Time for a Boutique Bounce Back?

Written for my column in The Newsletter, 14th Feb, 2012.  Twitter @adamewart

In the last few weeks Bangor has seen the disappearance of HMV, Gamezone and Internationale. They are, coincidentally, all located side by side in a prominent position at the bottom of Main Street next to The Flagship Shopping Centre, or, as I prefer to think of it, the Grave Yard. In the last month it has seen an increase in its own tally of empty retail units due to the disappearance of Au Naturale, D2 and the local DIY’ers choice Prize Attack.

Although unfortunate for the workers who now find themselves unemployed, the death of the chains can mean opportunity for small business. Over the last few years every high street in the country has slowly merged into the same banal row of international chains, manned by ignorant (often to their products and sometimes to their customers) 16 year olds.  With the exception of the DIY shop, I quite honestly couldn’t tell you the last time I purchased from any of Bangor’s recent casualties.

I remember before HMV moved into Bangor we had a couple of local record shops manned by knowledgeable owners, and I see no reason why this can’t be the same again, across all store types.

“But it’s all because of that new inter-web that no one buys on the high street any more” – nonsense! I run one of the largest independent online musical instrument shops and guess what our most frequently asked question is? “I’d like to look at that first, can I get that locally?”

Not to compare good old Bangor to New York, but in the Lower East Side I must have browsed in 5 or 6 record shops, all within 500 yards of one another, without ever seeing a chain store.

The decline of the major chains is a distinct opportunity for the ascent of the locally owned boutique. So why isn’t this happening?

I recently enquired about the price of retail space in many of NI’s shopping centres and major high streets and found that the rent is often, quite frankly, beyond ridiculous. You’ll also find that the units are usually owned by large international realtors who have no interested in negotiating or signing a short lease with a local start up.

But what if you begin to look beyond the main street, towards high streets and local industrial estates? In these areas you’ll tend to find local or private landlords, many of whom are openly offering great deals or who are, at least, more open to negotiation.

Unfortunately these low rents are still not quite the answer. Rent may be up for negotiation but the rates certainly aren’t. There is a rate relief scheme for tiny premises with a NAV under 3000, but if you don’t make the cut you’ll pay the full whack.

In years gone by when, on winter mornings, I drove down the ice-ridden, pot-hole littered road to my shop, where the local council didn’t so much as provide you with a bin, I often wondered where my thousands of pounds of rates payments went. I didn’t keep wondering for very long, though. We closed the shop and moved our warehousing to England. The old unit still lies empty.

The second problem you may have if you’re not on the main shopping street is guiding people to your business premises. This is where you may come into contact with the road service.

Our warehouse was located in an industrial estate and, like hundreds of other businesses across the country, we would put up a couple of foot path signs (on grass verges, not on the pavement) to guide customers to us. One day these signs went missing – the road service had taken them and wanted £150 for the pleasure. We also never saw the sign again.  Speaking to other businesses, I’ve found that some get fined and some don’t. But at least we’ve established one way our rates are spent – paying the wages of the chap who goes round lifting the signs of small businesses. Nice!

So, is there demand for local people running local businesses? Most definitely.

But should you open that small shop off the high street? Well, probably not, rates are a killer and if you try to point some customers in your direction you might find your sign gone and a fine through your letter box.

Selling on Marketplace Websites – Start your own ecommerce business Part 3.

Originally written for my column in The Newsletter, June 2011.

Part 3 of the start your own ecommerce business.

 Last time we saw that setting up and running your own website can be more expensive than what people think at first. The main ongoing cost of running any website is the monthly advertising bill, and just like on the high street your advertising spend does not guarantee sales.

Most people now will be familiar with names like ebay and amazon, two of the world’s largest and most successful ecommerce businesses. Ebay in my opinion started as a kind of online car boot sale, and in many respects still is, anyone can sell essentially almost anything.  Within 5 minutes your item can be viewed and bought by people around the world, amazon on the other hand is more like  a large shopping centre  which has welcomed in smaller retailers, anyone can now also list a product for sale on amazon and it will be available worldwide also within minutes.

The advantage of selling on one of these “marketplace” websites is that they get the customers to your product, you may pay a small upfront fee but this is usually pence. Instead once your item has sold the marketplace website will charge you a commission on the sale price.

