The most important thing for a company is “going concern”, that is, the company’s ability to operate continuously.
If a company goes out of business, it will disappoint customers who liked the company’s services, and it will also force inconvenience such as not being able to receive after-sales service even after purchasing. Of course, not only customers but also employees and other stakeholders are inconvenienced.
So how does one become a Going Concern?that ismaintain stable profitsthat’s all.
Japan has not been able to “raise the unit price” for the past 30 years
Profit = Sales – Expenses, so if sales are greater than expenses, you will make a profit. It’s a matter of course. However, there are many companies that do not do this obvious thing.
The history tells us that. Around the year 2000, during the dot-com bubble, there was a time when a company that acquired a large number of users had a higher corporate value. If the number of users increases, there is a certain probability that they will become paying customers. Sales should increase as a result. In other words, “the larger the number of users, the more sales can be expected in the future,” and the higher the corporate value.
But for most companies, the rosy future they hoped for didn’t happen. Even if we acquired a large number of users, only a very small percentage of them converted to paying customers, and sales did not grow.
There are recent stories similar to this. It’s a “subscription model”. A subscription model is a model in which users pay a small flat fee every month. Although the monthly payment is small, it is said that after a certain period of time, sales will increase more than the outright model, and after that period, a high profit rate can be expected.
With the evolution of the Internet and the prosperity of the SaaS business, the subscription model has spread in Japan since around 2018. But this, too, did not lead to a rosy future for most companies. Users left in a shorter period of time than we expected them to continue using the service for as long as they did.
In this way, it is not easy to make a profit, but management is about doing something about it. How can I continue to make a profit?
As mentioned above, Profit = Sales – Expenses. In addition, sales can be decomposed as “unit price x number of units”. In other words, either raise the unit price or increase the number of sales.
However, in Japan, due to the effects of deflation, it has been virtually impossible to raise prices for the past 30 years.. Since I couldn’t take the option of “raising the unit price”, I was oriented to the opposite, to “increase the number of sales” by lowering the price.
However, it is also not easy to reduce the price and increase the number of sales. As I explained last time, it is even more difficult to increase profits.
Increase customer turnover and increase profits
Under such circumstances, of course, there are companies that have succeeded in increasing the number of sales.
For example, my company is like that. In 2011, he opened “Ore no Italian”, followed by “Ore no Yakiniku”, “Ore no French”, etc. I’m sure many of you remember that it suddenly became a hot topic.
what did they do
For example, they offered high-end French and Italian ingredients at low prices. This is the same price reduction as other companies.However, the company made this a “standing eating”. This is the point.
It goes without saying that French and Italian people usually sit down at a table to eat. If the average sitting time is 2-3 hours, the evening customer will only make one turn.
What happens if you eat it while standing? Customer stay time is shorter compared to seated. For example, if it takes an average of 1 hour, it is possible to make 3 rotations at night. Moreover, if it’s about an hour, we can meet the demand for after-parties and light drinks, so it’s not impossible to do a quadruple or a quintuple.
If you’ve ever experienced eating while standing, you’ll know that it’s surprisingly hard to eat and drink while standing for an hour. Then the actual average stay time will be even shorter and customer turnover will be even higher.
Even if you stand and eat, customers will drink alcohol, which has a relatively large profit margin. The groundbreaking business model of “providing high-quality ingredients at low prices while standing and eating” realized by the company was a wonderful idea that could not only increase the number of customers by 20% or 30%, but several times.
Furthermore, by hiring chefs who used to be No. 2 and No. 3 at first-class restaurants, it is possible to keep labor costs down (compared to No. 1) while ensuring the quality of the food. Succeeded.
In addition, since most of the customers order high-quality ingredients at low prices, which is the main feature, they are in an advantageous position in terms of procurement, and they are able to keep costs down, making it easier to secure profits.
However, the biggest misfortune for the company, which was doing well, was the corona disaster. “Standing eating”, which was a winning pattern, has the disadvantage that customers tend to be close to each other in a small space during the corona crisis. As a result of abandoning this and making it all seated, the turnover rate of customers has decreased and the profit margin has also decreased significantly. The company is currently trying to find a way out through e-commerce and delivery (which guarantees quality through its own delivery).
The reason why you can make a profit with “free shipping even for one bottle of beer”
Next, I would like to introduce an example of Kakuyasu, which realized a business model that can secure profits in total by reducing “costs” of “profit = sales – costs”.
Kakuyasu is a company that sells alcohol mainly in metropolitan areas. It is convenient for customers because even one bottle of beer can be delivered for free,Will I be able to make a profit on it?Don’t you worry about it?
In fact, when Kakuyasu started home delivery, it seems that it set a lower limit that is common in general home delivery businesses. Free shipping for orders over 10,000 yen.
However, it had a bad reputation. Therefore, it seems that they reconsidered the value of delivery once again.
Which is more satisfying for Kakuyasu, having the customer visit the store and make a purchase, or having the product delivered to the customer’s home?
Because alcohol is heavy, most customers come by car. Of course, the store needs a parking lot. You need a cash register because you pay at the store, and you also need a cash register staff.
But what if half of your customers use home delivery?
