April Client Bulletin

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April 15

 – Individual income tax returns for 2024 are due

 – First quarter 2025 estimated tax payments are due

In this months newsletter, find a list of questions to ensure you’re prepared for the April 15th filing deadline. You’ll also find tips on shopping for items based on quality or affordability and some customer retention metrics to consider. 

It’s Tax Day!

Here are some last-minute details and tips

With the individual tax-filing deadline on Tuesday, April 15th, if you have not already done so, now is the time to complete all filing arrangements and payments.

While this information is provided in our filing instructions, it makes sense to provide this information to everyone, whether you have filed or not. If you have not already done so, ask yourself these questions:

  1. Did you sign your e-file authorization form? IRS Form 8879 needs to be signed before your taxes can be e-filed. If filing jointly, your spouse needs to sign as well. If you haven’t already, please return the signed form ASAP to ensure that your taxes can be e-filed on time. But don’t sign it before reviewing the tax return. Remember, this signature means you agree with the accuracy of the tax return.
  2. Do you need more time to file? If you are not ready to file your taxes before the April 15th deadline, you can file for a six-month extension. Be aware that it is only an extension of time to file — not an extension of time to pay taxes you owe. You still need to pay all taxes by April 15th!
  3. Do you owe money? If yes, make your tax payment now! The IRS has several payment options. If mailing a payment, include Form 1040-V and ensure the mail is postmarked on or before April 15th. Sending the payment by certified mail will ensure you have proof of a timely payment. Late payments, even by one day, are subject to IRS penalties and interest.
  4. Do you need to deposit funds into your IRA or HSA? If you claim an IRA or HSA contribution on your tax return for the 2024 tax year, all deposits to those accounts need to be made by April 15th. Once completed, save proof of the contribution with your 2024 tax files.
  5. Do you need to make an estimated tax payment? The first quarter estimated tax payment for 2025 is also due by April 15th. If you owe taxes for 2024, making 2025 estimated payments might make sense for you. A quick way to calculate a first quarter payment is to divide the taxes you paid in 2024 by four, then adjust this number for any paycheck withholdings. Send your payment along with Form 1040-ES to the IRS by April 15th. Then schedule a tax-planning meeting to determine the best approach for the remainder of the year.

If you do miss a deadline, file your return and pay the taxes as soon as you can to stop the accruing of interest and penalties.

Shopping for Quality: When the Cheapest Option Isn’t Always the Best Option

Many products made today are designed to be affordable and when this happens the quality and durability of the item often suffers. While saving money in the short-term may be appealing, there are times when it makes sense to pay a bit more for a higher quality item. Here are some things to consider.

Background

Many companies prioritize speed and cost-efficiency over durability. Clothing brands, for example, create multiple collections every year. They leverage the latest trends to get it online or to a showroom, often by using cheaper materials and shortcuts in manufacturing to keep costs low. This is often called designed obsolescence. Here are some examples:

  • Clothing. Choose $10 shirt that looks tatty after 6 months of consistent wearing or buy a $40 shirt that lasts for many years.
  • Electronics. Choose a cheaper TV or computer, that will need updating our pay for higher-quality items could last between 3 and 5 years.
  • Furniture. Particleboard furniture can break or warp very quickly, while solid wood furniture can last for decades with proper care.

When to Prioritize Quality

Here are several situations where you may want to prioritize quality over the least expensive option:

  • Products that affect your health and safety. Medicine, baby products, helmets, tires…certain products such as these may pose a risk to your health and safety if defective.
  • Items you use every day. For things you use frequently, such as shoes, mattresses, appliances, or electronics, quality products tend to provide better comfort and durability.
  • Tools and equipment. Poor quality can hinder your performance if you use tools for your job or hobbies.
  • Experiences and services. Whether it’s going on vacation or choosing a contractor, going with the cheapest option may lead to more headaches.
  • Items with long-term value. You may want some purchases to last a lifetime, or to even be passed down to your kids or grandkids.

Tips for Finding High-Quality Items That Last

  • Research materials and craftsmanship. High-quality items are often made from superior materials and crafted with care. Before you buy, take the time to learn about what makes a product durable.
  • Focus on timeless designs. A navy blue blazer or standard blue jeans will probably never go out of style. The same is true with a lawnmower that has a quality engine driving it. A great sofa or classically designed table with a well constructed frame will be more expensive, but will last much longer and not go out of style.
  • Shop for brands that have a reputation for quality. Certain brands have built their reputations on producing durable, high-quality products.
  • Do research. Non-profit sources like Consumer Reports often have objective ratings of quality items we use every day. In addition, there are crowd sourced ratings of many products and services. The key is to try to find the best quality for the best price. It can be done with a little homework on you part.

Customer Retention Metrics You Need to Know

Your business’s ability to retain customers is one of the most important components to sustained growth and profitability. Here are the three retention metrics useful for every business owner.

  • Retention rate. Most customer retention is measured over a set period of time, typically one year. To determine your rate, take a look at the number of customers who ordered from you last year. Then see what percent of them order at least once from you over the current year. If you measure this percent each month you can see how your retention builds throughout the year. The key is to compare your retention rate to the same period in prior months and years. A rising rate means you are on the right track; a shrinking rate means you need to make changes. According to the Harvard Business Review, a 5% increase in your retention rate increases profits by 25% to 95%!
    • Part 1 – Cut’em Nail Salon Example: Cut’em Nail Salon starts the year with 700 active clients. They add 300 new customers during the year, and their active client base is 800 at the end of the year. On the surface things look good, right? This increase of 100 clients is over 14%! But when you calculate the retention rate, it is 71.4% (800 clients minus 300 new clients means 500 of last year’s clients still use Cut’em. 500 divided by 700 equals 71.4%). What happened to the 200 customers that did not return? Cut’em doesn’t know if this is good or bad news, as it only makes sense when comparing it to the last few years’ retention performance.
  • Existing customer revenue percentage. Core customers almost always contribute the most to your sales. But how much? To figure out your returning customer revenue percentage, start with a list of revenue by customer for the last 12 months. Identify the returning customers and add up revenue attributed to them. Divide that number by your total revenue. Use this information to balance your spending between new customer acquisition and retaining your core customers. If you are like most businesses, you will realize there is tremendous value in spending more time and effort on retention, even when your business is full!
    • Part 2 – Cut’em Nail Salon Example: Assume the nail salon’s total revenue is $1 million and the revenue from the 500 returning clients is $900,000. In this case, the core customers represent 90% of the revenue but only 62.5% (500 divided by 800) of the customers!
  • Most valuable customers. Now identify which customers spend the most and buy the most often. Odds are, many of your top customers have similar characteristics. In the end, your goal is to keep these customers happy and get more just like them!
    • Part 3 – Cut’em Nail Salon Example: In the example above, the average revenue per client is $1,250 per client or over $100 per month ($1 million divided by 800 clients). If the top 20 clients represent $100,000 in revenue or $5,000 per client, you can quickly see how important they are!

The key take away is that sustained growth and profitability comes from the core customers you retain each year. And the best place to start is to calculate and understand your retention numbers and their trend.