For someone looking to dabble in ecommerce these market place websites really are the answer, you can quite literally sell around the world from your own home and all you pay is a set percentage of the sale price.

So what’s the catch?

There are actually quite a few.  My first problem with selling on market place websites is as far as the end customer is concerned they have purchased from the website not from you, although you can build up “reputation” within these sites that is more to do with showing the potential customers you know what you’re doing rather than gaining their loyalty. For example I bought some printer ink on ebay last week, it might have been from the world’s largest ink retailer or someone who had one in the house they no longer needed – I have no idea. 

If you receive good service or bad service, it all generally leaves you with a  feeling about the marketplace website and not the seller.  A few weeks ago I bought a brand new jumper on ebay, received it within a few days, tried it on, good job. But the next day I noticed a small hole in the back, when I contacted the business seller they refused the return due to me having cut the tags, in the end ebay favoured them and I was left with a jumper with a hole in it.

Next time I need ink I’ll search on ebay again and simply buy the cheapest listing for the product I need, but I won’t be spending much more than £20 on ebay again.

My second issue with auction websites  is that your product really can be listed alongside people selling stock very cheaply for a whole variety of reasons, and if you can’t compete you won’t sell. 

I find the retail price is forced down on auction websites because people go shopping on them with the view to getting a bargain and that because there is still this “car boot” mentality people are less willing to pay full price.

In my case we do use ebay, over the years we’ve completed more than 20,000 transactions on ebay and we’ve made money doing it. In the case of Karacha we list small accessories, guitar strings, saxophone reeds and so on, these are items we sell thousands of every year across all sorts of platforms and ebay is simply another route to market so it doesn’t matter we if receive no brand recognition by using a marketplace.

They’re also  the kind of product that is so cheap people will essentially buy form anyone, but we avoid selling higher end musical instruments as they just don’t sell for what we require, whether this is because of people having similar experiences like me with my jumper or the car boot mentality  just don’t know.

My advice would be if you’re starting out take a look at the market place websites, especially if you’re in the business of selling small consumable products. But if you’re looking to create a brand for yourself or your work on tight margins choosing a marketplace is probably not the right route.

PR, easier than you think!

Originally written for my column in The Newsletter, October 2011.

For many small business owners one of the most difficult tasks is marketing.  There’s often a misconception (largely due to telly) that all entrepreneurs are wheeling, dealing, self promotion machines. But this is far from the truth. I find that many people who are very capable at running a business really struggle with marketing, in particular PR.

The main excuses I hear when it comes to people not attempting any kind of PR is that “no one would be interested”, or “I couldn’t write a press release” and, last but not least, “I wouldn’t know who to contact”. All three are indeed just excuses and all three are easily dealt with.

I’ll use my own business Sendmybag.com as an example. For those of you who are not aware of the company, we help people move around the UK and the world by collecting and delivering their luggage.

The idea for the business came to me one day when I was helping my girlfriend move home from Oxford. After lugging suitcases on public transport to Heathrow we then had to pay £45 excess baggage. From previous business experience I knew I could create a fast and affordable way of moving luggage around the UK. Within a week we had set up a service which would cost £22 to send a suitcase anywhere in the UK within 48hrs.

I believed the idea was a good one and we set up an exceptionally simple website – there was no one else doing this so I had no idea if it would be popular or not. The only thing left to do was to promote the business.

Not wanting to spend a lot of money I thought I would go down the PR route. I didn’t know if anyone would be interested but all you can do is try. (Problem one solved – just give it a go!).

 I sent out a press release to the local newspapers and also emailed the local radio and TV stations. Over the last few years I’ve had a PR agency working on a monthly retainer but back then I just wrote it myself, and you can do the same. If you’ve no idea where to start have a look online or ask someone to give you a hand – it doesn’t need to be anything fancy.

Within a month of me sending out this press release just about every local newspaper had ran a story. I’d been sitting in BBC studios on the radio and Pamela Ballentine, plus film crew, had interviewed me in my living room!

Within a few weeks Sendmybag.com had many more customers than expected and we were up and running, with our total start up advertising costs amounting to zero!

So if you’ve just started a business and think no one would be interested, think again. But before you start typing, pick an angle and use this as the basis for your press release.

Is your idea new and whacky? Have you started the business at school because you don’t want to pay higher uni tuition fees? Were you made redundant during the recession but refuse to take benefits? Did you retire but couldn’t handle all that free time? You get the drift.

