Small business Buying Behavior: Evaluating the Total Cost of Ownership vs ROI

Expanding on the insights garnered from our target customers at the expos earlier this month, I learned that total cost of ownership (TCO) could be the differentiating factor when small businesses consider Bimotics alongside other analytics software, especially among business owners.  TCO is a financial estimate intended to help determine the direct and indirect costs of a product or system.  For analytical solutions, cost to a business often includes software, hardware, and the IT resources need to implement and maintain them.  For a typical business intelligence system, the TCO can run easily in the hundreds of thousands of dollars.

Bimotics understands that TCO is actually a barrier to adoption for small business.  That is why we are focused on an affordable subscription model where we take on the cost of IT resources and the maintenance of it, and offer our package at a substantially lower cost.  Our TCO as well as purchase price is considerably lower compared to enterprise level technology providers while providing the essential analytics that businesses demand.  In the future, we are looking to run several experiments in order to further characterize price sensitivity.  

We recognize that measuring TCO is a very important conversation to have since analytics software in general is faced with a return on investment (ROI) dilemma, i.e. “is the software we are purchasing worth the cost?”. You see, the benefits of analytics, metrics, charts and business intelligence are not always easily measurable.  Indeed, agreement regarding the dollars saved can be disputed and debated depending on who is doing the measuring.  

For those stuck in the middle of an ROI debate, price, operational efficiency, and TCO play a critical role in the decision making process.  Affordable solutions like Bimotics virtually end this debate.  We firmly believe that the long-touted value of business analytics is nearly indisputable, with proven benefits and insights which can in turn improve everything from revenue growth to sales force development, from marketing to supply chain.  Finding an analytics package that does grow your business with minimal TCO is a key to success.

Notes From the Road -- What We Learned at the Miami Small Business Expo

What a great week at Bimotics! The entire team got to update their pitching skills, but more importantly put faces and names to the businesses we work to serve each day. We spent two days traveling to small business exhibitions, talking to dozens of local and regional potential customers and fine-tuning our sense of what small businesses need.

Here are some key takeaways:

• People who understand the benefits of business metrics and analysis but “are not there yet” are great for validating our explanation of the value Bimotics brings, but most likely will not fit into the sales cycle we are targeting because it takes a while to set up and use standard business practices.
• Technology providers that cater to small business are asked quite often where to get analytics and business intelligence systems that fit a tight budget. Possible partnerships and cohort awareness will definitely help us generate leads and grow our business.
• Demand for business intelligence solutions significantly drops off when solutions reach the $10,000 price point.  Those with higher price tolerance tend to be service-type companies who use analysis as part of their main offering. Bimotics is pricing our service in line with other small business applications.  We also know that we can tap greater demand at a much lower price point.
• Although technical startups are interested in our analytical software, they tend to fall into the “innovator” rather than the “early adopter” bucket.  What this means is that if we focus on selling just to technical startups, we may not be able to get the critical mass of small businesses we need.  Our goal is to serve all businesses but word of mouth and trust will come easier from non-technical startups, or businesses that are slightly farther along in their development.

Ultimately we left the events with even greater focus on what we need to do to cater to different customer bases and understand how their needs differ.  Our first and immediate post-conventions actions are to schedule product demos with the businesses that expressed interest and continue building local relationships.

Of the dozens of people that we spoke with, all were inspiring.  They were happy to share their stories of success in surmounting challenges in their businesses. They did not complain about budget or about having assembled the perfect team before they figured out a solution.  We were left with a renewed sense of persistence and optimism towards entrepreneurship and providing analytics services that businesses will find invaluable.

SMB behaviors toward Analytics

This week, the Bimotics team is headed to the annual Small Business Expo in Miami, one of the largest of its kind in South Florida, where hundreds will be in attendance. While we are using this opportunity to network and learn more about a wide range of small businesses and their reporting and analytical needs, we will be listening specifically for feedback as to why small businesses feel challenged when using data and analytical information. We will also be listening for reasons that prevent them from investing in metrics/analytics in the first place.

As our products continue to gain traction in the marketplace, it is critical to us to understand what makes businesses continue to use metrics and what causes businesses to stop using them once they have been established and measured. We are advocates on the subject and firm believers in the need for ongoing diligence in monitoring the health of a business through metrics.  

Bimotics has always assumed that the SMB would not adopt and continue to use analytical dashboards as long as they remained complex and expensive.  This is why Bimotics has been so meticulous in our efforts to make sure our designs are easy to use, intuitive and plug and play, and affordable. Our solution hits the sweet spot where specialized (and previously unaffordable) IT is made economical and easy, thereby solving the total cost of ownership challenges most small businesses run into.

We want to ensure that businesses continue to use, enjoy, and profit from business analytics, and we look forward to further validation and feedback at the expo.  In an effort to gain a holistic look at SMBs attitudes toward analytics we will be taking notes on the following:

• Relevancy of analytics day-to-day operations and long term objectives
• Sophistication of the organization and the desire for convergence of data across people and teams
• Financial acumen and overall knowledge of metrics and their uses
• Preferences for the graphical representation of data
• Technical skill and quality of in-house data
• Time and staff devoted to financial and business analysis

We are looking forward to it and we will keep you posted.

The true bottom line

What is your bottom line?  

That is the question most everyone running a business is asked. But the exact meaning is often misunderstood as gross profit. Indeed the bottom line is actually net profit or net profit on sales. It is the company's reported income after everything is taken into consideration- taxes, normal operating revenues and expenses, extraordinary charges, and  financial income. Owner value increases as net profit increases by adding to the company’s retained earnings.  At the end of the day net profit is the key metric to answering the question “what’s in it for me”?.

