Many education providers, even those who’ve already taken the plunge into self-employment, view what they do as a means of earning an income, rather than as a business. But if you treat your venture as a business from the start, and run it according to good business principles – careful financial management, good processes, targeted marketing and injections of capital now and again to grow it or take advantage of opportunities – then you will be successful.
A business venture is like anything else in life: your children, plants, pets or friends. It has to be fed and watered and given regular attention to keep it healthy and prevent it from getting run down.
So if you are yet to set up, where do you start? And if your business is already established, are there things you could be doing to improve it?
Registering a business name
If you’re going to be using your own name – for example Amanda Smith, or even AM Smith – then you won’t have to register a business name. But if you choose any other name, even one that incorporates your initials, such as AMS Design, then you will have to register it. This is partly to protect the public so that they can find out who’s behind the name. But it also ensures that no two businesses are operating under the same banner.
Choosing a business structure
Businesses are generally structured in one of three ways: as sole traders, partnerships or companies. Most home-based businesses operate as sole proprietors or traders. A sole trader is taxed at a personal rate. The advantages are that it’s the simplest way to conduct a business, there are no forms to be filled out, no associated costs, and you have complete control over your business and what you earn. The disadvantages are that you as the owner will be held fully liable should anything go wrong, although you can cover risk through insurance. It’s also harder to raise capital and the business comes to a grinding halt when you stop working at it. Many home-based businesses operate as sole traders for a number of years and then change the structure to a company if the business needs an injection of capital or if risks grow.
Costing your work
How much am I worth? This is undoubtedly one of the more difficult hurdles you will have to overcome in starting a home-based business. Initially you may be tempted to sell your service or product for less than it’s worth. You’ll do it simply to get the business. And maybe deep down you may not really believe that anyone would want what you’re trying to sell. Rest assured, you’re not alone here. Confidence in your abilities is needed in spades by anyone starting out on their own.
But if you don’t price your service or product correctly, once you’ve got over that early excitement of someone wanting to buy your offer, you will eventually start to feel resentful about how little return you’re receiving for your efforts. If you resent what you are doing, you will not be able to sustain interest.
So you've got to feel you're making what you deserve. Unfortunately even this is open to interpretation and has to be approached with a fair amount of flexibility. The reality is that pricing depends on what you offer and what your client wants.
It’s like the driver of the pick-up truck who rapped at the door of the farmhouse and asked the farmer: 'How much is that old bull out there on the road worth to you?'. The farmer replied with a question of his own. 'It depends,' he said. 'Are you the tax assessor, do you want to buy him, or did you run over him with your truck?'
Not only do you have to be flexible about pricing in general, but every job you do will be different. If you’re working for a large corporation or institution, you can price your products or services higher than if you’re working for small to medium businesses. Certain sectors pay more than others. The finance sector, for instance, pays better than the travel and tourism sector. What suburb and city you live and operate in may also influence rates. The Sydney market can stand higher rates than the Brisbane market. So if you’re Brisbane-based and doing a job for a company in Sydney, you can probably afford to pitch your costs a little higher than you normally would for Brisbane clients.
Keeping all this in mind, there are a number of ways to price a product or service:
- Market pricing is where you add a percentage to the cost of the product;
- Target pricing is where you set your price at a level that’ll give you a specified target rate of return on your total investment; or
- Going-Rate pricing is where you decide what price to charge according to what others in similar businesses or industries are charging.
Financial management
Asking most home-based operators to get interested in accounting and tax is a bit like asking chickens to vote for Colonel Saunders. But unfortunately it is an extremely important part of running an enterprise, and the more experienced you become the more you'll realise this. There are some good accounting software packages on the market that will help you run your business efficiently. Many of the companies that put out these packages supply directories of people who will come to your home and give you training.
One of the big advantages of working from home is that you can write off a portion of your bills for electricity, heating, telephone and your car (if you use your car to generate income). Even if your accountant is providing a full accounting service, you must understand the basis of the tax system and the significance of the information it provides. The Australian Tax office (www.ato.com.au) has an excellent guide for small business. It’s written in plain English and easy to follow. To find it, go to the ATO site, click on Businesses in the A-Z topic index and then find Operating a business in the left-hand menu bar.
Marketing your services
Obviously if you have a small, home-based business, you’re not going to lash out dollars that you don’t have to advertise in newspapers; certainly not in the early years. But there are some tried and tested marketing strategies that you need to follow to be successful.
- Positioning
The first is positioning. In other words, you need to ask yourself: How do I want my products and services to be seen by my customers and clients? What kind of messages do I want them to receive?
