Finding more profit in your business
Is your business making the maximum profit on your products or services? Most business owners will unequivocally say, “I think so.” But, in most cases, this is not true.
Every company needs to find ways to make its business more profitable. Operating at breakeven or at a loss is not acceptable.
First, every business owner needs to understand where the profitability leverage is located inside their company. This is done by a thorough bottoms-up approach and understanding the:
- Current number of customers
- Revenue per customer
- Cost of goods or service provided
- Customer acquisition costs
- Product development costs
Here are some basic questions to ask yourself:
1. How does your business generate income? Look at the cash flow and income statements. Do you understand every number? Do you know which activities increase cash flow and which deplete it? Can you tell where the money is coming from and where it is going every month?
2. How does your business generate profit? Which parts of the business are profitable and which are not? How do profit margins vary? How is the cost of goods or services affected by the volume of sales? What does it cost to acquire a customer? What is the lifetime value of a customer?
3. What are your prices based on? How do your prices compare with what competitors charge for the same products or services? Are your prices or fees based on what you think customers will pay? Test your price points by raising prices, and then you’ll know who squawks or goes away.
4. How do you, the business owner, spend your time? Do you work on revenue-generating activities or have you become mired in administrative tasks? What do your other non-income generating staffers do with their time? How can you improve productivity?
5. What is the company’s customer retention rate? Are you losing customers as fast as you bring them in?
6. Are your accounts receivable current? Do you bill clients on time? Do you ask for payment if the bill is not paid within specified terms? Why do you still do business with customers who do not pay on time? If you don’t accept credit cards, set up a merchant account to expedite payments.
How have you made your business more profitable today?
His first book, You Need to Be A Little Crazy: The Truth about Starting and Growing Your Business , describes the ups and downs and emotional trials of running a business. Currently in its fourth reprint, it has been translated into Chinese, Russian, Korean and Thai. Moltz also authored Bounce! Failure, Resiliency and the Confidence to Achieve Your Next Great Success and B-A-M! Delivering Customer Service in a Self-Service World . His fourth book, Small Town Rules: How Small Business and Big Brands Can Prosper in a Connected Economy , will be published by Pearson in March 2012. For more information, visit www.barrymoltz.com