The Future Of SWO Service
The Future Of SWO Service
First of all, your company seems to be unsure of who they are selling to. You try to sell your product to small distributors, but lose money servicing them ($6,000 per month). You sell to medium distributors, who are willing to pay for service, but do not charge them enough, and certainly do not offer them very good service. Because of this, you lose many potential clients, and your larger clients leave because they are not satisfied.
Your company seems to be in great need of a marketing strategy. The mailings are a waste of time and money if they are not followed up on.
SWO charges less than most software companies for servicing. Your prices should be raised for your clients, and you should charge extra for the companies who use your services but do not buy your software (See Exhibit 4). Your employees should take advantage of these companies calling only for service by educating them about your software and trying to sell them SWO programs.
I believe you should move away from the small distributors, who would be just as well off with off-the-shelf programs such as ACCPAC. They require too much service and do not have the budgets to pay for it. Although these small distributors provide steady income for SWO at the present time, it takes approximately 58 small distributors just to cover your fixed costs. (See Exhibit 3). The marketing costs would certainly pay for themselves if you were able to sign up just a few medium distributors, or even one large distributor. As you can see in Exhibit 3, the breakeven point gets better as you move away from the smaller distributors. You would, for instance, need only 5 medium distributors, or one large distributor to break even. With fewer clients, you should incur less servicing costs, and this should lead to increased profits for your company. Also, because these firms have larger budgets, you would not have to worry about raising your service costs. However, you would need to increase your customer service to justify a large price increase.
A marketing strategy is very important for your company because you don’t have the advantage of word-of-mouth advertising. With a good marketing strategy, you could gain more profitable clientele who would make all the product alterations and service worth while. These clients would be able to afford the higher service costs and would have fewer problems paying their receivables than the small distributors SWO currently caters to.
Another problem for your company is that you do not use your own software. This sends out a negative message to potential customers. If you start using your own software, your current and future employees should be able to develop a better understanding of the software and pass this knowledge on to your clients.
Expanding the business will be a costly venture. However, if it is done right it could be a great move for SWO Service. Expanding SWO would require a detailed and well-executed marking plan. You will need to hire a marketing consultant (about $10,000 – See Exhibit 2) for this project.
If your company expanded, you would also need to hire a system analyst. This would cost the company $45,000 per year. Although there should be fewer (but more profitable) clientele, you should have someone who can do this job full time to keep up with the high demands of your customers, and to help justify the large increase in service costs.
According to my calculations, if you do decide to expand your company, you should expect to turn a profit by 1993 (of approximately $34,500). See Exhibit 2. After 1993, as long as your company continues to carry out its new marketing strategy, you should gain some larger clientele and the profits should continue to rise. If you can secure even 1 large distributor, your revenues should rise by at least $500,000. Securing only one large distributor would give you potential revenues of $604,500 in year 2. See Exhibit 2.
Unfortunately, because your company has no real tangible assets, it can only be sold for a fraction of what you have invested into it. The business would be sold for a multiple of the service earnings from your current customer base. Considering the current service revenues of $10,000 per month, your company will not be sold for very much. My guess is that the most you can sell your company for is 80% of the current yearly revenues. This would work out to approximately ($120,000*0.8) $96,000.
Because it takes so long to get large distributors to finalize a decision, you should focus first on medium distributors, and then on the larger ones. This would give you income until deals with the larger distributors were sealed.
The system analyst should be hired immediately so he/she can be ready for the two new installations coming up in the fall. They will need all the time they can get learning the software, and once they know enough about it they can install SWO software onto your computers and train your staff in this area. The more educated your employees are about your software, the more they can assist potential and existing customers.
The receptionist should also be hired immediately so they can start entering the receivables and try to collect some unpaid debts. This will also give them time to learn the job before it starts getting busy. You should install the SWO software onto your computer systems right away so the new employees only have one system to learn. This would be more economical than training them on the old system and then retraining them on the SWO software.
The marketing representative should be fully trained right away. This person will have to be able to know the ropes of the SWO Service software in and out so he will be able to follow up on sales and letters. If no follow up is done, all the other marketing schemes will be a waste of both time and resources. For SWO to start targeting medium and large distributors, you will need excellent, speedy customer service. These companies have many other options and if they are not satisfied they will leave your company at the drop of a hat. SWO has a good product and because your product is altered for each customer, you may as well go after the more profitable companies who can afford to pay for these alterations, instead of keeping your prices low so that the small distributors can afford the product.
I believe that with a new marketing strategy your company will prosper. In order to make this happen though, you will need to target medium and large distributors. If you can land just one large distributor, this client will probably cover all your expenses for the year. Large distributors are prepared to pay at least $500,000 for these software programs, as long as you have the service to back them up. Each and every employee of SWO Services should be retrained on SWO software, and should know the goals of the company and the needs of the clients.
If you do not want to put the effort into a new marketing strategy, you should sell the business and get out while you can. If you do nothing, the company will not survive and you will need to continue to put your own finances into the business. If you find that within a year you are not making any new sales, or are only selling to small distributors, I would have to recommend you sell the business. With a new marketing effort, your clientele should increase and the business should be worth more by the time you decide to sell it.