The 3 key things you need to balance for long-term success
Often in business it feels like you’re trying to walk the thinnest tightrope while holding a hundred precious vessels in your hands. That’s where balance comes in and being able to handle the different challenges all at once. There’s a common marketing approach called ‘the long and the short’ which refers to the balance of establishing your brand in peoples mind (which takes a long time) and the short-term bursts in sales you can get from dropping price or other tactical activities. This balancing act also applies to the wider business as owners need to keep an eye on the short-term metrics like sales, margin and cashflow as well as making sure they build the trust and confidence from customers and suppliers to be able to weather the challenges of business life.
So what do you need to have for long term success? Its 3 simple things…
A STRONG BRAND & VALUE PROPOSITION
A brand is more than the colours on your packaging or design of your website. Its how consumers describe you, the intangible ‘something’ that you deliver over other competitive alternatives and the sum of all the small things you do every day. There are well known business that pride their brand as being ‘customer-centric’ but try getting hold of a real person on their customer service line and you may be left hanging for literally hours listening to endless repeats of ‘your call is important to us but….’ (cue, bad music on repeat and the sound of your head banging on the wall). If you say you’re a premium brand, price like a premium brand and have websites & advertising that scream ‘I’m worth it’, then your product had better deliver in spades. No broken dodgy parts or missing pieces, no fake claims, no hiding extra costs or shirking on quality.
By building your brand over TIME with consistency in messaging, then you build knowledge, trust and confidence that you can deliver what consumers and Retailers are looking for.
Make sure you have a clear value proposition. This is the reason your target customer should buy your product and the value you offer them to solve a problem or make their life a little better, whether physically, socially or emotionally. If you aren’t’ clear who your target customers are then its hard to be clear on your positioning and create a clear brand offer.
Be confident and clear in your brand story. The world has a way of finding out and a quick Google search will uncover tricky behaviour.
KNOW YOUR NUMBERS
Your numbers are the gauge that helps tell you which direction your business is heading in. Are you speeding up your revenue - but your expenses are overtaking them? Or have your costs gone up and you haven’t adjusted your pricing so you’re struggling to achieve a reasonable profit. These are both short-term metrics and feed into your cashflow, which is the ultimate fuel gauge. If you can’t pay your bills today then that’s a must fix, and will impact your ability to have a longer-term business without loans, investment or trading away equity. Your accountant is your best partner to help set up a clear scorecard.
Key short-term metrics to look at include:
Revenue and Unit sales: The quickest way to see how things are tracking is to look at money in the tin. Are you actually selling the amazing brand & products that you’ve developed, to enough people consistently over time? Keep an eye on sales patterns and learn what the major sales events (and quiet periods) are for your category and products. Icecream sells all year round but winter is for 2L family tubs at home on the couch compared with summer ice-cream cones for hot days.
Profit - Your Gross Margin (Revenue - Cost of Goods), in both dollars and percentage, and your Net Margin ( your net profit as a percent of your year-to-date revenue). Your need to keep a close eye on this especially in times of rapid inflation, and its https://www.pitchfork.co.nz/tips/the-four-levers-of-profitability-product-based-business-fmcg
Monthly Operating Costs - If you’re feeling a bit stuck understanding financial statements, then check out the NZ Ministry of Business, Innovation and Employment website articles including this super-helpful once which has great examples and videos specifically for small business https://www.business.govt.nz/business-performance/strategic-finance/how-to-read-financial-statements/
There are more hidden numbers that are also worth keeping track of as they are the long-term signals (a bit like blood pressure) that can help you understand which direction your business might be heading in, and what you need to do to resolve.
Velocity - also known as rate of sales - looks at how quick are your current consumers (or Retailers) reordering from you, and how many units are you selling in each Retailer / store per month. If your velocity is slow then you may have Retailers wanting higher margin to cover their higher holding costs for your items. This means that it takes them a long time (and cash) to sell through what they have bought from you so make sure you’ve factored this into your pricing. A fast selling product has high velocity meaning you need to be able to keep up with demand and avoid disappointing customers with out of stocks.
Repeat rates - what % of your sales are from repeat vs new customers. When you’re starting out everyone is going to be a ‘new’ consumer, but you should start to see a pattern of regular buyers coming back and purchasing from you. This is where your marketing efforts come in to remind people to buy again, give them more information to encourage purchase, and even a simple ‘abandoned cart’ reminder to capture
Pricing - keep an eye on competitors and market dynamics, especially if you’re a product based business, to make sure your products maintain their position. While its dangerous to take a ‘knee-jerk’ reaction and constantly change prices, its important to understand the impact of price promotions on volume to make sure you’re getting a good return on investment. A race to the bottom on price is one you don’t want to win.
PLAY THE LONG GAME
Overnight success stories are generally more PR spin than reality, and the reality is years of work, mistakes and evolving all parts of the business go into long term success. There will be inevitable challenges along the way and by focusing on your bigger goals and setting a clear plan, you’ll be much better able to avoid too much chopping and changing of direction.
Try to avoid:
Short-term focus on topline revenue leads many into a deep hole of unprofitability (get examples)
Don’t get distracted by shiny things. This could be constantly creating new products to add to your range without giving any chance for the current ones to gain traction - as well as chewing through a LOT of time, cash and resource. Or it could be always trying to keep up with the latest trends in social media or brand messages. If you’re always chasing and changing, you’ll confuse your potential customers and losing out on long term sales growth.
Worrying about competitors rather than focusing on yourself. Keep an eye on them, but don’t constantly compare and artificially compete
Focus on:
Building strong brands, relationships and trust. They will stand you in good stead when things inevitably get rocky and you’ll be able to understand what your customers and the market are looking for.
Setting clear goals that have a mix of aspiration over the longer term, and practical milestones in the short-term that help you know you’re on the right track.
The three pillars of business success need care and regular attention to make sure that while one can fall out of alignment on occasion, you’ll be able to get things back on track without it all coming crashing down. An amazing brand with a clear brand story but massive shortfalls in cashflow and operating costs spinning out of control is the story of too many DTC brands that crafted amazing websites & products, then fell over into a giant red pit of unprofitability when the cash ran out. A business with strong financial backing that is constantly chasing the latest new shiny product to launch, marketing trend to follow or new technology solution, will find itself caught up going nowhere with confused staff and customers not knowing what the brand stands for.
If you want help looking at where your business is out of balance, and how to get back on track, then get in touch. We won’t fix it overnight but we can help point you in the right direction to set you up for success.
