Ask The Expert: Losing CustomersPosted on Friday, November 14th, 2003 by Self Employed Web Team
Q. My company has been trying to attract new customers and has been fairly successful (we sell software). The problem is, we’ve also lost several long-term clients—especially in the past year. I’m not sure why this is happening or what we can do to stop it. Our prices are competitive, so that doesn’t seem to be a factor. Any suggestions?
A.Small businesses are sometimes so concerned with getting new customers and clients that they might not pay attention to their regulars, says Tim Cohn, president of Advanced Marketing Consulting of Nichols Hills, Okla. While it’s important to add new customers, you shouldn’t forget the maxim that 80 percent of your business typically comes from 20 percent of the customers. In addition, businesses usually reap the biggest profits from customers they’ve had four or five years. “Often, new customers don’t produce profits during the first year,” Cohn says.
To keep customers in the fold, you need to communicate with them regularly. Also, everyone in the company needs to understand who the important customers are. “A lot of times, a frontline employee doesn’t understand the value of a client and fails to treat him or her with courtesy and respect. As a result, steady customers feel like they’re being taken for granted, become disenchanted and go elsewhere,” says Cohn.
Q. I’m a small regional manufacturer of women’s shoes. In the past few years, I’ve been losing customers to foreign imports. Is there any kind of federal assistance I can get to help?
A. Your best bet is to contact a regional Trade Adjustment Assistance Center (www.taacenters.org). Twelve of these centers form a nationwide network. Part of the Department of Commerce, the TAA will work with you in dealing with foreign manufacturers.
“We work in partnership with companies looking to become more competitive with importation,” explains William J. Bujalos, director of the TAA’s mid-Atlantic center. The TAA will provide qualified companies with up to $75,000 in co-funding to make this happen. To qualify, however, you have to be able to show that revenue and your employment base have dropped off because of foreign competitors. “We also need to talk to eight to 10 customers to determine if they have gone to foreign manufacturers,” Bujalos says.
Once you qualify, TAA officials will meet with you to determine what must be done—and what the cost will be—to level the playing field. If the price tag turns out to be, say, $250,000, you fork over $125,000 and the TAA pays the rest. The funds can be used for everything from hiring consultants (the TAA will even find one for you, if necessary) to developing strategic marketing plans. However, you can’t apply funds to salaries or asset purchases. And don’t expect results overnight. “This doesn’t happen in 48 hours,” Bujalos says. “It’s more like 48 months. This is a long-term partnership.”
Workers’ Comp Blues
Q. The cost of my workers’ comp insurance has been going through the roof. Is there anything I can do to keep these costs down?
A.Nationwide, the average cost of workers’ compensation insurance has jumped 50 percent in the past three years, and small-business owners have been affected the most, says Edward J. Priz, a Riverside, Ill.–based insurance consultant. “Small companies have fewer options than larger businesses and fewer agents and insurance companies seeking their business. They often end up being put in Assigned Risk Plans run by their state and have to pay higher premiums.”
Even so, entrepreneurs can hold costs down by taking some crucial steps, Priz says. First, take a hard look at the classification codes that describe your business. Typically, you’re assigned a specific code by whoever writes your policy. Some codes are considered riskier than others and have higher workers’ comp premiums. For example, if you’re classified as a precision-machine shop, you’re eligible for lower rates than you’d get with a general machine-shop classification, says Priz. Be sure you’ve given the right classification code.
Second, after your annual rates exceed a certain level, the insurance company will review your policy to make adjustments. As part of the review, the carrier will produce a worksheet detailing your business. “Make sure you get a copy of that worksheet and go over it with your insurance agent or a consultant to make sure that it’s accurate,” Priz says. Any mistakes on the worksheet can go directly to your bottom line.” Similarly, after a policy expires, the insurance company will do an audit of your business to determine rates for a new policy. You need to obtain the audit work papers and review them to ensure they’re accurate, Priz suggests.
Q. I’ve been told that under the new tax laws, the contributions for retirement plans have been increased. I’m 52 and have owned my business for several years. I’ve put away some money, after working for a large corporation. But now that I want to set up a retirement plan, what are my options?
A.According to Stewart Hung, a principal in the New York City accounting firm of Horowitz & Ullmann,you’re correct. Plan limits have been increased, and participants who are 50 and older can now contribute an additional “catch-up” sum each year.
“Small-business owners should take advantage of the new tax laws and set aside more of their current income for their retirement,” Hung says. “The reason is that most retirees will fall into much lower tax brackets after they retire—at least when compared to their current tax brackets. In the meantime, why not use the IRS money to earn more income for your retirement?”
Here’s a breakdown of various small-business–oriented plans and their contribution limits. Check with your accountant to determine which plan is best suited to your needs. (Hung notes that you also can earn a start-up credit of up to $500 for establishing a new retirement plan.)
|SIMPLE (Savings Incentive Match Plan)||$8,000 (plus $1,000 catch-up)|
|Personal IRA plan||
$3,000 (plus $500 catch-up)
|SEP (Simplified Employee Pension) plan||$40,000 or 25 percent of annual contribution|