Speaking business isn't so bad if you've got a business degree or you've taken some night classes, but what about the guys and girls that are just trying to turn their passion or skills into a new small business? Business jargon isn't just for sounding smart and showing off — many of the terms are things you should be aware of. This post is intended to be a crash course on some words and phrases you should know.
The term "target demographic" is sometimes used but means the same thing. Both are terms that represent who your ideal customer is. Are they rich older folks, anyone with a problem that you can fix, or do you care at all? Defining your target isn't super important, but it can really help with positioning your brand, and it can even save you money when advertising and marketing your business.
If you've decided you want to offer your landscaping services to homes that are in the $300,000 range, you're going to want a professional image, or they're most likely not going to be interested or willing to trust your business. Likewise, if you're trying to advertise to those same people, you're probably not going to get in front of them by paying your cheap local pizza joint for your contact info to be included on a flyer that goes out with every pizza. Knowing your target is one of the best things you can do for your business as it drives a lot of other key decisions you'll be making.
When you hear the term "Brand," you might associate it with big brands like CocaCola, Apple, or Nike. What you might not realize is that brand can and should be just as important to you and your small business.
Wikipedia lists brand as:
A name, term, design, symbol, or other feature that distinguishes an organization or product from its rivals in the eyes of the customer.
A brand is your business name, tagline, logo, the colors you use on it and your marketing materials, website, and anything else that represents your business in the real world. Why is it important you may ask? Well, it's important because it's what your customers see and interact with. Selling your services works with lousy branding (and often none at all), but you shouldn't ignore your brand, as a quality brand can spell the difference between high-end customers and jobs and the low-end ones. We've written about what to look for when getting a logo designed, and that's a good start if you're looking to establish a strong brand.
ROI stands for return on investment. It's a term that you'll often hear and see as the shorthand acronym "ROI". In simple terms, it means if you invested money into something to help with business (equipment, marketing, advertising, etc.), what did you make off of that investment. For example, if you spent $100 on an ad in the local paper and as a result, you landed five new jobs that brought in $2000 in total, your return on the investment would be $1800. You're looking for small investments that give you big gains. It doesn't always work out that way, but that's what you want.
How do you track ROI? If you're tracking ROI for advertising or marketing, it's pretty easy. You ask your customers how they heard about you and record it. WorkWeek makes that pretty easy when you create a customer by asking how they found you. With things like equipment it's a little more difficult, but say you're running a landscaping or pressure washing business and you buy a new piece of equipment that lets you do a new type of job, you'd total up the sales you made as a result of that piece of equipment, and subtract the cost of that equipment from those sales — that's your ROI for the equipment.
Competitive analysis is a term that sounds more complex than it is. It's researching your competitors to position your business to compete better with the competition. Do your research; it's as simple as that. A few things that are worth researching:
- What are the rates of your competitors
- Who comes up when you search online for the services you offer
- What are their colors/brand; you don't want customers confusing you with competitors (or the other way around)
- What are the reviews saying about your competitors
This one is straightforward and simple. What does it cost you to run your business? Depending on which industry you're in, you might have more or less operating expenses, but a few that are common are:
- Business insurance
- Accounting fees
- Legal fees
- Rent, Utilities, etc. if you have an office/warehouse
- Advertising and marketing costs
Figure out your operating expenses, total them up, and jot them down so you can make sure you're hitting at least that goal every month.
Margin / gross margin
I'm sure you've heard the term "margins" before, but if you haven't or if you have and you're not sure what it is, we'll cover it because it's incredibly important and requires a tiny bit of math. Gross margin will tell you the amount of each dollar of revenue that you make that you get to keep as profit. You can calculate gross margin by taking all of your sales/job revenue and subtracting all of your expenses that you don't pass off to the customer (labor, equipment, fuel, etc.), then divide it by your total sales revenue. We built a calculator to make it easy to calculate and compare margins when pricing or reviewing jobs.
Knowing your margins is good business. Some jobs will have better margins but might be higher stress or take more time. Tracking and reviewing your margins is the only way to know, so don't ignore them.
Small business glossary
At WorkWeek, we're trying really hard to educate small service businesses on the things that they might have missed because they're too busy doing the work that drives their business. You don't need to go to business school or get an MBA to run a business, but a little knowledge goes a long way.
We're working on a small business glossary that we hope to launch soon to help save small businesses from all of the headaches you run into from trying to start and run a business. If you have any suggestions, feedback, or ideas for terms that we should explain and cover on the glossary, email us at email@example.com!