Invent

2011 October


Learn from the best

Last week I heard that the electricity companies were making more profit per customer than in the previous year. This is a very important lesson for us entrepreneurs, one which we should take note of in these times of low economic growth.

The easiest way to make more profit is make more revenue to you existing customers.

Everyone knows this yet we seldom take our own advice and here we are looking at the big utility providers and see that this is just what they are doing. In the previous weeks we have seen that worldwide growth is almost nil, the banks are still not in a state to lend to businesses and international markets are looking more like a fun ride than places to invest your life savings.

The utility companies have a core problem, that they have a fixed number of subscribers (with limited house building the growth potential is negligible), they have had a very warm summer (average spending per customer has reduced) and unit costs of the raw material has increased and is set to continue. So with shareholders, waiting for our dividends, they can only do one thing, increase the profit margin per customer to show any form of growth. Without the shareholders, they can make electricity and we cannot buy it.

In many other markets you have many more options. The first is to up sell on the current produce. So if the customer has already purchased the Ford KA, then maybe they are ready to buy into the Fiesta or Focus. The great thing with this is you then may buy their used car and re-sell that, creating a double selling opportunity.  Lets not forget the finance, insurance and servicing options which continues the revenue stream for years.

Another option is used by the fast food industry. Normally you are asked if you would like to go ‘large’ for 30p. This means they put more ice in your slightly larger drink container and add a few grams of fries in your slightly larger fries container. This going large, gets them 30p for spending around 3p in materials. However, over the period of one month with several hundred stores, this provides million of pounds for the chain of outlets.

Yet another well know tactic is used by the supermarkets, you may come in for the milk and bread but leave with a box of chocolates and a bottle of wine, therefore intending to spend £3 and acutely spending £20. Most supermarkets make sure you have to pass the higher margin products to get to the essentials. Online stores are also becoming very good at this, especially Amazon, who provide recommendation and product placement based on your previous purchase, current search and seasonal trends.

The loyalty card is yet another opportunity to make more from your current customers and coffee shops around the country, small and large have all now desperate to this. Providing you with a card, which them love to stamp and them offer you a free drink on completion.

The cost of find new customers is high and therefore making sure you have an approach to make sure you can rely of this income is important for your business. Just 10% extra from each customer at this time is the difference from your business being average and being at the top of your industry when the recession finally ends.

Take a look at what options you have today to make more from your current customers.

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Do we need a knowledge or a skill’s economy?

We hear the term ‘knowledge economy ‘ used by many people and this week I finally made a decision, its not good for us entrepreneurs. The essential facet of a knowledge economy is that focused on the production and management of knowledge. It means Universities can get paid to make new discoveries, without ever wanting anyone to use them.

So lets take a look at history, Greek scholar named Pythagoras, who lived around 500 BC was also fascinated by triangles with these special side ratios and came up with a theory which we still use today. So the Greek’s had a knowledge economy. I don’t have to say how they have factored since taking the cheap finance available since joining the Euro. However, the development of knowledge itself does not bring prosperity, it’s the exploitation of it.

The fact is, with a truly international economy and information sharing through the internet, knowledge is not an asset until you have the skills to use it. The frontiers of knowledge are only today’s and tomorrow we shall have new frontiers which make yesterdays knowledge redundant and obsolete. With more people on the planet the pace of this knowledge development increasing as the human race, races for more knowledge. How can you expect to win a race when you have over 6 billion people against you? Small countries do not have the man power or money.

The answer is to master the skill of managing, exploiting and capitalizing the knowledge. Society needs to develop people who have these skills to transfer knowledge into successful enterprises.

When I look at successful entrepreneurs, they develop industry knowledge, but never technical, they know the trends, but never the detail, they understand what works and what does not, but could not build any product themselves. The skill to adapt to whatever life throws at you is a skill we should all have and this skills needs to be learnt at every stage of education, even a university one.

In a knowledge-based economy, knowledge is a tool. So if we are going to anything we need an knowledge-based economy with a population who have access to the knowledge and the skills to master it for our enterprising future.

Pythagoras gave us a tool and we should never forget the skill of using it.

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