Archive for the ‘Cost Savings’ Category
Every break my children have from school, we make the trek from Rochester NY to Clio Michigan and spend our vacations working on projects that will bring us closer to our eventual move. This week, we finally brought the first load of our belongings and in between wind and snow storms, we managed to get our internet connection installed.
While talking to Mike, the Comcast installer, about our need for bandwidth so we could keep up with business tasks in between trips to Goodwill and cleaning the gutters, he mentioned that he liked working for a big company because he had benefits like Health Care.
While it might seem like a casual comment, it speaks volumes about the state of our economy.
Small Businesses account for more employees and a larger portion of the US GDP than all large companies put together. When it’s hard for people like Mike to leave health insurance behind, health care becomes a barrier to economic growth.
Now I’m not saying that Universal Healthcare is a silver bullet for the economy, because losing a steady paycheck and is also an important consideration, but what if health care wasn’t one of the barriers to entry into small business ownership?
Processing credit cards can be one of the biggest expenses any business has to cope with. In some cases it can be more than 3% right off the top – Ouch! To make matters worse, it seems like processing companies purposely confuse the process to keep you from comparing service. Which in someways is true. It’s not that you’ll be prevented from finding a good deal, but you need information so that you are in a better position to negotiate.
The Card processing business is very competitive, and because of it, most companies won’t give the rates until you are willing to sign a 2 year service contract. The last thing they want is for you to take the rate quote they provide and use it to negotiate with your current processor.
First, if you’re not familiar with Merchant Account terminology, I suggest you take a quick side-trip, to Wikipedia’s Merchant Account Article for a lesson.
The next thing you should read is your current card processing statement, if you have one. There, you’ll be able to determine what rates you’re being charged. Yes, rates. There is more than one tier and a little strategy at the till can significantly lower your processing fees.
For basic, every day credit cards that are swiped, you will pay the qualified rate. This first tier rate is the lowest and usually where the processor will focus your attention when showing how affordable they are.
However, if the card you just swiped is a rewards card, you just paid for someone’s flight to Hawaii. Ask yourself – Do you think the card companies are that generous? Of course not, and to pay for these points and other perks, they pass the cost on to you by processing the card in the second, Mid-Qualified, tier.
This second tier is also the rate you’ll be charged if you don’t swipe the card. The reason is that there’s a higher probability of fraud and mistakes if the card isn’t present.
There is a third tier called the Non-Qualified Rate. You’ll most likely find this rate on your statement if you manually enter a rewards card. So swipe as often as possible to push rates in to the lowest tier you can.
Debit cards could be your saving grace though. If you have an opportunity to swipe a debit card it might be in your best interest to have the customer enter his or her pin number.
Credit card rates are usually a percentage of the total plus a transaction fee. Debit cards usually have a flat rate no matter how big the ticket is. You can easily calculate what the break even point is and post this number by the cash register to remind your staff.
For example, if your qualified rate is 2.9% + $0.30 and your debit processing rate is $0.70, it will be cheaper for you to process as a credit card for anything under $14 because 2.9% of those small amounts, is less than you’ll be charged for a PIN transaction. On the other hand, transactions over $14, processed as a debit card will save big. In fact, with these example rates, $38 processed as a credit card will cost you $1.40 – twice as much as asking the customer enter a PIN number.
To negotiate for lower rates, the next item to take into consideration is your average ticket price. When your average ticket is a low number, you could accept a higher % for a lower transaction fee. Or a higher transaction fee and a lower % if you have a high average ticket.
Finally, don’t forget to consider your volume. If you have a high volume of business, you’re in a better position to get a better rate. The processor will be more likely to go with a rock bottom price if there are a lot of transactions to profit from so don’t forget to leverage that if you can.
Once you’re educated about the process and what your business needs to remain profitable, you should be able to get the rate you want. You may have to endure a steady stream of card processing sales people, to get it and you might need to fight tooth and nail on the extra fees they tack on, but you should be able to find a deal that cuts your costs significantly.
