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Surviving Thin Margins

In a previous article, we shared creative ways marketers are thriving in this squeezed margin environment. Several marketers called, however, and asked us for more information on just plain old survival in today’s thin-margin market.

So, to survive, more than anything else, you need to go back to the basics and do them really well. Get started with these steps:

1) Watch cash flow like a hawk. At Meridian, we’re pretty biased. We think every marketer should be using our banker’s method of cash flow, studying that monthly cash flow report to know exactly what happened to their cash and why. If you still aren’t there though, at least monitor your inventory and receivables weekly. When it comes to cash flow, these two areas make the toughest hits on cash. If you do nothing else well, know those weekly numbers.

2) Get all customers on EFT or drafts. If you still haven’t converted your older customers to EFT terms, do it now.    Yes, with your tough old farmers and contractors, it may take a personal visit to explain how your supply terms have changed, how they will still have control over their money, and alleviate their fears and objections. Do whatever you need to do to entice them. Usually offering an extra two days payment time or stretching out old balances on a note work wonders.

3) Watch for inventory buildups. We like to measure inventory in terms of days of supply on hand (inventory dollars divided by one day’s average cost of goods sold). This number should be no more than 1.5 times your supplier terms. For instance, if your grocery supplier comes once a week, inventory should not exceed 10 or 11 days supply.

4) Reduce shrink. Enormous amounts of profit are lost in our industry due to shrink. Shrink is the by-product of both lack of controls and company culture. Employees that feel valued in their position are less likely to feel you owe them free Twinkies and cigarettes.   That still leaves the largest problem — your vendors. Current industry research shows 65% of shrink is due to vendor theft. Review your check-in procedures if your company is theft-friendly!

5) Be friendly to customers. Speaking of friendly, customers will willingly pay slightly higher prices if they enjoy doing business with you. Store clerks that know customers by name are rare and should be valued!

6) Rid yourself of unprofitable, nasty customers. All of us have a customer or two who cause us so many headaches and extra work that when we factor all that into the equation, we lose money on them. Get rid of them. Life is too short and profit is too precious to keep dealing with them. Unfortunately, they are often big volume. Doesn’t matter. You are ultimately losing money on them and need to give them the heave-ho.

7) Market, market, market! When times get tough, it’s not the time to pull the reins in on the advertising and marketing budget. In fact, the slimmer the margins, the more you need to market stuff where you do make a decent profit!

8) Cut costs. Rarely does this mean cutting people or marketing. Look for simple reductions.

9) Reduce paper. Most marketers produce enough paper in a year to eradicate an entire forest! Do you really need all those reports? Give your staff better computer system access to facilitate less reports.

10) Get the right information the first time. This applies to any information flow in your business. We recently worked with a company where revamping the new customer data form and getting that information correctly into the system solved a myriad of time-consuming problems.

11) Eliminate paperwork errors. Too much time is wasted redoing errors. For instance, one redone invoice is estimated to cost $50. If you are doing ten credit and rebills a week, this costs your company $26,000 per year! Store to home-office paperwork always seems to have error problems too. Determine if these errors are due to lousy systems or inadequate training and then cure the cause.

12) Get rid of debt. The tighter the margins, the less leveraged your company should be. Now is not the time to get yourself in hock up to your neck. If anything, pay down those loans.

13) Don’t skimp on equipment maintenance. When margins are squeezed, you may need to forego new purchases and make do with older equipment. So, be sure you have a preventative maintenance program in place to avoid costly unplanned repairs.

In short, go back to basics and do them well. When margins were fat, marketers could get away with being a little sloppy. Those days are likely gone forever. Only marketers who do the basics very well are going to survive the next decade.

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