need to cover this amount somehow. It's common for some business owners to underestimate the actual amount of money needed to start up a new business venture.

Step 1

Add up all the purchases you’ll have to make to get your business up and running. Some of these costs could include:

• Vehicles, plant equipment and machinery.
• Office equipment, computers, scanners, desks.
• Initial inventory or raw materials.
• Fees for licenses or permits.
• Any staff you need in advance before the doors open.
• Your own salary (if you intend to take one).
• Internet, online, website build.
• Product or service development.

Step 2

Once you’ve determined all your set-up costs calculate your ‘working capital’, which is how much you’ll think you need to cover all your running costs until you start to make a profit.

Examples of these on-going costs include:

• Rent, power, internet.
• Accounting fees, insurance, bank fees.
• Salaries or wages, any sub-contractor costs.
• Online subscription fees, communications.
• Anything that is a regular cost regardless of sales.

For example if these costs totalled $20,000 a month, and you’ll think you need at least 6 months until the business can pay its own way, then you’d need $120,000 in working capital.

Step 3

Add the set-up costs to your working capital costs to get a final start-up estimate.

Do you have enough money saved, borrowed or accessed from somewhere to cover this amount?

Summary

Your business is much more likely to succeed if you can pass these initial four reality checks. Sure, there are still hurdles to cross, such as accurate pricing, finding a location, being able to find customers and building a sustainable revenue stream.

Next steps

• Allow some time after you have collected all your research. Ask yourself if you want to proceed.
• Talk to a business advisor or another small business owner about your idea, and collect as much feedback as you can. Though the final decision is yours.
• If your information points to a viable business, you feel confident in your entrepreneurial abilities, and you want to move ahead, then your next step is to write up a proper business plan.

Decide how much money you need to start

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Many new businesses need start-up capital. Find out the main options of raising funding for your new business.

Before you start a business, it’s best to know how much money it will cost and make sure you have access to sufficient capital. It’s important to be realistic with all of your figures, and to estimate costs and revenue as accurately as possible so you can calculate how much you need.

How much money do you need?

1. Set-up costs (money you’ll need before you start operating).
2. Initial working capital (money you’ll need to run the business until you start making a profit).

Set-up costs

• A web designer would have low costs: a computer, software, possibly liability insurance and any legal costs setting up a company.
• A builder would have higher costs: tools, vehicle, and equipment for any specialized work.
• A restaurant’s set-up costs may include kitchen equipment, seating and initial food ingredients.

• Rent deposits and any building renovations before you open for business.
• Licenses and permits.
• Employee recruitment and training.
• Initial inventory or raw materials.
• Signage, marketing materials, web site development and advertising.

Working capital

Once they open, many businesses don’t have enough sales revenue to cover overhead costs. Time is needed to start and generate customers to cover all the overhead (and make a profit). Until this happens you’ll ideally have spare cash in the bank (also called “working capital”), to pay for monthly expenses until sales can cover all your monthly costs.

Work this out:

• Begin by estimating your monthly costs (wages, utilities, internet, advertising, rent – everything). This will give you a monthly amount you need as a minimum to stay in business.
• Transfer these totals to a cash-flow template.
• Now add your sales estimates for the first six months (being realistic and remember some businesses don’t have any sales initially). Each month you’ll see how much working capital you are short.
• If you have customers on credit or account, they rarely pay on time. Factor into your calculations that you may need to wait 30, 60 or 90 days for payment.

Cost out every item and get quotes

You can get accurate figures for set-up costs and working capital expenses by rolling up your sleeves and carefully researching all costs.

• Get written quotes from suppliers for each service or product you need to run your business. Ask them to guarantee the quoted price for at least 90 days; that way, you won’t have any surprises when you go to start-up your business.
• If you are leasing or buying premises and must pay for utilities, contact the utility company to find out the monthly cost. Ask about any anticipated rate changes.
• Research online or contact vendors directly to identify costs for office supplies, internet access, telephone charges, furniture, alarm systems, data storage and office cleaning.
• Include any transportation or travel costs you may incur to get your business going.

Contingency budget

It can be difficult to foresee all the costs you will incur to get your business up and running. Inevitably, there will be some costs that you didn’t expect, or purchases that simply end up costing more money than your earlier estimate. Costs can also change if there is a substantial period between when you priced something out and when you buy it – an insurance rate obtained last year may be much higher this year because of changes in the marketplace.

You can accommodate changes to your start-up budget by including a contingency budget. Consider adding ten to twenty percent or more to your start-up budget for unexpected set-up expenses or changes to your working capital needs.

Start-up budget formula

Use this formula to safely calculate the amount of money you’ll need to start your business:

• Set-up costs + working capital costs (monthly costs x the number of months you’ll be short) + a contingency budget.
• Example: Start-up costs $200,000 + working capital $120,000 ($20,000/month x 6 months) = $320,000 to start and cover costs for 6 months. Add a 10% contingency to be safe which totals $352,000.

Take this total and calculate where this will come from:

• Personal savings.
• Bank finance.
• Investors.
• Government grants.
• Loan from friends or family.

Summary

Work out exactly how much you think you’ll need to start, with a realistic contingency to cover any cost blow outs. Remember to make a plan to pay for your personal living expenses while your business gets off the ground because if it won’t be able to pay you a salary initially. Figure out your household expenses to know exactly how much you’ll need each month.

You may have all the cash you need for starting a business. If not, then carefully consider all the options available to secure start-up funds.

Next steps

• Contact one of our friendly Business Relationship Managers to see how we can help your business.
• Conduct your market research carefully to determine how much money your customers will be willing to pay you. This helps to accurately forecast sales revenue.
• Explore government grants for small business owners in Hawaii.
• Contact the Small Business Administration Hawaii District Office for help to get your business up and running.