The first issue is that software is a cost center, and ROI to shoot for is some sort of increased efficiency. Regardless of how efficient it brings in customers, tracks inventory or creates slide decks for presentations, you have to have it to compete, so it all comes down to how well the system works.
The good news is that publicly licensed software allows businesses to think about starting their software roll out with the finishing touches. Carrying a General Public License or other Open Source License is the most important part because, it’s usually available at no cost.
If getting it for free isn’t enough of a cost savings, then stick with me for another moment.
Custom software is usually the best way to get a system that works exactly like your business model dictates, but the costs grow exponentially. The more complex the system, the more it’s going to cost to build. But it doesn’t end there, I usually recommend my clients assume an extra 30-50% above and beyond the initial construction phase for tweaks, bug tracking and resolution. If you start with a lower cost, then your 30-50% is also going to be a much smaller number.
In some cases fixing a bug in the system could also be free if it’s submitted to the software’s development team. It might take a little longer for resolution, but it’s hard to argue with free if your budget is tight.
With a little research it’s usually possible to find finished software suites that are close enough to meet the business’ requirements and development can begin where a custom solution would just be finishing up. A good software developer can even combine functions that may not have been designed together to create a truly custom solution.
The library of software that’s publicly licensed these days is vast and a business that wants to go this route should start the research process by outlining what functions the software must have. I also advise they look at what might happen in phase two of the roll-out and to consider what flexibility they’ll have to modify the system to adapt to changes in the business environment. A good plan and a shopping list of features goes a long way to making this process successful.
Of the hundreds of small businesses that I’ve counseled, each case is confidential, but when I know there are at least a dozen businesses with the exact same issue, I think a little transparency would go a long way.
For example, I’d like to take posts such as “Ego’s Role in Business Websites” and “Beginning with the Finishing Touches” and make them less vague. The idea being that if I could give specifics then the cases would become real-world, working solutions rather than theory. especially if someone would like to go long-term and report back on what’s been working or not.
So, if you, or someone you know is wondering why a website and other online presence practices might be coming up short, please let me know in the comments field below or the contact form. Please include anything you have specific questions about so that I can include the answer when I reply.
Don’t worry, I will email you before I begin my critique and if I don’t get a response, I’ll pick another site and try yours again for a later article. If you change your mind about the critique or have any reservations just let me know. I’ll be happy to take you out of the queue.
Those of you who’ve known me for a while know that I’m a fan of beginning with the finishing touches whenever I can. While the idea sounds easy enough, it’s not a fool-proof method of building business applications especially when you consider the prep that is involved.
To begin a website with the finishing touches, we need to start with the idea that any computer can become a server. All you need are the appropriate applications to announce your presence to the world.
The thing is, the “appropriate software” is a list of things such as
- an operating system – Microsoft, Apple, Linux, or another.
- server software – Apache, LAMP, MAMP, etc.
- the database – MySQL, PostgreSQL, MongoDB, etc.
- software for any languages your applications will be using – PHP, Ruby, Perl, etc.
After all those are up and running you’re ready to install your Content Management System, eLearning, Photo Gallery, or whatever else you might need to conquer the internet.
While this may not sound like too many steps, for those without a lot of experience, the process may not be as straightforward as it sounds. The term “Dependency Hell” comes to mind when I think about how the process could turn sour.
This morning, however, I stumbled upon BitNami. While I haven’t had the chance to use it yet, the idea has me fluttering with the first blush of puppy love.
I’d suggest you take a look at their site for complete information, but, in short, the beauty of BitNami comes through in the steps that follow the operating system in my list above.
Rather than downloading and installing all of the other components separately, the BitNami stack does it for you. The server software, programming language support, database, and application come together in one tidy install.
