Business Personal Finance

Sunday 21 October 2018

Try everything you can to lift sales before cutting wage bill

Problem Solver

Feargal Quinn
Feargal Quinn

Feargal Quinn

Q: I run a café/restaurant and my wage percentage is 45pc. I am struggling to make any money. Can you help?

A: Many industry experts will suggest that your wage percentage should be as low as 30pc or at a stretch they might even tolerate 33pc. The level you are operating at is unsustainable and while the true impact might not be clear on your bottom line, it will make your business unprofitable.

It is quite possible that you don't have enough sales coming through to support your level of labour. With only one branch, it probably also has to sustain your own wage. Start a marketing and sales growth programme and review how good you are at attracting new business. Are you targeting local lunchtime business? Have you got a text-and-collect system? Are you an expert at social media? Are you changing your menus regularly and telling customers about this to keep them stimulated? Could you trade into the evening?

In other words, look at every possible way that you can to get sales up quickly. If you can't succeed in this within three months, then you will have no alternative but to start reducing hours or letting some of the staff go. This would be the second option. Sometimes cutting wages can become counterproductive as the remaining staff come under increased pressure and customers start to get frustrated with delays. The result is that these customers desert you and sales fall even further, causing a downward spiral. However, you might have no choice if you can't get the sales up, or at least see some progress. I have made the assumption that you have the required 70pc margin to sustain regular wage levels. If this is not the case, you have even more problems.

Start by re-energising the business and your customers. Set weekly sales targets. You will have to spend money on these marketing initiatives but if you box clever you should be able to maintain this at a modest level. Set yourself a deadline of 13 weeks and if you have not achieved the required result, you need to start cutting wages.

Q: I have a small independent retail shop in the ladies' fashion sector. I am considering opening an online shop but unsure if this is the right thing to do?

A: Some time ago, I met an independent retailer like yourself, who was telling me about their plans to open an online shop. I enquired if they had a range of exclusive labels that could not be easily got elsewhere, which they replied no. I asked were they going to have better value than their competitors to which I got the same reply. I then asked, what was the motivation for an online shop. The answer was quite telling: "I felt I should be doing it because everyone else is doing the same."

In the same way as you would do when opening a physical shop, you need to identify the gap within the market and why customers will shop with you. There needs to be a compelling reason for the customer to buy from you and if this is not clear in your mind, then the chances are you are making a mistake in starting an online shop.

You also need to ensure that you acquire the skillsets necessary to promote and operate an online sales platform. It is a science unto itself. Your local enterprise office will have some great supports like mentors who will help you to make the business case, and vouchers for up to €5,000 to help you get your site built.

Stand back and do some thorough research to try and identify the gaps. It's even better if you can identify a product or category which can be purchased globally as it dramatically increases your chances of success. Then invest heavily in the technical expertise you need to build and promote your online shop. Creating an online business requires expertise, time and investment, exactly the same as a physical shop.

  • Send your small business questions to himself@feargalquinn.ie

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