IT-company is growing, profits are not particularly. What to do?
Let's start with the facts. The company is engaged in the layout of projects. PSD to HTML, PSD to Wordpress, etc. Works on the market for 8 years. Two offices. 40 people on staff. About 20 to outsource. Customers are mainly from the USA. Layouts, programmers, QA, project managers from Ukraine / Belarus.
What is the task : the owner shows the calculations. It is evident that the company is growing. The number of customers is growing, the number of orders is growing. But along with this, costs are rising, and net profit does not increase significantly.
How does everything work? For 8 years of work, the backbone of regular customers has been formed. They bring about 70% of the profits. The remaining 30% are new customers. New customers are led by advertising (mainly Google Adwords, occasionally guest posts on thematic sites).
What happens when you try to earn more? The company increases the advertising budget. The graph shows that in January 2018 and March 2018 there were attempts to double and triple to increase the AdWords advertising budget.
"
What comes out of the example of January 2018.
* Untargeted applications are small projects, often one-time orders for layout of 3-5 pages.
Why is it so bad: twice the advertising budget and only + 23% exhaust? The company is the eighth year in the market. Knows your customer. There is a special person who optimizes keywords, bids, looks at the statistics of auctions ...
In short, the numbers reflect the audience of the advertising channel.
Of the 100% Google users who are interested in layout in this case, 77% are
If someone from this audience is ready to place an order, payment for the services of the whole studio will be too expensive. In practice, negotiations with them end in nothing. These go and order the layout of freelancers.
23% are representatives of the target audience: large corporate companies, design agencies \ studios. For reliability, reputation, delivery of projects on time, experience, these companies are willing to overpay.
From month to month, the numbers vary slightly, but the proportions in general remain.
It turns out in order to increase the number of customers by 23% through Google, you need to inflate the advertising budget by 117% . Moreover. Of these 23%, not all will place an order. About half will not accept the working conditions, price, terms, etc. In reality, the company will increase the number of orders by 12%.
Next question. Who will handle the new 12% of orders?
We have to partially attract freelancers from outside to have time to close projects on time. Partially overload full-time employees with new projects, which threatens to shift the deadlines for the delivery of projects to both existing customers and new ones.
It turns out the company seems to be developing. The number of orders is growing. But if you look at the situation as a whole over the year, advertising costs increased, and the staff and net profit eventually did not grow much (the owner asked not to disclose the business figures).
It turns out the company’s development strategy for the company looks like this:
The trend is that the US market is saturated. Companies that want to earn on it is becoming more and more. Growing competition. Expensive click. The cost of attracting customers is expensive. The value of the actual order received from the target company, etc.
Parse orders. They are different. One company orders a large project for 5000, another needs minor improvements for $ 300.
Can we refuse minor improvements? Work only with large orders, and small ones to give to outsource. It does not work out. All large projects periodically need updates, edits, updates. The project manager is assigned to the client, we try to build relationships. To take 5000 from a client, and then send it to freelancers when he wants to change something a little hopelessly. So you can not build a business.
Can we refuse small customers? From those who order small volumes. We can. But how to understand who is big and who is small? Google ad shows on request. And there who will click, that will click. We would be happy to give only large. But Google serves everyone.
The decision suggests itself: narrow the audience, focus only on the target segment. Those. do this:
Or like this:
Why are we working on several options? Because it is not known in advance what will work and what will not. We try to simulate processes, prescribe actions as carefully as possible. And then the practice will show what works, what needs to be corrected.
For example option 1. Personal meeting. How and by whom to introduce yourself. What to say. What should be the result. What to do in a given situation.
Strategy: to consistently work out companies one by one. The staff is predictable to expand as contracts are signed with new design studios. For a specific company hired specific employees.
The first results are already there. It will take a little more time we will organize everything, translate it into numbers. If the topic is interesting, let me know to write a sequel.
In general, if you encounter a similar situation: development seems to be underway, and profits are not very good - disassemble the company's work into separate business processes.Somewhere you will definitely see a narrow neck. Someone is looking for customers, employee efficiency, sales. Try to analyze, get to the bottom of the problem. If something is not clear, try to translate everything into numbers. Doubt even what has worked for years. In this case, the company worked for 8 years attracting customers through Google. But it's time to adapt.
All success in 2019!
What is the task : the owner shows the calculations. It is evident that the company is growing. The number of customers is growing, the number of orders is growing. But along with this, costs are rising, and net profit does not increase significantly.
