I used to feel a bit embarrassed about making a profit when I first started my business. Then at an industry meeting, I met a coach who changed the way I thought about profit for ever.
He told me that…
“as a director of a company, it is your responsibility to make a profit”.
And he went on to say, “if you aren’t running a profitable business, then you aren’t doing your job”.
And he finished off with “one of the key reasons for having a business is to make a profit”. That was a great lesson for me, a rookie business owner. From that day forward, making my company successful and profitable became my goal.
I went on to build a company which had one of the highest profits margins in the industry. It became a valuable asset, and I sold it 15 years later for millions of dollars.
Here are 3 strategies I used to do it:
1. Always mind your profit margin
It’s not hard to get to know what the best profit margin is in your industry. Make a note of it and strive to beat it.
I had a service business. Over time I learnt that, if you are selling a service (your time), your profit margin should be about one-third of sales:
- One third goes to salary
- One third to expenses to make those sales
- One third to be retained as profit. All or part can be used as working capital or taken as drawings.
As soon as I learnt that, I started to monitor our profitability monthly. I always aimed for that magical 33% and it became the first number we looked at in our monthly reviews. If it wasn’t 33% (which we never did quite achieve), we planned to adjust underperforming areas of the business to improve our bottom line the following month.
2. Focus on repeat business
I soon learnt another good lesson. I learnt that the business cost of acquiring a new customer is 7 times more than re-servicing an existing customer.
We made it our mission in the business to nurture our most profitable customers. To find those, we looked for customers that:
- Accepted that our fees were fair and didn’t continually ask for discounts.
- Paid their bills on time, every time.
- Were big enough to require our services more than once a year.
We trained ourselves to listen to our customers very carefully. We also developed a set of questions to find out exactly what they wanted.
Then our goal was to provide them with exactly that. Near enough certainly wasn’t good enough.
We under-promised and over-delivered. We provided customers with ‘World Class Service’ so that they would come back to our business time and time again. And they did.
3. Would you like fries with that?
Selling more to the same customers is a good way to make bigger profits. We learnt to do that too.
My business was a highly-niched specialist recruitment company. Customers approached us to find a new permanent staff member for their team.
It sometimes took several weeks of searching to find the right fit for our customer’s existing team. While the search was underway, we offered our customer an experienced ‘temporary’ or ‘interim’ staff member. Someone who was available for work immediately and who could slot in and do an effective job, but who might not want that full-time position.
By offering that service, we were easing our customers’ workload while a new staff member was found. The win-win was that while we were doing that, we developed another stream of income for our business at the same time.
Remember the wise words of the business coach
“if you aren’t running a profitable business, then you aren’t doing your job”
As small business owners and directors, it’s our job to make our business into a valuable asset to leave as a legacy or to sell to fund your retirement. If another business in your industry is making good profits then it is possible. It’s just a matter of how.
What else could you cost-effectively offer your existing customer base to provide additional services to your customer and improve your bottom line?
To your business success!