The way in which you present yourself to the world will tell your customers a lot about the ‘personality’ of your product and the beliefs and values it encapsulates. An advertising executive once explained this by pointing out that John Howard would probably never be seen wearing a back-to-front baseball cap. Nor would we probably ever bump into Ray Martin in a singlet. And the chances of Dawn Fraser wearing a headscarf tied under her chin like the Queen are about as remote as Tim Fisher wearing a tweed cap instead of his akubra. That’s not because they don’t own these items of clothing, but simply because what we wear says a lot about who we are, what we believe in and how we wish to be judged by the world.
If that is true of people, it’s true of companies, too. What’s more, when that message is presented the same way, each and every day, it becomes a powerful tool in building a brand or identity to which people can easily relate. You only have to think about MacDonald’s all-encompassing golden arches, Nike’s racy “swoosh” or Coca Cola’s logo to understand how powerful the consistent use of identity can be in building a brand.
So how does all of this relate to your attempts to earn money from home? Well, say you decided to make and bottle jam. If you handwrote labels in a beautiful italic script and capped traditionally-shaped bottles with a square of gingham material you would be selling not only jam, but nostalgia, old-fashioned values, down-to-earth goodness and so on. If you took the same jam and put it in an unusually shaped bottle and tied a funky label to it you’d be selling difference, zaniness, contemporary living.
- Identifying your advantage
You now need to decide what your advantage or point of difference is and write a positioning statement. Even if you decide against using this statement on your business stationery or advertising material, it is important for your marketing plans to clearly understand how you are differentiating your business from your competitors. Australia has a small economy and most sectors are competitive. So you have to have a clear advantage. You’ve got to be bigger and fresher (like Woolworths), cheaper (like Franklins) hotter (like Quicksilver, Mambo or Nike) or easier - in other words, more convenient, like McDonald’s. And if identifying your point of difference and marketing your advantage is important for big businesses, it’s even more important for small businesses.
So write down how your customers are going to benefit from using your product or service. Is your offer more reliable? Are you offering more experience? Greater choice? Better value for money? More flexibility? Finer quality? Always keep in mind what your potential customers will see as a benefit. What has your research told you? Will they be driven by service or price or convenience?
Pick the strongest of these benefits, and write a positioning statement that encapsulates this key benefit and can be instantly communicated. As a guide, look at what the major companies do: Telstra - Making life easier; Medibank Private – feel better now; Toyota – Oh what a feeling! Optus – the power of 'Yes'.
- Deciding who your market is
Your next step is decide who your market is. You cannot be everything to all people. You need to narrow your focus to a specific target group and direct your product (and its implied message) to the right audience. So ask yourself: who is buying from you? Are they old or young, male or female?
- Finding customers
It would be fantastic if this article could tell you an easy and magical way of building a customer base. The reality is that building a customer base involves no rocket science, just plain hard slog. I once asked the managing director of a large established financial-services company how it got customers in the early days. His answer was surprising, because it was no different from any business I've come across, large or small. 'We simply sent letters to people we found in the yellow pages. We followed them up and built up a relationship over time – basically whether they liked it or not. We just kept knocking on doors, coming back all the time. . . .would you like to know what our products are?'
Cold-calling, whether by letter, telephone or face-to-face is not easy. Very few recipients of your call or visit will be interested in what you have to offer first time off. And don't expect a reply by return mail to your letter. The key to cold-calling is follow-up – again and again. Remember that most prospects will say 'no' four to five times before they say 'yes'. The problem is that most people – around 95% - give up after the first no. So don't let yourself be put off.
In addition to being persistent, try also thinking about your product or service from your customer's point of view, rather than from your own viewpoint. Where would your customers access your product or service? What would be the trigger that would get them to commit to a sale? Is there a time of year that’s better than others, or is there an outlet that perhaps you haven't thought about before? Let's go back to the example of the home-made jam. Maybe you've only been selling your jam at markets, fairs and school fetes. Well, how about approaching a gourmet gift-basket business and asking them whether they would be interested including in some wonderful home-made jam?
- Pooling resources
Another useful strategy to find customers is to pool your resources with others who are offering a complementary service. So think about partnering with other home-based people to extend your range of products, services and solutions. In this way you not only meet the needs of a diverse range of customers, but you also grow your own customer base. Say, for instance you have a dog-walking business. Get hold of someone who runs a mobile-dogwash service and offer to recommend the service if he or she does the same for you. Or offer your services in a joint brochure so that you can share marketing costs.