The third reason why people avoid PR is because they claim they don’t know who to contact. Not wishing to inundate my colleagues but why not start with The Newsletter, or indeed any other local media. If you read it, watch it or listen to it, then contact it!

From pay day loans to snuggies, discussing the business successes of the recession.

Originally written for my column in The Newsletter, September 2011.

The business story of the last few years has been rather consistent in its doom and gloom, with what has seemed like constant business closures. However, while many businesses have closed, many entrepreneurs have simply looked at the current trading conditions and brought to market a product or business consistent with the times. I’m going to run down the ones which have been most obvious to me.

Get selling, not buying. It’s rather unlikely that three years ago your local jeweller would have had a serious marketing campaign asking to buy your old gold, whereas now this seems a common service. Recently Bangor’s local H Samuel closed and in its place popped up a firm which is only concerned with buying your old gold.

Lend us a fiver. One of the more controversial business models which has appeared of late is that of pay day loans. Pay day loans do exactly what they say on the tin. They are easy to get, low value loans, generally borrowed over a short period of time, often for a few days until you’re wage come in, at which time you repay. Obviously in a climate with so many people unemployed, people may require short term access to cash and these companies offer a solution. The controversy surrounding them, however, concerns their interest rates. I just checked out a few websites and one of them advertises an APR of 1734%. On a 30 day loan of £50 you would pay £14.75. As an APR rate this may seem completely unreasonable. Yet, what if you don’t have enough money in your account for your phone bill and the company try to direct debit you? Your bank could hit you with some ridiculous and out of proportion charge. I know people who’ve had £50-£60 worth of charges on the one small transaction. £14.75 on £50 for a month doesn’t sound so bad in comparison.

Fashion for the home. Now how true this is I don’t know, but over the last couple of years the papers have been full of stories about how we’re at the beginning of a new baby boom due to, “people staying in” to save money. This apparent trend for going out less, combined with attempts to manage our ever increasing energy bills seems to have borne the biggest fashion faux pas of the decade – the Snuggie, some kind of hideous blanket / jumper hybrid! I’m sure you’re familiar after the relentless advertising about a year ago. Would this have appeared during the boom at the start of the decade? I don’t think so.

Used is the new new. The above are mostly general observations I’ve made over the last year.  I’ve not personally needed to cash my gold, borrow a tenner or curl up in my Snuggie. Now, I don’t say that dismissively – who knows what’s round the corner! However, like most normal business owners I’ve had my own experiences of the recession. A couple of years ago we moved our warehousing for our online business to England but kept a small shop in Northern Ireland. Yet, it quickly became apparent that the shop was not self sufficient, so I took the decision to close it and make the manager redundant.

However, I proposed that the ex manager could take over the premises and run the business on his own, for which I would provide stock for a year. He accepted and opened a new shop. It took a while to find the right direction but he has now established a business which both focuses in on his own expertise and the current market.

He decided to focus on guitars and chose not to order stock from any suppliers. Instead he started to source quality pre-owned and rare guitars from around the province. He knows what he’s looking for so can track down items which customer’s will snap up even in the current climate. Better still, he sources damaged guitars and fixes them, thus retailing at a much higher margin than you would ever achieve dealing with brand suppliers. The shop is The Guitar Depot located on Balloo Avenue, Bangor. If you are after a guitar I would encourage you to check it out and support someone who has turned a recession job loss into a positive new business.

E-commerce Real Estate – Start your own ecommerce business Part 2.

 - Written for My Column in The Newsletter May 2011 -

E-commerce Real Estate

Last time I talked about how to research your online competition and suggested methods of researching the prices your competitors are selling at online. After doing this, many of you will have noticed that online prices in general are lower.

This can largely be contributed to two misconceptions people have about e-commerce: Number 1:  it is assumed that, by going online, your overheads are guaranteed to drop considerably. Number 2: it is assumed that the internet is global and that, therefore, you will be have no trouble selling worldwide.

These two misconceptions are very dangerous, primarily because they are used by people to convince themselves that it’s OK to starting lowering prices and squeezing margins.  After all, overheads will be lower and, with the world at your door, turnover will go up.

This week, with the first misconception in mind, I will be looking at the “real estate” of selling online and the differences and similarities between the overheads of online and of regular retail businesses.