How does everything work? For 8 years of work, the backbone of regular customers has been formed. They bring about 70% of the profits. The remaining 30% are new customers. New customers are led by advertising (mainly Google Adwords, occasionally guest posts on thematic sites).
What happens when you try to earn more? The company increases the advertising budget. The graph shows that in January 2018 and March 2018 there were attempts to double and triple to increase the AdWords advertising budget.
" What comes out of the example of January 2018.
- Advertising expenses + 117%
- Incoming applications for the layout of projects + 63%
- Non-target applications * + 77%
- Target applications + 23%
- The load on the project manager is approximately + 35% (the cost of working time for correspondence, valuation, coordination).
* Untargeted applications are small projects, often one-time orders for layout of 3-5 pages.
Why is it so bad: twice the advertising budget and only + 23% exhaust? The company is the eighth year in the market. Knows your customer. There is a special person who optimizes keywords, bids, looks at the statistics of auctions ...
In short, the numbers reflect the audience of the advertising channel.
Of the 100% Google users who are interested in layout in this case, 77% are
- small private companies
- individual entrepreneurs
- competitors, just curious users
- bots, click, click fraud, etc.
If someone from this audience is ready to place an order, payment for the services of the whole studio will be too expensive. In practice, negotiations with them end in nothing. These go and order the layout of freelancers.
23% are representatives of the target audience: large corporate companies, design agencies \ studios. For reliability, reputation, delivery of projects on time, experience, these companies are willing to overpay.
From month to month, the numbers vary slightly, but the proportions in general remain.
It turns out in order to increase the number of customers by 23% through Google, you need to inflate the advertising budget by 117% . Moreover. Of these 23%, not all will place an order. About half will not accept the working conditions, price, terms, etc. In reality, the company will increase the number of orders by 12%.
Next question. Who will handle the new 12% of orders?
- project manager loaded with work with existing clients. We have to take an additional manager who will work part-time or some of the employees will partially take over the functions of the project manager.
- Who will build / test new projects? The owner does not want to take additional people into the state for salary. Says month to month is not necessary. In a good month we earn, in a bad they will eat what was earned in a good one.
We have to partially attract freelancers from outside to have time to close projects on time. Partially overload full-time employees with new projects, which threatens to shift the deadlines for the delivery of projects to both existing customers and new ones.
It turns out the company seems to be developing. The number of orders is growing. But if you look at the situation as a whole over the year, advertising costs increased, and the staff and net profit eventually did not grow much (the owner asked not to disclose the business figures).
It turns out the company’s development strategy for the company looks like this:
The trend is that the US market is saturated. Companies that want to earn on it is becoming more and more. Growing competition. Expensive click. The cost of attracting customers is expensive. The value of the actual order received from the target company, etc.
Parse orders. They are different. One company orders a large project for 5000, another needs minor improvements for $ 300.
Can we refuse minor improvements? Work only with large orders, and small ones to give to outsource. It does not work out. All large projects periodically need updates, edits, updates. The project manager is assigned to the client, we try to build relationships. To take 5000 from a client, and then send it to freelancers when he wants to change something a little hopelessly. So you can not build a business.
Can we refuse small customers? From those who order small volumes. We can. But how to understand who is big and who is small? Google ad shows on request. And there who will click, that will click. We would be happy to give only large. But Google serves everyone.
The decision suggests itself: narrow the audience, focus only on the target segment. Those. do this:
Or like this:
Why are we working on several options? Because it is not known in advance what will work and what will not. We try to simulate processes, prescribe actions as carefully as possible. And then the practice will show what works, what needs to be corrected.
For example option 1. Personal meeting. How and by whom to introduce yourself. What to say. What should be the result. What to do in a given situation.
Strategy: to consistently work out companies one by one. The staff is predictable to expand as contracts are signed with new design studios. For a specific company hired specific employees.
The first results are already there. It will take a little more time we will organize everything, translate it into numbers. If the topic is interesting, let me know to write a sequel.
In general, if you encounter a similar situation: development seems to be underway, and profits are not very good - disassemble the company's work into separate business processes.Somewhere you will definitely see a narrow neck. Someone is looking for customers, employee efficiency, sales. Try to analyze, get to the bottom of the problem. If something is not clear, try to translate everything into numbers. Doubt even what has worked for years. In this case, the company worked for 8 years attracting customers through Google. But it's time to adapt.
All success in 2019!