YOUR Domestic Product

Small Biz Thoughts by Karl Palachuk is a blog aimed primarily at small business consultants.  I thought he had some particularly good things to say over the weekend posting on the "recession".  I put the R-word in quotes because, like Karl, I think the thing is highly overrated, unless you’re in the business of selling newspapers.

As Karl points out, the "official" definition of a recession is two consecutive quarters of decline in the Gross Domestic Product.  So, the only sure way of identifying a recession is to look in the rear-view mirror and see if it’s already happened.  We know one thing for sure, if we buy into the predictions that a downturn is going to happen, and if we respond by cutting advertising and marketing, cutting store hours, cutting payroll, and all the other things that "conventional wisdom" tells us to do, the predictions will most certainly come true.

Here’s the thing.  A "recession" is a decline in the overall economy.  Obviously what happens at General Motors, or General Electric, or any of the other "Generals" is going to dramatically impact the Gross Domestic Product.  Home building has a big impact, too.

But let’s look at an example.  Let’s say a consumer in your neighborhood decides to put off buying a new home for a while.  Somehow, a six-figure purchase just isn’t in the cards right now.  But, he or she decides to make postponing the bigger and better house a little more palatable by buying a new top-of-the-line sewing machine, and maybe a new vacuum cleaner.  How about a couple of new ceiling fans and some lighting to dress up the current homestead?

Instead of spending a quarter to a half a million dollars, our hypothetical customer has spent a few thousand.  That adds up to a deduction in the GDP.  But it equals an increase in YDP (YOUR domestic product).

Remember, this isn’t smoke and mirrors.  You’re going to have to work for those sales.  But isn’t that why you got into business in the first place?  As a former boss of mine used to say, "If it was easy, everybody would be doing it."  It’s not easy.  But you’re the professional.  You’re the one who has the tools to make those sales happen.  Let the economists worry about the BIG numbers.  The numbers that are important to you are the ones that are rung up on your cash register every day. 

Here are the three things that Palachuk says we need to do:

  1. Keep our customers happy.  That goes without saying.
  2. Increase our base. As I mentioned earlier, Palachuk’s company is a business-to-business operation but the principal is the same.  He talks about raising his rates.  Your goal is to increase your average sale.  That means more up-selling and more add-on selling, something you do on a daily basis.  Remember, that customer just put off buying a house, (s)he has money to spend.
  3. Expand our base.  The lifeblood of any business is more customers, and today it’s more critical than ever.  You need to add new customers just to replace the ones you lose through death, or moving away, or any number of other things that you can’t control.  That’s just staying even.  The real gravy is the number of new customers that exceeds the number lost.  Do you know what that number is?  If not, you should.

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