MONEY MAKERS: How to make a profit in business (Part A)
Published on 13 August 2020
At the end of the day, businesses need more money coming in than money going out. If you are not making a profit, you go out of business.
It is critical you stay solvent in respect to your financials and keep an eye on those to make sure that you are not going backwards.
The other worst-case scenarios linked with not making profit in your business are things like depression, anxiety, and stress, where people just fall off the edge mentally.
Wearing many hats
Steve has developed a concept called the Eight Hats, that every single business wears (or should wear).
- Strategy Hat
This is looking at work division, your mission, your values and what your goals are.
If you have got goals in place for your marketing, sales, services and other business areas, you have a target to aim for from a strategic perspective.
Your vision is a picture of where your business is in the future.
One of the biggest errors people make in business is a lack of focus; if you have focus and you know where you want to get to, you can build the things around you to get you there.
- Marketing Hat
Marketing involves looking at generating enquiries. The delineation between marketing and sales is that marketing is just there to generate enquiries.
As soon as somebody touches your business, whether it's online, in person, or any other way, then that's when sales starts.
- Sales Hat
What happens is then at the time of sales. Somebody is hitting your business at a touch point.
You need best practice in place at that particular point to be able to convert them to a client.
- Service Hat
Service is about retention. There is always going to be clients who will leave. What you want to do is continually grow your customer base by providing exceptional customer service.
Unfortunately, a lot of businesses fail in this area. They think it doesn't matter how they treat somebody, they're just going to come back anyway, and that's not the case.
- Financial Hat
Financials are a record of your business decisions. If you had bought a car, that is a business decision that is going to impact on your business.
If you are going to put somebody on from a HR perspective, you are increasing your costs.
- IT Hat
Information technology is about being efficient and being effective at what you do. What can you do to increase productivity by implementing some form of technology?
- HR Hat
Human resources is all about people. If you get the wrong people in your business, it will break.
- Business Structure Hat
Administration is the glue that holds everything together, so the administration people are generally the ones talking to the rest of the business and its people on things such as policies and procedures to help improve business use and improve productivity.
More Profit Generating Ideas
The 5% rule is either to increase the areas you need to increase or reduce the areas that you need to reduce by 5%.
Ask yourself, can I increase my sales by 5%? That is an extremely achievable goal.
Go back to your 2019/2020 results and see how much money you could have made if you implemented the 5% rule in your business.
Increase your price
There are a number of ways to increase your revenue; the simplest way being to increase your price.
Do a trial for a month with the increased price and see whether the number of clients you are winning or losing, changes.
You must experiment. You must do tests. You need more data to make good decisions, and you cannot get the data without taking tiny, affordable risks.
Know your competition
When you are looking at prices, know what your competition are doing. Are they charging more or less than you?
You might be getting a lot of businesses as a result already of your low price, but is that generating a profit for you that you really want?
Ring around and do some shopping calls to your competitors to ask them what their pricing is, is it an hourly rate, or what is their product rate.
Do that research first before you increase your price. If you are already higher than your competitors, you do not want to go too high; It is a fine line.
Remember, sometimes you might want to be the most expensive product or service in the market.
Increase the average transaction dollar amount per customer
This is simply increasing the number of sales through bundling, packaging, upselling and cross-selling.
Think about the problems buying a specific item might create, and offer people those solutions as an upsell.
Train every single person on your team to do this. Every single person needs to know how to ask ‘would you also like this, or, would you like to take advantage of this?’
Test different marketing strategies
Many business owners have marketing ideas they are either too busy or too hesitant to execute.
Write down your top three marketing ideas and invest a little bit of money and run some special offers.
You usually know within the first 48 hours whether your marketing strategy is working or not. If it is not producing any new leads, stop.
Make time in your schedule every single week to think about marketing because that is the first step of increasing your number of customers.
Cost of goods sold
Negotiate with suppliers on the cost of the product or service being provided.
Negotiate freight via freight brokers who will find the best price for you for and an agent who is actually going to deliver the goods.
Buy in bulk and receive discounts.
Step back and have an objective look at what you actually want to achieve; whether it is achieving the 1%, or the 2%, or the 5%, or the 10% saving.
If you are going for 5% saving, start with a higher number and ask for a 10% reduction on that.
