Profitability issue: You want to make as much profit as you want with minimum effort (or resources.) The question each small business owner has to answer: Should you sacrifice something – e.g. service or product quality – to achieve the profitability level you target your business to achieve?
Service integrity issue: You want to provide the best value for your customers or clients. The question you and I have to answer: How would you achieve the level of service you want without asking your business investors for more money?
You see, profitability and service integrity are intertwined, in such a way that your decision on one issue will directly affect the other. In other words, your decision to favour profitability will sacrifice service integrity, and vice versa – Seeking balance of the two is simply just trivial.
A case study to explain
To better describe the profitability vs. service integrity dilemma, please consider this case study:
Today’s slow economy has suffered the retail industry. Empty store spaces and poor sales figures are two main problems most small retailers have to face.
Retailers are doing whatever they can to attract visitors and convert them into customers. 50% off is no longer as effective as before. Its effectiveness is questionable, as it will put much pressure on your cash flow while the return of your “investment” is nowhere near your target.
I’ve also practiced the above, and God knows I try everything I can to get more people to visit my stores. My conclusion: Discount is (nearly) useless.
Another common tactic to bring people into your store is through media advertising. This, again, is useless in my case. The ROI is disappointing, and I just feel that people are being careful with their money more these days…
I have also tried to do cross-promotion with other small businesses with little impact (for both of us.)
The worst tactic I did is trying hard to maintain our level of service without proper “game plan”. The aftermath: My business’ financial situation is worse than ever.
The bottom line is that I have tried almost every method to provide top-notch service quality, resulting in insignificant impact on sales; I just threw my hard-earned money to the incinerator with almost nothing in return.
What’s gone wrong?
Master the balance between profitability and service integrity
My biggest mistake in the above case study is my misconception about service integrity. My premise is that if you serve well – night-in and night-out – customers will most likely to return and eventually buy something from you. The truth is, focusing on your service integrity only will drain your profitability as maintaining service quality is often resource intensive.
Profitability and service integrity issues are complex – Both are related, yet prioritising on one over the other will create problems later on.
Here are some tips on how to balance profitability and service integrity better:
- Discounts are no longer works – Value does. You need to add more value for the same dollar amount of the products or services you offer.
- Alternatively, create a “lighter” version of your products. This will lower the price tag and minimise your cost, while attracting low(er) budgeted customers (thus convert better.)
- Focus on efficiency in every aspect of your business. Increasing revenue and/or reducing overheads are no longer effective on their own – Please refer to my article about growing your profits exponentially.
Ivan Widjaya
Small business dilemma
Image by stanhua.