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The profitability of your business is one of the key metrics you use to determine the health and future success of your entrepreneurial enterprise.
I’ve been thinking about this topic more lately because most of my clients are re-examining their business models and tightening them up in order to be more focused and more efficient at delivering high quality services.
So when we look at your business profitability, and practical ways to improve it, the basic premise rests on being able to increase profits while reducing expenses/costs to deliver, and saving more of what you make, both in your business, and personally.
Most businesses focus only on increasing profits without controlling costs or saving- these types of businesses are ‘top-line’ focused- operating under the belief that sales can always outpace spending.
That is true, of course- until they don’t. These businesses are running very close to failing- just one bad month, and the business is close to failing.
As entrepreneurs, we’ve all experienced that month where business seems very slow, where the phone stops ringing, clients stop coming in- and we worry about whether we’ll ever get clients again. If you’ve had this experience, it’s likely that you are focusing most on top-line sales, and, perhaps, neglecting the other two components of reducing expenses and saving money.
As I’ve shared before, there are three main ways to increase business profits – get more customers, sell things to them at a higher pricepoint, and/or sell things to them more frequently than you are now.
But what about the other two parts of the profitability equation- creating efficiencies and increasing savings?
Let’s look at those here.
Creating efficiencies in service or product delivery rests on a few core ideas:
Repetition refers to the process of delivering that same service enough times, in a discrete period of time, so that it is profitable to deliver. This means developing profitable services, and continuing to offer them, even when you feel tired or bored. Tiredness or boredom, alone, are not good reasons to end lucrative income streams. If you are tired or bored offering a profitable service, find a way to deliver it differently. Train someone else to deliver it. Offer some of it online or through technology. Systematize the delivery- in short, do whatever you can to keep this cash generation aspect going with less effort.
Scale refers to the reduction in costs each time a service is offered. So, for example, let’s say that you invested in a new headset for coaching calls- an expensive one. If you use it only once a month, it will take a long time to return on this investment. But if you coach with it 10x a week, for instance, the net effective cost of your purchase reduces quickly. The more scale you have in your business, generally, the more you can reduce costs and increase efficiencies. The other aspect of scale refers to deeply using the resources and technology you have- and to reconsider investing or purchasing in services or products you won’t get much use from.
Specificity refers to the process of becoming known for something in particular – so it’s easy to be a ‘top of mind’ expert when someone needs that specialty.
When you offer the same services, in high enough volume, and with specific results- you are on your way to reducing your expenses and increasing your profit.
The final element of this increased profitability plan refers to saving more of your money. The goal here is to make saving money a key indicator of your business health, with the first goal to save at least three months of business operating expenses. Having this extra money in the bank will give you confidence, security, and peace of mind- all the things that money can’t buy, but which saving money can certainly help.
The overall health of our businesses is determined by how much we sell, how efficiently we deliver on what we have sold, and how much money we save as well.
So if you’ve only been focusing on the top-line sales, you can increase your business profitability by reducing expenses and saving more of your money, too!