Those of us who deem ourselves entrepreneurs open our businesses with dreams of changing the world, delivering the best experience that customers can get, and, hopefully, making a little money. You consider your business to be the best there is at what you do, no matter what anyone says. You have to think that way, or you’ll never succeed. (Image source: Kim Komando Show)
Despite our best intentions though, I think all of us have gone through a period where we realized our business wasn’t doing very well. If you’re experiencing this right now, know that how you choose to react could very well signal either a strong bounce-back or lead to you shutting your doors.
To help you get to the root of the problem, here are three common reasons small businesses fail to make money, and how you can address the problem.
1. You Don’t Understand Your Customers
Think about this for a moment: if you sold shaving and beard care products, and I asked you, “Who are your target customers,” what would you say? Would you say something to the effect of, “Anyone who’s looking for a good shave?” Or would your response be closer to, “20 to 35-year-old working males with an income level between $30,000 and $60,000 a year who value quality, affordability, and better performance in their shaving products.”
If you couldn’t answer with something closer to the second answer, I can tell you right now, that’s why you’re losing money.
Often, we find that many small businesses open their doors without a clear understanding of who their customers are, and what they value. What’s more dangerous is that many businesses think they have it down to a science, but really don’t.
A study by McKinsey & Co. revealed that, amongst a sampling of consumers, 13% were loyal to only one brand, 87% continuously shopped around, and 58% said they swap to new brands constantly. If you don’t want to be in that 13% area, then you need to rethink your priorities.
Take the time to really get to know your customers. By know them, I mean figure out what their buying habits are, what qualities they value most in a product or service, and what they hate in a buying experience.
For the customers you’ve sold to, ask them how well you did (or didn’t do) and be prepared for an answer you don’t like. What’s most important right now is honest, open feedback.
Once you’ve figured out what matters to your customers most, shift both your products and advertising in that direction. You need to have an ideal buyer in mind and focus all your efforts on attracting and retaining those customers. If you keep the “everyone is a potential customer” approach, you will fail.
2. You Don’t Have an Online Presence (or It’s Lacking)
Even if all your business does is making cute little handmade arts and crafts to hang in a child’s bedroom, if you don’t have an online presence, you’re missing out on a huge market of potential customers.
Online sales are quickly growing in prominence, and that’s not a trend that’s going to change anytime soon. A report by the Wall Street Journal revealed that 2018 was the first time that online sales on Black Friday rivaled those of in-store purchases, growing between 5 and 9% from 2017. It also saw a huge increase in purchases made by mobile phone, totaling 33.5% of all online sales made on Black Friday.
Additionally, most people aren’t going to browse the newspaper, watch TV, or listen to the radio to find you anymore. Search Engine Land hosted a survey which found that 85% of customers use an online search to find local businesses.
The problem is that many businesses aren’t taking advantage of the digital domain. Proft Press reported that more than 50% of small businesses don’t maintain their own website. Common reasons they cited as reported by small business owners include:
- A lack of understanding about the benefits
- It costs too much or it’s too complicated
- They’re doing just fine without
If this sounds like you, I’m here to tell you-you’re wrong.
If you don’t have your own website set up to educate customers about your business, gather their feedback about your performance, and answer any questions they may have, you need to get one set up now.
Regardless of how well you think you’re doing, you can always do better. If you were where you wanted to be with sales, you wouldn’t be reading this. A website will go a long way towards bringing in the revenue that has eluded you up until this point.
3. You’re Not Being Effective With Your Marketing
Speaking of newspapers, TV, and radio, where is your marketing money going? Digital News Daily revealed that $69.7 billion was spent on TV ads, $12.7 billion was spent on magazine ads, and only $12.2 billion spent on newspaper ads in 2017. By contrast, digital media advertising surpassed $100 billion. I don’t always encourage people to follow trends, but this is a bandwagon you definitely need to be on.
Too many small businesses continue to invest their marketing and advertising budgets into ventures that won’t make a solid return. Namely, they pour all of their money into the traditional mediums we mentioned above. Statistics show that these venues are slowly dying, and even if they never fully expire, they’ll never bring in the revenue they once did again.
The first most important thing you need to do is establish an ROI ratio for your marketing strategy. It can be whatever you want, but Web Strategies Inc. recommends a 1:5 ratio. For every dollar you spend, you should make $5 in revenue.
If you’re not, then you need to take a step back and see what you’re publishing, where you’re publishing it at, and where you need to change. Start looking for outlets to increase your online advertising, and put your budget into those efforts.