Firstly, you must think of your website as your shop, and your domain name as your street address. In terms of a normal bricks and mortar business, a fancy shop in the town centre will cost considerably more than a drab shop in the back end of nowhere. The same is true online. You can have a website knocked up for £200, but ask yourself this: if you were opening a high street shop, would you only spend £200? A good e-commerce website will usually cost between £2,000 and £20,000. It’s always going to reflect the size of your business. For a start-up working from home, £2000 is a good amount to invest. If you own a chain of shops already and want to go online, your needs will be greater and there’s no reason to be scared of paying £20,000, or even considerably more. After all, just think of it as another shop; £20,000 would be a modest sum to entirely fit out a new bricks and mortar store.

The rent of a bricks and mortar shop is very much determined by location. This is not the case for an online business which allows you to choose your own name and register it, and then have the website built to your own specification. The next hurdle is getting people onto your website. This is where the real ongoing cost of running an e-commerce business comes into play. On the high street you pay to fit out your shop, after which you pay your rent and rates yearly. Online, once you have paid to build the website, you then pay monthly to encourage customers to choose your site over others.

How you choose to get people to your website can vary depending on your business, but there are lots of options, and most have a cost. The amount you pay will depend on how well your website is constructed and how much you hope to sell.

A lot of e-commerce revolves around potential customers searching for a product online, visiting some websites and then purchasing. Search engines offer up what they perceive as the most relevant results first.  It is, therefore, important to make your website appear relevant. This includes clear product titles, good descriptions and correctly sized images.

If you can make your website relevant for the search terms, then, in many cases, you will gain some sales without any further cost.

Doing this successfully, however, is becoming more and more difficult, with everyone competing for the same channels. As a result, those who control the search engines are cashing in, and pay per click advertising will now account for anywhere between 5 and 20% of an e-commerce company’s monthly turnover.

Because of the initial upfront cost to develop a decent website and the ongoing adverting costs, many small business start-ups are now choosing to use a marketplace website such as eBay and Amazon as a platform for their sales. This will be the topic of discussion next time.

Start an Online Business – Step 1 Research

 - Written for My Column in The Newsletter April 2011 -

Over the next few months I’ll be offering a step by step guide to setting up and running your own e-commerce business.

Step1 – Have you got the right idea and is it right for you?

If you’re anything like me you’ll hate the cringeworthy moments on Dragon’s Den when someone proudly tells the panel how they’ve remortgaged their house and spent £50,000 on a business which even the least savvy amongst us can recognise as a flop.

Personally I believe that almost anyone can start their own business and make a living without needing huge upfront investment.

Luckily the nature of an online business means that, at least at first, it can be handled at nights and on weekends, so no need to pack in the day job straight away. If you just choked at the idea of working nights then this life is not for you.

Assuming everyone is sufficiently committed, we can move on to stage two – Testing the idea.

If you look at any large successful e-commerce retailer or service provider, the chances are it started in someone’s garage. In my case we have a packed warehouse in Swindon with Royal Mail and courier collections taking place every day. However, 6 years ago I had a packed spare bedroom and took bin bags full of packages to the Post Office.  If you can’t make it successful on a small scale you won’t be able to make it successful on a large scale.

If it’s a product you intend to sell, there is no reason for even buying the stock until you have visited the following places. Visit ebay.co.uk and search to see how much the product is selling for (or, if you are an eBay member, log in and select “completed listings” – this will show what previous listings actually sold for and not what the current seller hopes they will sell for). Then do the same with amazon.co.uk. Next, type the product into Google and note how many adverts appear along the top and right hand side. Lastly, select “products” from the option tab at the top and view the offerings from retailers that send product information to Google. These few resources account for such a high percentage of e-commerce business in the UK that in just a few minutes you will have an extremely useful overview of the competition. 

If your product is a service, I’d recommend searching for a similar existing service on all the major search engines.

Unfortunately it’s not 1995 so I will take a punt that regardless of product area you will find plenty of competition. But don’t worry, that means people are spending money online buying products similar to yours.

As you visit these websites, for each of your top 20 products you should note the price it’s being sold at, remembering to include any additional postage charges. This will enable you to calculate the average online retail price.

Next time we’ll look at what costs the online seller needs to cover within the retail price. Until then, contact your suppliers and ask for the best possible trade price.