Since the number of customers who come to the store will be halved, the store’s parking lot space, the number of cashiers, and the number of cashier staff can be reduced.in shortAll of these are effective in reducing fixed costs (moreover, expensive land rent in the Tokyo metropolitan area, expensive cash register leasing, and labor costs for cash register staff, which are difficult to hire even if job openings are posted)..
As I’ve mentioned before in this series, “Keeping fixed costs as low as possible” is one of the basics of corporate management. This is because if the fixed costs are high, the company will quickly fall into the red when sales decrease (see chart below).
With that in mind,Even if it’s just one bottle of beer, the free shipping is a great advantage for Kakuyasu, which is doing business in the metropolitan area where land and labor costs are high.I understand that.
In addition, since the company’s delivery staff can visit the delivery destination to strengthen the relationship with the customer, cross-selling other than alcohol is also possible. The more you become familiar with your customers and know their preferences, the lower the risk of them switching to other companies in the same industry, and the lower your sales promotion costs.
Of course, if every customer only ordered one beer, we would be in the red. The past tense is because Kakuyasu is also in a predicament due to a sharp decrease in orders from restaurants since the corona disaster).
In this way, if you look only at the part of “free shipping even for one bottle of beer”, it may seem that profitability is ignored at first glance, but if you look at it as a whole, you can reduce the “cost” part of “profit = sales – cost”. In some cases, this can be profitable.
If the restaurant industry gradually regains its pre-coronavirus calmness, orders from there will increase, and Kakuyasu will be able to secure profits again.
President K, who did not reduce the price even after moving from paper to the Internet
Finally, I would like to introduce a case where I was able to avoid easy discounts and secure profits by setting a price based on an accurate understanding of the value of the service. It’s the familiar “SPI test” in job hunting.
It may be hard to imagine for college students today, but SPI tests were once done on paper. Every time university students took the test, they would go to their respective companies and take the mark sheet type paper test there. In other words, if you took 10 companies, you had to take the mark sheet test 10 times.
Recruit Management Solutions (RMS), which has been in charge of this SPI since that time, is aiming to convert the paper test to a web site around 2003 (however, there was a problem in confirming the identity of the test taker at first, so the Instead of taking the test online, the main format was to go to the test center and take the test).
At that time, the trend was that internet services were free. Therefore, the SPI test alsoThe majority of the evaluations were that if it were to be made online, it would not be possible to sell it unless it was made cheaper.. It goes without saying that our client companies were aware of this, but so were the sales representatives of RMS, which sells SPI.
but,President K of RMS at the time finally made the decision not to reduce the price.. Its logic is:
Until now, in order to conduct the paper SPI test, the client company arranged a meeting room, secured an examiner, distributed the paper SPI test to the examinees, collected it after the test was completed, and returned it to RMS. (mail or fax). In other words, the customer company had to pay the labor costs for securing the place and carrying out the series of work.
However, if you make it web, all of these will be unnecessary, so it will be a significant cost reduction for the client company.
On the other hand, RMS has new costs to bear. First of all, we have to develop the system, so we need upfront investment. In addition, you must arrange a test center as mentioned above. We also need staff to operate the test center.
Webizing SPI does not change its essential value. On the contrary, RMS’s test center now shoulders all of the operating costs that have been borne by the client company. Originally, I would like you to bear the price. But let’s offer it at the conventional price for the first year.
When he was about to be dragged down by the common sense that “Internet services are free of charge,” he said that it was President K’s wise decision to visualize the added value that “costs on the customer side would be reduced by going online.” think. In this way, RMS was able to overcome pressure to cut prices and realize web conversion without lowering prices.
In parallel with this, we have also made it possible to send the results of the test once taken to other companies, making it more convenient for students. For RMS, this means fewer test center seats are required, thus reducing costs. As a result, we were able to further improve the profitability of RMS.
In recent years, there are many companies that immediately cut prices if their products do not sell well. but,Remember that lowering prices means lower profits. Also, I feel that there is still a deep-rooted tendency in Japan that it is a virtue not to raise prices, even though the cost has risen so much.
Don’t sell your company’s products and services at a bargain price. For that reason, carefully consider which variable of “profit = sales – cost” and how to change it is the optimal solution for your company.
The current business environment is more difficult than ever to navigate, so please focus more on going concern initiatives in your organization.
Ryuichiro Nakao: President of Nakao Management Institute. Completed Graduate School of Engineering, Osaka University in 1989. Joined Recruit. After serving as executive officer (in charge of business development) of Recruit Sumai Company, president of Recruit Technologies, and deputy director of Recruit Works Research Institute, he assumed his current position in 2019. He is also an outside director of Tabikobo, LIFULL, and ZUU, a part-time auditor of LiNKX, and a fellow of Hakuhodo Technologies. His new book is “I tried to summarize 64 masterpieces of ‘really useful’ management in one volume”.
Source: BusinessInsider
Emma Warren is a well-known author and market analyst who writes for 24 news breaker. She is an expert in her field and her articles provide readers with insightful and informative analysis on the latest market trends and developments. With a keen understanding of the economy and a talent for explaining complex issues in an easy-to-understand manner, Emma’s writing is a must-read for anyone interested in staying up-to-date on the latest market news.