Monday 23 July 2018

Problem Solver: 'I run a hotel and filling rooms but I'm not making a profit, What can I do?'

Feargal Quinn
Feargal Quinn

Feargal Quinn

Q: I RUN a hotel and up until now have been operating on tight margins in order to fill as many rooms as possible.  I am beginning to question this, as I am struggling to make a profit.

A: I am sure you will be well familiar with the saying "sales is vanity - profit is sanity". Of course there are some justifiable reasons for you to drop margins and keep income coming through the door. This has been especially true during the recessionary times, otherwise your business might not have had any customers at all.

It may, however, now be time to review this strategy. Many businesses around the country tell me that they have had to recover some margin as they were simply not making a profit. This has necessitated them reviewing pricing and, in some instances, increasing the price point.

Before you do anything, do a price survey of all of your competitors and establish what they are offering.

Benchmark this against the service levels that you offer, the standards of your rooms, the quality level of your food. If you determine that your offer is more premium and you are communicating that well to customers, then there is every justification for you to take a modest price increase.

One of the things that may have happened, is that the marketplace may have moved on and you have not readjusted your price points, while at the same time your cost base has been rising around you.

Of course, I am clearly saying that increasing prices can only be done so based on the experience you offer your consumers and you would very quickly find yourself losing customers if your service levels did not reflect the price charged.

Q: I am in the first stage of running my new manufacturing business. I have not really engaged with any government enterprise agencies. Who should I be talking to?

A: In the early stages of any business, your first point of contact should be your Local Enterprise Office.

There is a Local Enterprise Office for every region in the country and their role is to support the creation and growth of enterprise within that region.

They will be able to provide you with good sound advice on what you should be doing in the earlier stages of your business and they run many support programmes for new businesses.

They also provide grant assistance if you are eligible to meet the criteria and you should go online to your Local Enterprise website and research things like feasibility grants, priming grants, and business expansion grants.

Eligibility will be determined on a case-by-case basis. It is also possible to get a mentor to do a number of sessions with you across different disciplines like finance, marketing, etc.

As your company grows, the Local Enterprise Office has a referral process to Enterprise Ireland.

Typically, Enterprise Ireland is interested in those companies which are manufacturing and have the potential to export, the potential to have sales of over €1m and 10 staff.

Enterprise Ireland could decide to fast-track their supports for you if your business was developing very quickly by classifying you as a high-potential startup - HPSU.

Start with your Local Enterprise Office and plan your journey.

There are other agencies but these are only relevant if you fit a particular type of business or type of funding, eg Fáilte Ireland, LEADER, etc.

Good luck with your journey.

Q: I am in the furniture business and make strong margins. I have noticed, however, that I am losing sales to other businesses with lower price points. I am unsure about what to do.

A: There is always a danger in every business that you become obsessed with percentage margin. I always give the example of a furniture shop which has a target margin of 50pc.

That is perfectly acceptable on a lamp which is selling for €100, however one could argue that if you applied this same margin to a suite of furniture for €3,500, it will simply price you out of the market.

Sometimes you have to take a much more pragmatic view and look at the amount of money you are actually making.

Greater volume at a lower percentage margin can very often make you a lot more profit than higher priced individual items which don't sell frequently.

Start by doing a price survey both online and in your immediate catchment area.

If you determine that your prices are more expensive than everyone else and you have discretion within your margin structure to lower the prices of some key sensitive items, then this is the thing to do.

You will need to accompany that with some strong marketing so the customers know that you are offering better value than in the past.

I would suggest that you move quickly as it is easy to get a bad reputation.

Q: I HAVE developed a food supplement which has a health focus and is being manufactured by a third party for me. It retails at €30 and I am worried that it won't sell in supermarkets. Can I have your opinion?

A: You are correct to have concern about the supermarket space. While I have no doubt the product will appeal to a target group of customers, people who visit a supermarket are usually in daily shopping mode.

Their mindset is to put food on the table for a particular budget each week and while there is always an opportunity to sell impulse items, usually that budget for the total trolley is a key driving factor. Think of the customer who has planned to spend €80 on their weekly shopping, and suddenly they spend another €30 on a vitamin product. It makes the shopping trip feel really expensive.

Think of that same customer going to a sports-nutrition shop or a health food shop specifically looking for products that will give them a benefit in their health regime. Now they are in a different mode of shopping, with a different budget. The opportunity to sell your product in this environment is much greater.

The other practical problem you will encounter if you sell your product through the wrong channels, is that it will sit on the shelf and you will get a bad reputation of having a "shelf warmer". Buyers are constantly assessing the movement of products on shelf and if your product isn't selling fast enough, they simply delist it or send it back to you. Neither of these is something you want.

You might be also wise to consider selling the product directly to consumers online as a specialist solution. That way you are in direct contact with the consumer with no middleman necessary.

That might allow you some scope to discount the product, especially if customers purchase a number of packs. Finally, do think about the pack size when working out the price you will charge. Sometimes by reducing the pack size, it allows you to hit a more acceptable price point for customers.

Indo Business

Business Newsletter

Read the leading stories from the world of Business.

Also in Business