You don’t necessarily need to limit your partnering to a small concern like yourself. For instance, if you were baking cakes for specialist events, you could contact a party store and ask them to refer customers to you. If you hire out a limousine, you could contact florists and bridal shops. If you take passengers cruising on your yacht, hotels, or event organisers or tour companies would all be potential sources of business.
Communicating with customers
Many home-based enterprises take a scattergun approach to communication. Print a flier or brochure, shove it in as many postboxes or envelopes as you can and hope that somewhere out there you'll hit the target.
But to be really effective you need to take a strategic approach to communication.
One thing that most businesses – large and small, home-based or otherwise, have in common is that they concentrate on what they have to tell their customers – instead of what their customers want to hear. Which, of course, is why so much marketing material fails to get through.
So never forget when you are planning or writing your communication material, TO PUT YOURSELF IN YOUR CUSTOMERS' SHOES.
Another distinction that's useful to understand when talking about communicating with customers is the difference between sales promotion, public relations and advertising. A friend who works in the advertising industry once told me to think about the difference between sales promotion, advertising and public relations in this way: If when a boy meets a girl he tells her how much she means to him, that’s sales promotion. If instead, he impresses on her how wonderful he is, that’s advertising. But if the girl agrees to go out with him because she’s heard from others how great he is, that’s public relations.
Essentially, the difference between the public-relations message and the advertising message is that when it is delivered by an objective third party such as a broadcaster or a journalist it is delivered more persuasively. No less an advertising authority than David Ogilivie recognised this when he said: 'Roughly six times as many people read the average article as read the average advertisement. Very few advertisements are read by more than one reader in twenty. I conclude that editors communicate better than admen.'
Whether you decide to communicate with your customers via a letter through the mail, through an ad in the local shopping centre, through a newsletter or through a story in the local paper, think strategically.
That's what Lizzy Gardiner, the Australian clothes designer, was doing when she appeared on stage at the Academy Awards in 1995. Gardiner, who won an Oscar for costume design for Priscilla Queen of the Desert was looking for a way to make the worldwide audience remember an unknown designer from Downunder. 'I was looking for an American symbol,' she said. 'A Coca-Cola bottle or a Mickey Mouse would have been ridiculous, doing anything with the American flag would have been insulting, and Cadillac hub caps were just too uncomfortable.'
In a stroke of true inventiveness, Gardiner accepted the prized Oscar in a dazzling gold evening dress - made of American Express credit cards.
By taking a strategic approach to communication, by using all the weapons, tools and terrain to the best effect, you will be able to get your message out and achieve your aims. To further extend the military analogy, Admiral Nelson, who sank Napoleon’s first fleet, followed four simple rules that have some application to strategic communication:
Sail in when least expected
Concentrate your fire
Sustain the attack until the enemy line breaks
Pursue!
Giving clients what they want
Finally, what do clients want from people running a business from home? Firstly, they want delivery of services on time and within budget. They want the immediacy and responsiveness that someone small can provide. Many clients will use you not because they can’t do the job but because of the pressures on their time. They need to know that once they’ve put the call through to you they don’t have to worry because they know you are reliable and will get the job done on time.
Secondly, they need to know that you know your stuff. If you want to run a business from home decide what market you are going to service and then equip yourself to ensure you can service it efficiently.
A third factor that all of you may have to cope with if you want to earn money from home is technology. Today a product can be invented, produced, packaged, marketed and become obsolete in the course of a year. This, of course, puts a huge demand on those of you working outside organisations that are expected to keep up with technological advances. And while the mere thought of it can be daunting when you first set up at home, it's surprising how you grow to meet demand.
The fourth thing clients are looking for is original ideas. When you’re small and out there on your own it's easy to feel inhibited and play safe. But it’s the ability to create products, dream up new services and present facts and ideas as nobody has before that will ensure you make your mark. So be bold and creative. Have confidence in yourself and your ideas.
My final piece of advice for those who want to earn money from home is to be realistic and honest with yourself. What are your strengths and weaknesses? Why are you doing it? What do you want out of it? The importance of a business plan cannot be overstated. Do one and regularly update it. It’ll not only serve as a compass, but can be inspirational reading later on when you look back and read your early plans and see how far you’ve come.
Good luck!
Derryn Heilbuth is Managing Director of Businesswriters, a corporate publishing and communications company, which started life as a home-based business and now employs a team of people servicing some of Australia’s largest companies. Her book, Earning Money from Home, published by Choice Publications, is available by visiting www.businesswriters.com.au and clicking on the book’s cover.
