Sunday, November 18, 2018

Business Leaders Share Keys To Balancing Your Budget At The End Of The Year

When Black Friday kicks off the holiday shopping season, it means more than crazed consumers and delicious deals — it’s an opportunity for many retailers to ensure their budgets stay safely in the black. As the end of the year approaches, entrepreneurs and business leaders in all industries are feeling the same crunch. Whether your fiscal year is ending or it’s just another quarter, wrapping up the year on a positive note is important.

There are many entrepreneurs and business leaders who struggle to get their businesses out of the red or at least confidently in the black at the end of the year. If you’re facing that obstacle, it’s not necessarily too late, but your ability to show a profit will largely depend on the pricing structure you use in your business and — at the risk of stating the obvious — the various costs you’ve incurred throughout the year. To glean valuable insights for ending this year on a profitable note and beginning the next one in a good position, consider how these four entrepreneurs and business leaders price their products and balance their books.

1. Greg McBeth, Head of Revenue at Node.io

McBeth points out that Node’s pricing structure is based on several factors, including the size of the team using the company’s AI-powered discovery engine, the amount of consumption or engagement required, and the amount of data Node regularly manages for the client. He acknowledged that finding the right pricing structure can mean walking a fine line, saying, “It’s always a challenge to balance profitability and competitive/market pressure, especially in a space where data is a component of your offering, as it can become commoditized.”

Fortunately, these challenges can be overcome. Node balances profitability and the need to remain competitive by focusing on the value it delivers clients and minimizing the costs of acquisition, which is where profitability is challenging. Node also maximizes R&D investment where it has the most leverage in order to maintain a healthy competitive advantage over other companies. McBeth says, “Running an effective sales process can be expensive — especially as customers become more discerning and the value of personalized outreach increases. In our case, we’re fortunate to be able to use our own product and tech to drive improvements in both sales efficiency and cost reduction.”

2. Jon Schram, Founder and CEO of The Purple Guys

The Purple Guys uses a fixed-fee pricing model for its IT support services, an approach that isn’t very common in the IT world. Schram says, “We tell our customers exactly what their fee is for IT support every month based on the number of people being supported. Because the price is based on the size of the team, when companies add or subtract team members, they know exactly how much their support will cost.” This model allows the company, which is profitable, to approach pricing transparently.

When other companies charge hefty rates by the hour, they’re indirectly incentivizing system downtime because that’s when they’ll come in and make the most money. While Schram says The Purple Guys’ pricing model aligns the goals of his company with the goals of his clients, he adds that it’s still challenging to stay competitive. “From a budgeting standpoint, we’re consistently looking for ways to improve, so going into the season of aligning ourselves for next year, everything profitable, we’re working on all levels of improving our offerings including hiring, boosting our marketing efforts, customer appreciation, and making our company a better place for our employees to work.”

3. Dan Gardner, Co-Founder and CEO of Code and Theory

Gardner emphasizes that, as the end of the year approaches, businesses with mostly fixed costs — like Code and Theory, a digital-first creative agency — will have little room to maneuver on the expense side of the business. “As a service provider, most of our costs are real estate and people costs,” Gardner says. “Because most of our cost is fixed long-term commitments, when we are approaching the end of year, most our budgeting revolves around revenue, as we can have much less impact on the expense side of the business.”

Bringing in additional fourth-quarter revenue will not only help offset end-of-year expenses, but it can also help a business plan better for the following year. Even if revenue increases enough to justify additional hires, business leaders might want to consider utilizing freelancers instead. By augmenting the capabilities of your full-time employees with part-time workers, you gain more financial flexibility in the coming year.

4. Rashan Dixon, Founder and CEO of Techincon

As the end of the year approaches, Techincon, a technology consultancy, compares its actual costs and revenue to budgets from the previous year. Dixon says, “That will affect how my team looks at spending for next year. I don’t mind going over budget in areas, but there’d better be good, clear reasons.” Dixon explains that Techincon charges an initial fee for a consultation and then switches to an hourly rate that was specified in the estimate provided to the client.

He acknowledges that determining that hourly rate isn’t always easy: “You want to set expectations that this is all they need and bid out the service, but sometimes you get into the weeds and find out that there is a lot more work to be done.” If your own pricing structure can vary considerably, follow Dixon’s lead and overbid work by a small amount. In most instances Techincon will deliver under budget, and the client will be thrilled. In the remaining cases, the company is covered for the additional work and doesn’t have to rush the job to avoid going into the red.

Unfortunately, keeping your budget in the black at the end of the year is largely a done deal based on decisions already made and expenses already incurred. There’s still some time to maximize revenue, though, and most businesses will do their best to take advantage of it. Once Dec. 31 rolls around, the best thing to do is look to the future and plan 2019 as accurately as possible. Then, this time next year, you should be in the clear.



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