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Archive for December, 2011

Revenue Management will improve profit

Think of revenue management as a simple way to increase profits and cash flow, without implementing an across the board price increase, and without taking on additional overhead expenses. What you are doing is optimizing your selling prices in relation to your product or service ability. Here’s a quick example to illustrate my point.

Suppose you own a barbershop. When creating a budget, you sat down with your accountant and figured out that $15.00 was an appropriate price to charge, based on your overhead expense and profit goals. The busiest day for customers at your shop is Saturday, and the slowest day is Wednesday. You’re so busy on Saturdays that you often turn away customers. It’s quite likely that many of your Saturday customers or potential customers can only get their hair cut on a Saturday because they’re too busy the rest of the week.

Revenue management principles will suggest that you raise your prices on Saturday, and offer a discount on Wednesdays. Because your available time is finite, you will be making more money on Saturday with higher paying customers, and also making more money on Wednesday because you will have moved customers with a more flexible schedule to your slowest day, thus having a full schedule all week.

The key is figuring out the math (prices) in relation to the supply and demand of your customers. In this example:

Before Revenue Mgmt

customers

price

total sales

Wednesday

5

$    15.00

$    75.00

Saturday

11

$    15.00

$  165.00

$  240.00

After Revenue Mgmt

customers

price

total sales

Wednesday

11

$    12.00

20% discount

$  132.00

Saturday

11

$    18.00

20% increase

$  198.00

$  330.00

37.5% increase in profit

 

In a very complex way, airlines apply revenue management principles with their Saber computer system. Every seat on every flight has a constantly changing sales price, depending on minute by minute changes in demand and supply.

The biggest challenge for a small business owner is to stop thinking about your selling price based on cost. The focus should be on price in relation to supply/demand. Your selling strategy should center on parsing out many micro-markets. Give up on trying to appeal to mass-markets with a “one size fits all” approach.

Finally, realize that each product or service you offer has a value cycle. What might be the hottest pair of shoes or coolest computer app in today’s market will need to be discounted in the future. You will need to continually reevaluate your revenue opportunities.

Have you applied revenue management to your small business? Please comment, I’d love to know about it.

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Ashgrove Payroll Sign up

Right now is an excellent time to switch payroll service providers. We’ve found that new clients begin working with Ashgrove payroll for a few reasons:

 

  1. They are tired of getting notices from the state or feds
  2. They want to save money – we generally cut the payroll service fee bill by 30-50% from other providers such as Paychex, ADP, Prime Pay, etc.
  3. They want to be able to pick up the phone and get an answer right away.
  4. Automatic download into QuickBooks, Peachtree and other major accounting software packages for free.

 

Besides having piece of mind with the payroll function in your small business, we add value to this by offering excellent time keeping systems, analysis of labor costs, and advice on pay rates based on job functions and responsibility.

Contact us today to learn how you can have peace of mind in 2012 with your payroll. You’ll never have to worry about it again.

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