Play to your strengths such as being a longstanding, valued customer. If the supplier does not come to the party and you know that you can get the product somewhere else cheaper, then change.
Scrutinise every line in your chart of accounts for cost saving opportunities. Consider your Accountant's fees, for example. If you've been with the same accountant for a long time it might be worthwhile just to ask for a second price.
Find an advertising channel that works exceptionally well and drop some of the older ideas that are not generating you more clients.
The only way in which you can reduce your advertising costs is if you test and measure your advertising results.
If you're not testing and measuring your results, then there will be no way for you to know where your customers or your leads are coming from.
When you test new ideas and find something that really works in your market, you can spend more money on that idea and reduce your advertising in other ways. If you are onto a killer idea, you'll probably buy a lot more leads for a lot less money.
Look at the insurance rates on loans. You might consider consolidation or a change in supplier.
If you have got a credit card, try and find someone who charges cheaper interest.
Motor vehicle costs
Doing basic maintenance on your car such as keeping your tyres inflated to the right level can reduce your costs by 10%.
Negotiate rent at the time of renewal or at the time of going in.
Steve was paying $89 dollars a month on one mobile phone. He went back to his carrier and got it reduced to $49.
Little changes like that make a major difference; saving $40 a month is a 45% saving.
Look at energy audits and make sure your electricity usage and tariffs are correct.
If you reduce everything by a little bit of money, it adds up to a big saving at the end.
Saving $40 may not sound a lot per month, but when you add it up over a full year it equates to a couple hundred dollars you can invest in marketing.
Think about how your people, who are an actual cost to you, could generate an income within your organisation so that they're paying for themselves rather than somebody else doing it.
Have that money churning around and around so you can generate savings and invest it back into marketing.
Know your profitable clients. Vital information you need to know about your clients is readily available for free via the Bureau of Statistics.
This data can help you build your customer avatar or the ideal customer for your business.
One of the biggest mistakes you can make in business is to say my product and service is for everyone.
The more specific and narrow you can make your avatar, the easier it is to capture that customers’ attention.
When you capture their attention, that is when you can bring them to your business and that's when you can start the sales process. If you are not clear on who your ideal customer is, this is essential work you need to do.
This refers to the lifestyle, attitudes, interests and values of people that you're trying to target.
For example, if you were a uniform seller for sports organisations, you need to find people who are interested in buying your product and who are involved in sport. Where are those people? They're at football hubs, which is where you need to target.
You can be geographic to only a street, a suburb, a city, a region, state of Queensland, a country, specific countries like the Euro zone, or a continent like Asia.
You have got to be able to narrow that information down to precisely where the geographics are.
For example, if you were a Queensland business selling a piece of mining equipment that costs $200,000 and you have to charge $4 per kilometre to get it to Perth, no one is going to buy it in Perth; it is cost prohibitive.
Your area is Queensland or an area within Queensland. It is not Perth because the cost of actually getting it there are going to outweigh the benefits of the client who actually purchases from Queensland.
This is about the experiences with your brain. How do customers buy your product? Where does the purchase happen? What are their previous purchases? What is their awareness of the product range?
From a behavioural perspective, look at what problem you are solving and what desire you're filling. Reinforce that through education.
When you are building your customer avatar, consider the demographics, psychographics, geographics, and behavioural segmentation; know who your ideal customer is and market directly to them.
High turnover, high profit
Sell more of your high turnover, high profit items.
If you have a low turnover, high profit item the trick is to market more to make that your high profit, high turnover item which will increase your income.
Prioritise the products and services that have good profit margin and try to sell a lot of those.
Make it easier for your clients to buy from you
Your purchasing system may be so clunky it is so hard for customers to buy from you, they give up trying.
Make it easier for your clients to buy from you; there is always room for continuous improvement.
If you have not got the knowledge, you need to acquire it. You only know what you know, and you do not know what you don't know.
There are some things you don't know that you need to know to run a profitable business.
Continually improve and continue learning about the business, so you build that knowledge to take yourself forward.
Want to make even more money?
Steve still has plenty more profit generating tips to share, which will follow shortly in Part B of this Hub Live topic. Watch this space…
Steve Grant is a Business Coach at iHelp Business Coaching who resides and works in Rockhampton, Central Queensland.
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