Get Online Today

*Originaly written for my column in NI Newspaper the Newsletter March 2011*

It’s not too late to get online

One of the most common questions I get asked is: “What benefit is there for my business going online?”

Let’s assume the person asking runs a small local business such as a café or a car workshop. They have no ambition to be the next Amazon but are interested in how “being online” could help their business.

People now search online in the same way they once reached for the phone book.  If you search online for “Castle Court” one of the very first results that appears is an image showing Castle Court on a map. It lists the shopping centre’s full address, phone number and even allows customers to review it.

What happens when people search your business name?

If you haven’t done it yet, it’s easy to visit the Google Maps website and create your own “place”. This means that when a customer searches for you, your details will show at the top of the results. And better still, if customers travel to you from outside of your local area they can even enter their starting destination and Google will give them printable directions!

With more and more people searching online for businesses, having your location show up in this way attests to your being an established business. It also allows customers to grab information such as your telephone number without having to click through to a further website, ideal for people searching for a service on a mobile device or internet linked sat nav.

The above is easy and free; it also doesn’t require you to have a website of your own.

But there is one big limitation. Although it can help display your business information online, it only works if people are searching online for you.  If, instead of searching for Castle Court, I searched for “Belfast shopping centre”, I wouldn’t get the same large box with Castle Court’s details; instead the first several results would be websites belonging to various shopping centres.

Personally, if I need a local service I no longer think of going near a phone book or directory enquiries, I simply search online. I’m sure a large percentage of the population still uses the book but there is most definitely a growing number, me included, who search solely online. This revelation suddenly makes going online a little less about getting new customers and more about simply ensuring that your business shows up where people are now searching, which in turn helps you maintain your client base.

To go a stage further, a simple online presence is all that your require, nothing fancy. The cost can be typically less than a couple of hundred pounds and, crucially, you don’t need to renew it each year.

Step 1 – Register a domain name. This is the name of your website. It should be relevant and include the words you would search for when looking for your business, for example, Jims-Cafe-Bangor.co.uk.

Step 2 – Hire someone to design a simple one-page website. Think of this website as an online business card. You want to include all your contact information and offer some information regarding your services. You don’t need to get carried away with dozens of pictures and writing your life story.

By including relevant information your website will eventually start to show up in online searches. If, for example, you include your address as “1 Main Street, Bangor, Co. Down” and then list “coffee” in your list of services, there will eventually be a very good chance that people searching online for “Bangor coffee shop” will come across your website.

My advice is to keep your one-page website clean and simple with only relevant information. It can help to repeat things and to make statements which people may search for, such as “Jim’s Café is a long established Bangor coffee shop offering ….”

This will help the search engines decide how relevant your website is and  where to rank it in the list of search results  Don’t get carried away, however, by repeating “Bangor” too many times, otherwise Google will see you as spam, or, worse still, your website will look messy.

I know that a lot of local business centres offer courses and help for existing businesses wishing to go online. If you are entirely new to the concept I’d recommend giving your local centre a call.

The Cost Per Click Revolution

*Origninaly written for the daily newspaper The Newsletter’s  February Business Supplement*

When starting my first business advertising consisted of handing out leaflets, knocking on doors and writing to very local press. Karacha marketing campaigns still run along similar lines, only today our average leaflet drop is to c. 40,000 Schools and we’ve been lucky enough to receive extensive national coverage.  However, even on a larger scale, traditional marketing is no longer enough to secure your place in the market.  A new kind of advertising, which didn’t exist when I was handing out leaflets in the 1990’s, has launched, grown exponentially, and become one of the world’s largest advertising revenue sources, all in under 10 years.

This new kind of advertising is, of course, online search Cost Per Click. CPC advertising has been around since the late 90’s but Google’s 2002 overhaul of the adwords platform with a new CPC structure has to be one of the most important “advances” in marketing and advertising in living memory.  That adverts would show in online search results was inevitable, but the way in which the platform operates was not.

For those readers who are not familiar with CPC search advertising a brief explanation is in order. Next time you search online (the majority of search engines now support the CPC model) take a moment to look at the results. If you are searching for a commercial product or service, more often than not you will notice that the top 3 results, as well as the results listed down the right hand side of the screen, will be labelled “Ads”. These results are present because advertisers have “bid” on your search term. In general, the ads at the top denote the businesses that have bid the most money and those at the bottom have spent the least. However, the search engines do also take the popularity of ads into consideration and in theory an advertiser bidding a lower amount could rise above a competitor bidding more.