Now I’m not saying that there won’t be tweaks left to perform, but when you’re jumping ahead to the spit-polish phase, BitNami can make it easier for you to get there.
Now I’m not all raves at this point. One major shortcoming is that they’re lacking any sort of shopping cart system like OSCommerce or Magento. But like most projects, a quick trip to their forums show me that you could request an application. I even saw that OSCommerce will come down the pipe if there are enough votes for it.
I’ll be keeping my eye on BitNami because I think it holds a lot of potential to help small businesses get up and running faster. Faster also means less money out-of-pocket. Especially if/when the offerings grow and more of my favorite FOSS Internet suites are available.
If you ask a software developer how to make money writing code, you’ll usually get employment or selling applications as your answer. It’s my opinion, however, that most are missing the boat and need to think of their skills as a marketable service.
The other answers, while not wrong, have to do with point of view.
If I get a fancy box and shelf space in the big box chain stores, then I’m offering a product. The transaction might even present itself as selling of services – like getting the neighbor kid to mow my lawn. But no matter how you look at it, it all starts with a skill.
If I toss Open Source software into the mix, then I usually have to deal with “Yeah, Right. How am I going to make money competing with a free download?”
Here’s the thing, software isn’t the only Open Source industry. In fact, many other open source businesses are very profitable and are generally skills that have been around for quite some time.
Let’s think about Open Source for a moment. The first line of the Wikipedia article states…
Open Source describes practices in production and development that promote access to the end product’s source materials.
To me, it’s just the way we’ve always done things.
Software isn’t the only open source skill, in fact I’d say that all of these could be considered open source.
- Repair – Automobiles, Washers, Refrigerators, etc.
- Fashion – Sewing, design ideas, etc
- And many others
The people who practice these trades might have their own secret sauce, but all can be learned in an open source manner by examining the construction or using freely available information to gain understanding of the process. If I can get a book at the library or search the internet for the information I need, then I consider the industry to be open source.
Let’s now consider what it means to be in an open industry where anyone has access to the tools and materials that you do…
Wouldn’t the existence of prepackaged seeds put farmers out of business?
What about home improvement stores? Shouldn’t that put Plumbers, carpenters and electricians out of business? Does access to scissors put the barber out of business?
With the answer to those questions being a resounding “NO,” then why do so many people within the Free and Open Source Software movement think that there’s no business opportunities for their skill set?
Yes, there is a bit of a vacuum in the consciousness about the use of Open Source software, but I don’t think that it’s going to be too hard to overcome.
What the middle market is missing people with marketable skills who are willing to begin offering their services in various formats. It could be shelf ready products, it could be custom work. FOSS could even be offered alongside commercial options.
The thing is, FOSS has so many advantages and one of them is price. If you are a provider and can offer the same services and functionality, but you don’t have to undercut your profit to be the less expensive option, that’s a big advantage for you and your customer.
So you make more money, they spend less… Talk about bringing value to the table. You’re happy, they’re happy, the computers are effective. How can you loose?
To keep this post on topic and in an easy to digest format, how about we stop here for now.
In the next article I’ll talk more about how to position yourself as a service provider and how to set yourself up for a win.
I had a phone message come in from the SCORE office on Tuesday from a small business owner who has questions about expanding her business onto the internet.
While it may have sounded better to say that she “had” questions, I know that no matter how good I get with explaining the guts of eCommerce websites, there’s always more to know and thus, more questions to be asked.
One topic I always need to cover is the basics of hosting – specifically storage and bandwidth since those two factors effect the cost more than just about anything. The idea is to get the right package. One where you’re not paying for more than what you need or getting hit with overages every month – or worse, getting a limited number of visitors to the site. (better to get a big bill than have your reputation tarnished by poor site performance)
I’ve found that the easiest way to explain storage and bandwidth is to think about the data as if it were water. Most people can quantify and understand this analogy even if they’re not plumbing experts.
So in this analogy bandwidth is the pipes or hoses and storage is the tank.
