High costs, interest rate hikes and load shedding have put a damper on business confidence in South Africa, but despite the doom and gloom, many local small businesses are thriving. So says Joshua Shimkin, Head of SME Growth & Marketing at Peach Payments, a payment gateway working with scores of successful local SMEs.
“In our experience working with SMEs, we’ve seen how making simple changes or taking new approaches can make a huge difference to their profitability,” he says. Shimkin highlights eight approaches that successful SMEs can use:
1. Optimise floor space
Floor space costs money, with rental, utilities and other costs to consider.
Shimkin says SMEs that limit costly space immediately boost profits. “For example, we have a merchant based in a 2m x 2m kiosk selling instant vouchers and processing his payments via a QR code. His costs are small compared to his peers, and his profits are impressive,” he says.
2. Offer subscription services
Shimkin says digital vouchers and recurring revenue through subscription services work well for local businesses – particularly those selling luxury and niche products or services. “Subscriptions are a natural extension to most businesses because they don’t have to increase their costs or change direction,” he comments.
“One example is subscription mystery boxes: we see subscription services being offered for everything from coffee, wine and whiskey, through to kids’ crafts and health products. These are getting more popular thanks to the rise of online ‘unboxing’ videos.
“It’s a great way of maximising existing inventory, and takes the successful ‘mystery grab bag’ concept from retail stores into the 21st century,” Shimkin adds.
3. Avoid cash
Cash comes at a cost and increases risk for businesses. Retailers accepting cash transactions must secure the cash, transport it to banks and ATMs, and lose work time while going to deposit money. Research puts the cost of handling cash at up to 15% of the value of the retail transaction.
Shimkin says: “Digital payments cost less and reduce the risk of theft and fraud. They’re also more convenient for both merchants and consumers.”
4. Limit inventory
Keeping a wide range of products is not always viable, unless choice is the business’s drawcard.
Shimkin says SME retailers can reduce costs and optimise space by knowing what sells best in their markets, and focusing on those products. “By buying more from selected suppliers, the retailer can also maximise their buying power and negotiate discounts,” he says.
5. Keep the lights on
With load shedding at Stage 6 and expected to worsen, planning for backup and alternative power is crucial, says Shimkin. “Businesses have figured out their own power solutions so they can stay open longer and keep stock fresh through outages,” he says.
6. Remarket to existing customers
The cost of acquiring new customers is higher than the cost of retaining existing customers. Existing customers are also more likely to spend more than new ones, largely because they trust the merchant.
Shimkin says SMEs should use the data they have to understand existing customers better, and overcome sticking points like abandoned shopping carts. “Businesses can address abandoned carts, for instance, by adding a small discount to the quote to incentivise the sale,” he says.
Additionally, having exceptional customer service retains important customers so make sure you respond timely to queries and regularly keep your customers informed about new products and services.
7. Focus on growth, including internationally
Shimkin notes that SMEs must stay focused on growth, no matter how small it may seem.
“South Africa’s GDP growth in 2023 is expected to be 0.1% by the International Monetary Fund and 0.2% by the South African Reserve Bank, so the minute you beat that, your business is already growing faster than the economy,” he says.
“Remember, 20% growth is achieved through +5% here, +7% there and +8% from something else – so focus on incremental growth rather than one big chunk of growth with a lot of risk and capital outlay behind it,” he suggests. Going global is not as difficult as it was some years ago, Shimkin says, particularly for online businesses.
“Once an SME is mature and optimised, adding international reach can give it a huge growth spurt. But it is important to find a good international logistics partner or dropshipping procurement and logistics partner,” he says.
8. Value good staff – and lead them well
Shimkin says businesses with happy staff simply do better: “Your staff are the ones with institutional knowledge and relationships with clients, so you don’t want to lose them,” he notes. Similarly, strong, motivated leaders are critical – particularly in uncertain times.
Shimkin says: “Help your staff to remain positive and see a future for your business. If you show EQ as a leader, you’re going to retain your people and they will help the business grow.”