Service Firms

Determining Sales Potential

In the service business, your sales potential will depend on the area you serve. How many customers in this area will need your services? Will your customers be industrial or commercial clients, consumers or all of these?

When picking a site for your business, consider the nature of your service. If you pick up and deliver, you will want a site where the travel time will be low. If customers must come to your place of business, the site must be conveniently located and easy to find.

You must pick the site that offers the best possibilities of being profitable. Consider the following questions:

What is the population and its growth potential? What is the income, age and occupation of the population? Are there a number of competitive services in and around your proposed location? Are there local ordinances and zoning regulations that would apply to your business? What type of trading takes place in the area (commercial, industrial, residential or seasonal)? For additional help in choosing an area, you might try the local chamber of commerce and the manufacturer and distributor of any equipment and supplies you will be using. You will want to consider the next list of questions in picking the specific site for your business. Will customers come to your place of business? How much space do you need? Will you want to expand later on? Do you require any special features in lighting, heating or ventilation? Is parking available? Is public transportation available? Is the location conducive to drop-in customers? Will you pick up and deliver? Will travel time be excessive? Will you prorate travel time to service calls? Would a location close to an expressway or main artery cut down on travel time? If you choose a remote location, will savings in rent offset the inconvenience? If you choose a remote location, will customers be able to locate your business readily? Will the supply of labor be adequate and the necessary skills available? What are the zoning regulations of the area? Will there be adequate fire and police protection? Will crime insurance be needed and available at a reasonable rate?

Is the area in which you plan to locate supported by a strong economic base? For example, are nearby industries working full time? Only part time? Did any industries go out of business in the past several months? Are new industries scheduled to open in the next several months?

Write down your opinion of the area's economic base and your reasons for this opinion.

Will you build? What are the terms of the loan or mortgage? Will you rent? What are the terms of the lease? What is the competition in the area you have picked? How many nearby firms handle your same service? Does the area appear to be saturated? How many of these firms look prosperous? Do they have any apparent advantages over you? How many look as though they're barely getting by? How many similar services went out of business in this area last year? Can you find out why they failed? How many new services opened up in the last year? How much do your competitors charge for your same service?

Which firm or firms in the area will be your biggest competition?

Attracting Customers

When you have a location in mind, you should work through another aspect of marketing. How will you attract customers to your business? How will you pull customers away from your competition?

Many small service firms find competitive advantages in how they attract customers. The ideas they develop are as good as, and often better than, those that large companies develop with hired brains. The topics that follow are designed to help you think about image, pricing, customer service policies and advertising.

Image

Whether you like it or not, your service business is going to have an image. The way people think of your firm will be influenced by the way you conduct your business. If people come to your place of business for your service, the cleanliness of the floors, the manner in which customers are treated and the quality of your work will help form your image. If you take your service to the customer, the conduct of your employees will influence your image. Pleasant, prompt and courteous service before and after the sale will make satisfied customers.

You can control your image. Whatever image you seek to develop, it should be focused enough to promote in your advertising. For example, "service with a smile" is an often-used image.

Pricing

In setting prices for your service, consider these four main elements:

(1) materials and supplies, (2) labor and operating expenses, (3) planned profit, and (4) competition. One other thing to consider. Will you offer credit? Most businesses use a credit card system. If you use a credit card system, what will it cost you? Can you add to your prices to absorb this cost? Usually, to process credit card charges, the company pays an amount per transaction plus a percentage of the amount charged. When deciding on prices to charge, be aware of credit card processing fees.

Some trade associations have information on average prices charged by those in the industry. Check with the trade association for your line of business. Their figures will make a good measuring stick to ensure that your prices are competitive.

And, of course, your prices must be competitive. You've already found out your competitors' prices. Keep these in mind when you are working with your accountant. If you will not be able to make an adequate return, now is the time to find it out.

Customer Service Policies

Customers expect certain services or conveniences, such as parking. These services may be free to the customer, but not to you. If you do provide parking, you either pay for your own lot or share the cost of a lot with other businesses. Since these conveniences will be an expense, plan for them.

Will you provide a warranty or guarantee on your work? A typical service warranty is 30 days on parts and 90 days on labor; this means that you will correct any problems arising within a specified time frame following performance of a service at no charge. The time frame can vary depending on the kind of service you provide. A warranty tells customers you want them to be satisfied with the work of your company.

What services do your competitors provide? What services will you offer to customers?

Selling to Customers

To complete your work on marketing, think about what you want to happen after you get a customer. Your goal is to provide your service, satisfy the customer and put money into the cash register.

One-time customers can't do the job. You need repeat customers to build a profitable annual sales volume. When someone returns for your service, it is probably because he or she was satisfied by a previous experience. Satisfied customers are the best form of advertising. Ask customers for referrals. Satisfied customers are usually happy to recommend you to others.

If you previously decided to work only for cash, take a hard look at your decision. Americans like to buy on credit. Often a credit card, or other system of credit and collections, is needed to attract and hold customers.

Insurance

Will your employees be covered by a fidelity bond? Fidelity bonds protect against dishonesty of employees. This is particularly important when they perform services off your premises, and should be considered in planning your property and liability insurance needs. Advertising "bonded workers" conveys a message that your firm is honest and reliable.

Control and Feedback

To make your plan work you will need feedback. For example, a year-end profit and loss statement shows whether your business made a profit or loss for the past twelve months.

But you can't wait twelve months for the score. To keep your plan on target you need readings at frequent intervals. A profit and loss statement at the end of each month or at the end of each quarter is one type of frequent feedback. Beware of relying too heavily on the profit and loss statement. Since it only shows actual income and expenses for a given period, you may find that at certain times you have more losses than profits. To keep a balanced perspective on your business, you must continuously review and update your cash flow projection. This will help you to anticipate changing levels of income and expenses.

The record keeping system should be set up before your business opens. Don't leave it until after you're in business; then it is too late and you may be too busy to give a record keeping system the proper attention. The control system that you set up should give you information about stock, sales and disbursements. The simpler the system, the better. Its purpose is to give you current information and help you identify trouble spots. Outside advisers, such as accountants, can help.