To determine how much storage one would need for a website, we need to think about the content the site will be providing so that we can get a general idea of what we’ll be dealing with.
A full page of HTML coded text – without any images or fancy script functions (like Java Mouse over effects) would be a drop.
Add some graphical layout elements like small images to soften the corners of tables or a tiled background image you’ll bring your data up to 1/4 teaspoon.
A large header image adds another 1/4 teaspoon to the size of the page.
Of course you can rack up the file sizes pretty quickly with high resolution graphics (1 cup) and even need more space with HD Video (1 liter per minute)
So depending on what content you are thinking about I would hope you can begin wrapping your head around the data storage needs. At least in a Small, Medium, Large, sort of way.
Next we need to think about bandwidth allotments so that your visitors can view your content. While we commonly say that someone is visiting a website, the truth is, the content is being sent to their machine. So each time someone requests information the tap is running.
Bandwidth is measured by each byte of data that comes and goes and how many of them can move per second. Just as you can measure how much water your family uses, you can also measure the bytes coming in with requests and bytes going out with content.
When your hosting agreement comes with a transfer cap, think of it as being limited to a certain number of liters/gallons. So while this doesn’t provide a definitive number, it does help if you keep in mind a small number of people requesting a large file will have the same effect on your bandwidth cap as a large number of people requesting small files.
The bytes per second number will be a factor in how fast the data can be sent from your server. Will your users be trying to get a gallon of information through a drinking straw? Hopefully not.
Now I’m sure you’ll have more questions. If so, leave them in the comments below.
So here’s another general response that pops up all the time when I’m counseling at SCORE.
The question is usually something like “Is $1400 too much to pay for a 5 page website?”
So my answer is usually something like this…
If I knew more about the type of business, the better I could tailor my response here, but in general, you’ll want to go Open Source.
Open Source software is publicly licensed. It’s underlying code is open and available for modification and to top it all off, it’s usually been tested and tweaked a thousand times before you use it so you’re less likely to have problems or need support contracts.
Also, if you find something that’s close enough to what you want your site to do function wise, you’ll only be paying a professional to shine it up for you. So instead of months of custom code that will need complete bug testing you’ll be looking at a week or less to get things up and running.
You’ll also need to think about the site in two ways… What’s behind the scenes managing content, catalog and check-out process – usually the database portion of the website and your admin panel. Then how that data feeds out into your site.
The good news, the graphical layout is really a minor detail once the back end is working properly.
You’ll usually have a template of some sort (Cascade Style Sheet – CSS or XML) for the graphical layout with snips of code to indicate where the various components go. Menu on the left or the right – no problem. Don’t like the colors, again, no problem. Simply tweak the style sheet and all your information will fill in just where it’s suppose to go.
Every page will have a similar look and feel while allowing you lots and lots of dynamic space for content.
You might even be able to find an open source template that you can modify to suit your needs.
For instance, http://on-disk.com/ is http://demo.oscommerce.com/ We have modified the code and the database to meet our needs, but the sky’s the limit on graphical modifications. We’ve kept somethings the same, but there’s no need to be stuck with anything.
Another example is Webpath.net The back end is a custom wiki/blog hybrid that we created a long time ago, but the layout started out as a free template called Invention. I liked the general layout, but wanted it co-branded to the On-Disk.com website so the color scheme and graphical elements needed a quick change. All in all, the updates took about an hour to complete and most of that was time I spent looking and deciding if I liked it or not.
But these are just examples. You’ll have lots of choices with Open Source Shopping carts, Content Management systems and loads and loads of templates to choose from.
Just think of your business functions in Must, Should and Can features. Knowing what you need will help you sort through options as you research components for your site.
What must the site do from the beginning? What should be included in phase 2. What can we integrate now for future upgrades so that we don’t have to re-write the code?
Have I overwhelmed you? In any case, let’s stop here for now. Comment with questions.