Revenue Re-modelling: Covid 19 management for service sector SMEs

Covid 19 continues to decimate SMEs in Kenya with conservative estimates indicating mortality rate upwards of 80 percent. Government as well as other development partners have put in place interventions including tax breaks, direct funding among others to at least slow down the SME carnage to an acceptable level.

The rule of thumb for any serious business is to properly define a problem that potential customer or society is facing then design a solution or intervention in a manner that solves the problem profitably.

This principle is known as design thinking and I will use it to unpack the revenue challenge faced by SMEs which is manifesting as low sales due to few or no customers buying products and services due to covid 19 related restrictions. I’m cognizant that SMEs are facing a barrage of challenges but I would want to focus on revenue.

SMEs need to re-engineer their businesses in order to stay afloat given that the covid 19 pandemic and its effect is projected to persist medium to long term. Shifting to a new paradigm is not going to be a walk in the park but will require growth mentality on the part of entrepreneurs who may need to be on toes to deal with constantly and rapidly changing business variables not mentioning the traditional systemic challenges they are already facing.

I have put forth several proposals SMEs can utilize as part of their business re-engineering such as our covid 19 strategy tooklit that focuses on business consolidation through either mergers or eco system building and risk management through scenario building.

Current SME sector distribution according to Kenya National Bureau of Statistics is; wholesale-retail, Motor Vehicle-cycle repair, food and accommodation.

Most SMEs in these sectors currently use order or project based revenue model an instance where SMEs receive their income as and when a customer orders for product or service be it servicing a car or motor cycle, going on holiday, birthday or wedding among other examples; mostly which may be classified as non-essentials.

Majority of SMEs that are closing down may be suffering due to this revenue model leading to low or no sales. Some SMEs especially small and medium may have switched customer channels leveraging on ecommerce in varying degrees with varying success; the jury is out but majority as struggling.

To help in keep cashflow coming in SMEs in services sector such; motor vehicle-cycle repair, events management, hospitality (holiday accommodation) and some manufactures may need to explore subscription revenue model.

Subscription model allows the customer to pay over a period of time for your product or service in small amounts which is important due to low purchasing power due to covid 19 instead of paying one off in cash.  This model ensures that the SME has constant cashflow and if there is a critical number of customers the business can be able to serve them backed with sufficient working capital.

For example, a mechanic abiding by ministry of health, WHO as well guidelines put forth by the Ministry of Trade can get a list of repeat customers that they have served in the last one year who pay for labor and spare parts. They can estimate the number of times the customer comes and the average spend per visit. The amount is then annualized and the customer is requested to spread the cost per month with agreed upon scheduled visits. The same can apply for event planners for kids’ birthdays.

Shifting from order or project-based revenue model is not easy but may provide some businesses a lifeline during these unprecedented times.