Are you ready to make more money in your business? Do you need to make more money in your business? Either way, I have a strategy to share with you that is virtually guaranteed to put more money to your bottom line -- fast.
It's a strategy based on common sense. It's not difficult to understand. In fact, it's very logical.
And that's one big reason it's probably the most overlooked profit improvement strategy in business today.
The fact is that all of us (you, me, and everyone else) are creatures of habit, not logic. We get set in our ways. We get attached to what we are doing. We get caught up in our ego and our desire to be right.
But in order to put more of your revenue to your bottom line (which is where it belongs), you need to put those tendencies aside for a few days. Don't worry; you can always go back to your old ways after that.
Here is the concept at the core of how to crank up your profits over the next 30 days.
Stop doing things that lose money
Don't be fooled by the common sense, obvious nature of that statement. I have seen very intelligent, very experienced business people break this rule over and over again. I can't tell you how much time I spend in my consulting practice highlighting the seemingly obvious. Old habits die hard.
I worked with a client who put over $1 million dollars to the bottom line once he finally saw what was really going on in the business. Another client completely changed its marketing strategy when it finally understood that every dollar of revenue it was generating with that advertising cost the business about $1.10 to get. Bad, bad, bad.
One client was so attached to a specific strategy that was losing about $450,000 a year that it took almost six months of constant nagging before he finally did the right thing. He finally said "stop", and instantly, a huge cash flow drain on the company went away.
That's a fast way to increase your profits and improve your cash flow.
Let's look at an area of your business where you are probably doing things that are losing money.
Products and services that lose money
I am willing to bet you that every company on the planet has one or more products or services they are selling that lose money. I'm also willing to bet that they don't know it.
Why? The primary reason is the monthly financial statements are way too summarized to reveal the truth. You have to "peel the onion" to see what's really going on at the product or service level.
In fact, that's step one. We are going to look at gross profit by product or service and see what we find.
- Create a spreadsheet that has a column for every product or service you sell.
- Down the left side have a line for net sales, lines for each component of your cost of goods sold, and a line for gross profit.
- Now do some digging to fill in each line on the schedule for product or service. You will find out real quick that this takes a good bit of work. (That's one reason so few business owners know what their gross profit is by product or service.) Make sure that when you add up the columns you end up with numbers that agree to your income statement.
- Evaluate the gross profit for each product you sell and be prepared for a shock. You'll probably find a lot more of your products have a negative, or very small, gross profit than you thought.
You can take this one step further and list all the components of selling and marketing each of your products or services. List things like advertising, marketing, commissions, royalties, etc.
Your gross profit minus these selling related costs is your contribution margin.
Now take a deep breath and consider eliminating those products or services that are losing money. Take a look at how much money you could instantly put to the bottom line by calling a stop to those things that are losing money.
You could also consider raising the prices of those products significantly or some other fairly drastic change that creates big improvement. The key is not to get caught up in trying to save something just because you are attached to it or because you think "we really should be able to make money on that."