So what are they bidding on? The attractiveness of this new kind of advertising is that the advertiser is bidding for your clicks; if you don’t click on an advert then the advertiser pays nothing, but for every person who does click there is a fee ranging from 10p to £10. On the face of it these search engines have created an advertising revolution, a 21^st century advertising platform with a structure that allows the newest and smallest players to simply place a bid on a search term and, within a matter of hours, to appear  alongside established brands.

But there’s a catch.

Yesterday I was working on a new business which requires adverts to appear when people search for phrases such as “hotels in Belfast”. While this particular term is quite specific, it still receives around 40,000 searches per month. Now let’s assume a bid of 60p is required to make the ad visible and that 5% of people click on our advert. We’ve just spent £1,200 in our first month – ouch!

If you’re not extremely careful, this new form of advertising, which at first appears to be the Holy Grail for small business advertisers, can soon become a black hole for your entire marketing budget.

There are also a lot of “experts” out there, many of whom I’m sure are very proficient. It’s probably just a coincidence the majority I come across are not.

If you are a small business considering CPC, I have a few top tips:

1 – Do it yourself (at least at first). It can become very expensive and if you don’t understand the ins and outs you may find yourself being led up the garden path. However, if you are going to immediately outsource then ask the company to show you results they have achieved. You want to know what conversion rate they will (not aim to!) achieve for you, that is the percentage of people who buy your product after clicking on an ad. You can then look at this cost as a percentage of your total sale and decide if it works for you.

2- Install tracking software. There is absolutely no point in using CPC adverts if you cannot track how many of those who click go on to buy a product. I’m astounded by people who run CPC ads and yet have no idea as to what percentage of sales it generates. Ask your web designer to install a piece of free tracking code – it’s a five minute job. Once you have that tracking code, review your results at least twice a week.

3 – Set a budget, set a budget, set a budget!! Certainly give CPC a try, but set a budget, especially if you are just starting out. If you go over it, stop and assess how many sales it is bringing it. CPC payments will simply be lifted by direct debit each month and it is extremely common for people to greatly exceed their allocated resources – don’t let costs spiral, stay on top of them.

There is also a more sinister side to cost per click search advertising. If you are lucky enough to be considered an established brand (big or small, national or local) and a competitor decides that they would like to bid on your brand name, there is absolutely nothing you can do about this. Google has decided to make it possible for trademarked brand names to be used to trigger adverts. For example, if you search for Karacha, you’ll find that Amazon has taken to bidding on our fully trademarked brand name to trigger their own advert for musical instruments. In some cases I have even seen competitors running CPC adverts with overtly malicious content.

Personally I believe that if the search engine’s aim is to deliver the most relevant and most accurate results, then a search for a specific brand name should return that brand as the top result. Yet, this is now not always the case.

To any budding CPC advertiser I would actually discourage bidding on brand names; it’s very tempting to try and get a leg up by riding on another brand but we find it doesn’t pay off. Whenever a competitor bids on one of our brand names we always bid on their brand name in return as a point of principle, which, incidentally, is far from being the most efficient use of our budget. As a consequence of this practice of bidding on brand names, it is now extremely common place for a company to seek to protect its brand by bidding on its own trademarks.

When it first appeared CPC was a means of allowing the smallest company to compete with the largest, but now we have ended in a situation with companies bidding on their own brand names.

CPC is useful, but tread carefully, I think it’s clear who the real winner is when it comes to Cost per Click advertising.

VAT Increase What to Do

*Origninaly written for the daily newspaper The Newsletter’s  January Business Supplement*

VAT Increase – What to do?

On watching the TV adverts over New Year, you could be forgiven for thinking that the VAT increase which came into effect last week was 25% rather than 2.5%. It gave retailers of all wares a good reason to shout “Buy Today to Beat the VAT Increase!”

The same big retailers will now adjust their prices for the new VAT rate and people will continue to shop, in the majority, as normal. The large chain retailers have sales on more often than not, so, with constant offers to entice us, I’m sure the actual increase will go unnoticed and  this time next month we will, as usual, be watching adverts claiming “the biggest sale ever*” (note the asterix).

