Rebuilding Sales After Deep Discounts
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Editor's note: Small-Business Comebacks is a series about resilient entrepreneurs and their strategies for rebounding from the recession.
It was Valentine's Day weekend in 2009, and Nick Uresin was heartbroken. Tuccini Corp., the online fragrance retailer that he'd spent four years establishing, was now bleeding badly, having closed out 2008 with a $50,000 loss.
Only six months before, Uresin was giddy with growth prospects. He had secured credit lines totaling $500,000, built a website, and hired a warehouse assistant and managers in marketing and customer service. He also had a track record in ecommerce to bank on. Born and raised in Istanbul, Uresin had created and sold a multi-language Internet directory in 1997. He later developed a virtual store platform, an experience that led to his founding Tuccini.
But when the recession hit in late 2008, Uresin was forced to slash prices just to make a sale. Perfumes that typically generated a profit of $1 to $1.50 on every bottle were discounted so deeply, he continued to lose money.
A Low Point
By February, the company was about $500,000 in debt. "Sales actually grew, but our losses were widening per sale," says Uresin, 49.
That Friday before Valentine's Day, Uresin gathered his small team of five employees for an emergency meeting. The company was earning only $3 for every $1 spent on marketing – a return on investment that needed to more than double to keep the business afloat. Monthly sales were below $50,000, while overhead expenses hovered at $30,000 during the same period.
"We couldn't see a way out," he recalls.
Turning the Tables
Uresin sat down with his expenses that weekend. Line by line, he cut anything that wasn't essential to the business from unnecessary phone lines to office supplies. Monthly overhead expenses were cut nearly in half, to $18,000 from $30,000.
That Monday he asked the landlord of his New Hyde Park, N.Y.-based office space to cut his rent in half for six months. "I had absolutely no other way to make my numbers," he says. "I banked on the fact that they would rather take the cut than lose a good relationship." It worked. On rent alone, Uresin would save the company more than $65,000 per year.
Then, with the guidance of a marketing technology consultant, Uresin placed a greater focus on selling through Amazon.com to reach a broader customer base. In a fervent attempt to become a top seller for the online retail giant, Uresin gathered and tested pricing data three times daily for five months to determine how the frequency of price adjustments -- and the timing of those changes -- affected sales. For example, he learned that adjusting product prices at 6 p.m. drew in more orders than at, say, 2 p.m.
"We could suddenly get the assistance of a lot of numbers telling us what was working and what was not working," he says. Using the data, he came up with formulas that led to creating a software program to track sales and automatically adjust prices. For the past four years, Uresin had also been developing another software system to monitor where orders were coming from. Combined, the two systems would help Tuccini greatly improve sales and purchasing. Monthly sales jumped from $50,000 in March to $80,000 in May. By the holidays, sales for the month December were up to $250,000.
By the end of 2009, annual sales reached $1.2 million with 12 employees -- and Tuccini secured a $300,000 angel investment. In 2010, the company more than doubled its annual sales to $3.3 million and paid off the $500,000 he had secured in credit. His company is now debt-free.
Building on that momentum and using the new software programs he developed, Uresin plans to expand this year with three new product lines: professional hair care products, watches, and licensed sports merchandise.
It wasn't until Uresin began to dissect every aspect of his business that the turnaround began. "When bad things happen, sit down and analyze. Don't look for a magic bullet," he says. First, Uresin came up with new ways to cut costs and negotiate expenses. Turning to sales, he learned to analyze purchasing patterns and focused on broadening his customer base, which in his case was through the mammoth online retailer, Amazon.com. In the process, he developed software systems that not only helped his business bounce back, but would also become the foundation for its future growth.