Because net profit represents the bottom line, all business factors drive this number. When analyzing your operations, it is essential to figure out what is impacting your bottom line. Experts have actually recommended that incentives not be based on the net profit metric because they say the average employee (not the CEO) cannot easily tie their day to day tasks to impact on net profit. Since it is an aggregate it blurs individual contributions, it is not meaningful in explaining what one task needs to be done better and thus doesn’t seem controllable. The bottom line should always be reviewed as the roll up of what it happening.

How Bimotics can help:  Your company’s bottom line is easily accessible through Bimotics if you use Quickbooks accounting software. Since we connect directly to the application, bringing in this metric to your dashboard is as simple as selecting it from the Bimotics analytics gallery.  As a summary or roll up metric, you need to look at this metric quarterly.  Analyzing trends your net profit and profit margin on a quarterly basis will give you and your shareholders a good idea on how well you are paying out.

Operating Profit Margin - dig past the financial activities

Operating profit is reported income after revenues and expenses for the company's normal operating business have been subtracted, but before factoring in the contributions of financial income, financial expenses, extraordinary items, and taxes. It differs from gross profit in that all the operating expenses such as legal and distribution expenses are included.

For the business founders and owners, operating profit represents what is available to them before a few financial items need to be paid out including preferred stock dividends and taxes. Generally though, ample operating profit shows that your company is either well run with the right amount of cost controls, or that competitive forces are weak against your offering. Strong operating profits also enable the use of capital to do more whether it is adding features to your software application or making you checking process more seamless.  Note: when looking at analytics for operating profit, it is important to keep in mind that this metric can fluctuate widely especially for companies impacted by seasonality.

Operating profit expressed as a percentage of net sales revenues is referred to as operating margin, a measurement for management’s efficiency and quality of a company’s activities against its competitors. If your business is going high volume and low cost, then operational margins should be on your list.  Note: this metric can be skewed by showing strong margins that came by taking on significant debt, which puts the business at risk.

Many analysts and business owners alike call operating profit among the key business metrics to evaluate a company’s performance.  Visualizations can be evaluated by looking a revenue next to operating profit or a trend line showing operating margin.

Letter to our customers

Dear Valued Customer,

Why Bimotics? Because Bimotics is a small company just like yours, working tirelessly to produce a product that will improve your business and how you think about your business.   We firmly believe that we provide an easy-to-use tool that can help you analyze, refine, and grow your business in a way you never before thought possible.

How does Bimotics do it? In the same way that you have a special skill, be it making the best cupcakes in town, tailoring the finest suit, or running a high tech distribution network, we have a special skill as well.  Your business is unique, and Bimotics is the unique solution to help you unlock your full potential. We have spent our entire careers figuring out how to bring you the best analytics solution as possible.

We have removed all the challenges that small businesses face when dealing with data through our a la carte menu of analytics.  We have made the analysis of your business as simple as picking items off a restaurant menu.  We have created a true self-service product.

Measure, monitor, and forecast your business at a glance.

Our skills are at your service.  We look forward to your Good to Know! moment.

Sincerely,

The Bimotics Team

5 Gross Margin metrics and how they matter

Profit and loss is reported in every business through the income statement.  It is here that profit metrics can be created which can help a company assess its health over time.  Bimotics makes this analysis easy.  Especially in the case small and medium sized businesses, gross profit and operating profit analysis can help determine whether a company is executing on their core activities and what their next steps should be.

For example, gross profit is used to understand gross margin. Over time, if gross margin decreases, that implies that production costs are rising faster than sales. This trend signals that the company will need to increase cost controls and/or look for options to improve sales. When working with companies, we  have seen it time and again -- investors get concerned when profit margins are too low, indicating key weakness in the business model.

There are different ways to learn from the gross margin metric and leverage the power of Bimotics.  Following are a few examples:

 

1. Gross margin by product/service line: This lets you see which products or services bring you the greatest profit per unit. This analysis helps you identify the level of impact your products have on the bottom line.  You can use this information to help you decide, for example, if a product line is worth developing or phasing out or what campaigns are needed to improve a product line’s performance.  

2. Overall gross margin over time: This lets you see how sales and costs impact a product over a period of time. Trends can be measured and predicted taking into account external factors such as inventory headwinds and internal factors such as cost of inventory storage. Controlling or counteracting these factors can keep margins at a healthy level.

3. Gross margin by team: This lets you see how different working teams within your organization manage sales and costs. Depending on the objective of each team, you can compare and learn how they managed resources to meet particular goals.  This metric is used for learning events.

4. Gross margin by customer type: This lets you see which kinds of customers are impacting your profit and suggest price points that each type of customer will be willing to pay. Use the metric to decide if and how a particular product should be introduced and marketed to a certain customer segment.

5. Gross margin planned vs. actual: This is a good benchmarking tool that helps you analyze how well actual business measured up to what was forecasted.  The difference between the two gives you a starting point on where to delve deeper into the factors that are really impacting your business.  What did you not take into consideration that you were supposed to?  Are you meeting your goals?

In summary, gross margin is a key profit metric that every business needs to understand and track because it illustrates the relationship of sales and costs and is impacted by many facets of your business ranging from team and operations, to customer and product.

Bimotics allows you to easily and meaningfully analyze gross margin, and help you to fine tune and grow your business