When VAT was 15% I don’t remember the weekly shopping feeling cheaper. Why would it? Less than £2.50 per £100 can easily get lost in the midst of your supermarket 3 for 2’s and BOGOFFs. Not to diminish the impact of the increase on the least well off, but, by the same token, I don’t believe people will notice a 2.5% increase on a weekly shop. I believe a problem for the smaller retailers.

I would suggest that the group suffering most at the hands of the VAT increase will be small businesses, especially now that we buy so much more than just groceries as we walk down the supermarket aisles. At Karacha we wholesale musical instruments to independent shops throughout the United Kingdom and, from talking to owners before Christmas, I know that the majority of them were considering absorbing the cost.

The reasons vary from shop to shop. Some believe 2.5% isn’t worth bothering about and some consider the costs and time involved in updating systems and individual price stickers too high. The most common reason, however, is that small retailers are already concerned about being viewed as too expensive and the fact that the buying public are too readily turning to the big supermarkets or online as cheaper alternatives. The last thing they want to do, therefore, is increase their prices even more. When you buy from a specialist retailer like a music shop you are also more likely to take your time, seek advice from shop assistant and browse products and prices.

An average shop we wholesale to probably turns over around £200,000 ex VAT per year. The shops who are not choosing to raise their prices will find over the year that they owe an extra £5,000 to the VAT man. When I explained it like this to some owners many quickly came round to a different way of thinking; after all, if you operate at a 10% net profit, £5,000 is worth £50,000 of sales and it is unlikely that you would lose that much in sales by passing on the VAT increase. 

I believe small business will be the key to the country’s recovery. To be generating revenue and paying their own wage, as well as, in turn, hiring others, renting premises and availing of services in their local area is an extremely positive endeavour.  If you are a new or small business this week pondering over whether or not to pass on the VAT, I urge you to do so, but at the same time create new offers and incentives. Don’t be concerned about scaring off consumers; take this as a reason to kick start the year’s marketing with a view to having a good year. And remember, especially for smaller businesses, marketing doesn’t mean spending lots of money!

Do you know your margins?

Margin is probably the most crucial figure in any business. Tell me your turnover, your margin and your running costs and within seconds I can tell broadly whether your business is a triumph or a disaster.

In the past, I was obsessed with mark up. It sounds great saying product X is marked up 1,000 per cent and this one 500 per cent, but it doesn’t provide the immediate overview that margin does.

Margin is basically your gross profit as a percentage. This means you can quickly work out your gross profit on any amount of sales – which you should do every day.

How do you calculate margin? First work out your gross profit, which is selling price minus costs. Then simply divide this figure by your selling price and you’re left with your margin.

I own Karacha.com, an online shop that sells musical instruments. So, as an example, if I sell a violin for £200 that costs me £110 to buy from the manufacturer, my gross profit is £90. If you divide this by my sales price (£200), my margin is 45 per cent.

So what makes this margin number so important? Well let’s assume your margin is the same across all products and the business costs £200 to run per day, that includes a wage for yourself, rent, electricity, etc. Secondly, let’s assume your business sells £300 on Monday and £650 on Tuesday. This is where the margin comes in.

Whatever your margin figure is, stick a zero and a decimal point in front of it, so for 45 per cent it would be 0.45. Now grab your calculator and hammer in 0.45 x £300 and you should get £135.

This is your profit for the day before daily costs. Previously, I said the business costs £200 a day to run, so unfortunately you have a loss. But do the same for Tuesday 0.45 x 650 = £292.50. On Tuesday you can pay your £200 bills and have £92.50 profit left over.

By knowing what you make on a daily basis you can make the necessary adjustments to ensure you make a good profit every day.

Turnover is vanity, profit is sanity

Too many people are scared off by the calculator – and businesses suffer because of it. As long as you know your margins, you’re always just 30 seconds away from a quick and accurate assessment of your business. Whether it is karacha.com or my student baggage moving company sendmybag.com I check our margins at least every week.

You could be selling £10k a day, think you’re the absolute dogs you-know-whats, but be making no profit. Every day, multiply that sales figure by your margin and see what you’ve actually made (don’t forget to take away your costs). It’s absolutely crazy, the amount of people who do not know their margin and therefore their daily profit, but can quote their turnover for the past12 months.

Final thoughts. High costs and low margins lead to disaster: high margins and low costs could lead to a lovely yacht in the Caribbean. Good Luck.