smallbusiness.co.uk: Helping your business think big

When consumers are considering which product or service to spend their money on, an obvious consideration is price. Christian Nellemann, managing director of rapidly expanding XLN Telecom and finalist in the 2004 Ernst & Young Entrepreneur of the Year Award, offers some advice to small businesses looking to compete on price.

1. Fully understand the pricing of your competitors – particularly understand the small print or conditions
2. Be sure you can deliver your product or service at prices that are well below those of your competitors before you start
3. Do your sums – understand the financial constraints on your own business should you have to start dropping prices to remain competitive.
4. Keep business overheads to a minimum – if you are competing on price, you’ll have little margin for waste
5. But understand which business overheads are the essential ones and invest in systems that make them more efficient
6. Measure everything – not just the big factors such as margin – but all the small factors. Often it’s the combination of many small things that lead to one big problem
7. Be creative in sales and marketing. For a young business, high cost marketing activity such as advertising should be seen purely as a means of generating sales; if it is not producing sales cost efficiently stop it immediately and try something new.
8. When you find the right formula, expand. But be careful that cash flow doesn’t dry up due to rapid expansion. Many successful businesses have come a cropper this way.
9. Don’t spend money building a “brand” when you are just starting – getting customers and sales is the priority.
10. Be prepared for a fight. If you have discovered a winning formula – established businesses are not going to sit idly by as you take their customers. Remember, they have become big businesses as much by being able to defend their existing positions as by growing new ones. And they certainly know how to fight.