Focus on Profits… To Grow Your Business in 2020
Editor’s Note: This article is part of a bigger series on supercharging the growth of your business. To start at the beginning click here – Nine Critical Strategies to Grow Your Business in 2020!
I’m going to break some eggs with this article…
If you want to grow your business, you need to FOCUS FIRST ON PROFITS.
Let me ask you a question… Why are you in business?
Why did you start your business, and why do you work hard to make it a success every single day?
Don’t be shy – you can say it…
You can be honest with me… and yourself. You started your business for MONEY!
Deep down inside, you’ll realize along with 100% of the other entrepreneurs out there… everyone starts a business with the hopes of making money! Everyone!
In all my years on this earth, I’ve never met a business owner who said to me… “You know, I hope my business makes me poor.”
People have lots of reasons for starting a business, but at the heart of it, everyone starts a business to make money.
Just to be clear, if you start a business for any other reason – you’ve started a charity. That’s a noble cause, but don’t be confused. A charity, and a business, are very different animals.
Businesses EXIST to make money for their owners. Pure and simple.
Don’t let anyone tell you otherwise.
So, it makes sense… If your ultimate goal is to make money, you need to focus on business profits.
Remember, profits are what the owners of the business put in their pocket at the end of the day. So if you OWN your business, above all else, you must become and stay profitable.
The alternative is business death.
I don’t know of a single business that survives long term without being profitable.
You can’t help yourself, your family, your employees, society, and the world as a whole if you’re losing money. You may have grand plans to change the world… make no mistake… It all starts with profits.
I know your next question… since profits are so important…
How do I Increase Profits?
That’s a great question… and one every business owner wrestles with almost every day.
I only know of three ways to increase profits.
- First, you can increase Revenue in your business.
- Second, you can reduce costs in your business.
- Third, you can spend less time in your business.
I know that the third one is a bit of a mind warp… but stick with me and we’ll get to it in a moment.
Let’s unpack each of these in a bit more detail.
4 Ways to Increase Revenue
If your focus is on increasing revenue, there are only four ways to do that.
- You can bring in more customers.
- You can sell them more stuff.
- You can sell them more frequently.
- Or, you can monetize them in other ways.
I know what you’re thinking: “Great… How do I do that!”
Well, let’s look at each one.
If you want more customers… that means more marketing and sales efforts. Right off the bat, I’d focus on marketing.
Answer some of these questions:
Am I getting the most leads for my marketing spend?
Maybe you can increase marketing in some areas, or spend more money on marketing that’s working particularly well. Maybe you need to fish with different bait – in other words change up your marketing message.
Have you tried a new offer, or tried new marketing avenues? If email isn’t working have you tried Text Message Marketing (Betwext.com is the best)? What about good old fashioned phone calls? I know businesses that are going back to direct mail – yes sending marketing messages through the US postal service!
Another thing to look at is how you screen and qualify customers. Let’s say you focus on improving the quality of leads your sales people talk to… you’ll immediately increase the number of deals your sales people do… that means more revenue… no other change needed.
But that’s not all… maybe you should focus on the commission structure for your sales people… might that drive more business.
Here’s another radical way to build revenue… change your pricing.
I know of one business that started off with a single product… it only cost $3 a month. The idea was they’d build the business on volume. When new owners came in, the first thing they did was raise prices to $7 then $9.99… a few months later, they raised prices again… this time to $19.99… then $24.95… Crazy right!
What changed with the product… nothing significant.
They simply started charging more for it, and a very strange thing happened… they started attracting a different quality of customer… new customers paid more, and used the system more.
What they discovered was by charging more they found a new, better customer!
But that’s not all. By raising prices, many of the high demand customers went away. Customer service volumes dropped… and customer complaints fell!
So if you haven’t tried raising prices yet… give it a go. (You can always cut prices later!)
Sell More Stuff
This is a no-brainer that many business owners overlook.
I know a supplement company that did this, and they saw their revenues jump significantly.
They offered a bottle of product for $39.95. It was a great value for what they sold… but they wanted to grow.
So they did something crazy…
They offered three bottles for $113.85. If you do the math, that’s a $2 discount per bottle… but their customer was now spending 185% more on every order.
Want to hear the funny part… the three-pack now outsells the individual bottles by two to one. But that’s not all. Their shipping costs are nearly identical for a three pack as a one pack… saving them over $5 per order… almost 83% the cost of the discount!
Not only did they skyrocket revenue… but they increased overall profits too!
But, don’t start thinking this is only good on products.
It works on services and software and every other type of business.
The other day we had our carpets cleaned… and the guy walked up to me and said, “You know, for an extra $50 I’ll steam clean your couches too.” With three big dogs in the house, how fast do you think we took him up on that offer.
He was already there… and aside from a few minutes of extra time and a minimal amount of product, he increased his revenue.
Ok, you get it… but I want to give one more example.
Look at the online software business. These SAAS companies (Software as a Service) are masters at upsell pricing. For a few dollars more you can get some additional services, support, advanced features… the options are endless.
That’s where the Bronze, Silver and Gold packages come from.
You’ll discover something interesting… most customers will pick the middle package. They don’t want to cheap out… but they also don’t want to splurge for the most expensive one… so that mid-tier package will be selected more frequently – increasing your revenue!
One SAAS company I work with added a new feature… well… it’s a stretch to call what they added a feature. They decided to offer a startup package for new customers.
When a new customer signs up, for an additional fee of $99, they can have customer support get the software set up and ready to go. The funny part, their customer service agents were already doing this for many customers. Now they have a new upsell to boost revenue… and customers love it!
A lot of people call this process upsells, downsells, cross sells… or packaging. Regardless of what you call it, the most famous example: “Do you want fries with that?”
Don’t ignore the power of this idea… it’s literally worth billions.
Here’s a few more ways to build up revenue…
Sell More Frequently
This is a great one for businesses like restaurants. It’s also perfect for businesses selling products that get used up.
The famed Italian coffee company Illy Increases revenue in a dead simple way…
Illy contacts customers a few weeks after delivery… They time the message to arrive JUST BEFORE the customer uses up the last of their coffee.
The text is simple… it just says they are probably low on coffee and asks if they want to reorder.
If the customer responds with “Yes” the company processes the request. Can you believe 6% of customers who get the text message reorder?
It doesn’t seem like much but if Illy is able to increase reorder rates by 6% that could translate into MILLIONS of dollars of increased revenue!
It’s not just coffee… I’ve seen this with Wine too.
We were in Napa sampling some great wines… and we had a few bottles shipped home.
You know what happened next. A few weeks later I get a phone call about a special release of wine. Then the Spring release… Then a few weeks later a call about the summer rose! This was followed by a call about the fall release… and of course we got a beautiful postcard about deadlines to order for Holiday gift giving.
The only thing they missed was calling a few weeks before my birthday to see if I wanted to buy more wine then too!
You get the point.
The final method to increasing revenue is one I’ve never heard talked about…
Generate Revenue in Other Ways
If you sell your customers something you have created some valuable data. Did you know you can generate revenue from that?
Here’s a secret.
Many magazines make money in a crazy way… they sell the contact information of their subscribers.
Think about it… if you publish a magazine about travel… who else would love to sell you stuff. Airlines, Hotels, travel agencies, Cruise lines, Travel insurance companies, Luggage companies, the list goes on and on.
So, they sell your information to other businesses… and generate revenue… at virtually zero cost.
They’re not the only ones.
You know those frequent shopper cards and apps the grocery stores offer you? I bet they sell that data to consumer products companies.
Credit card companies too.
Oh, and don’t forget the banks!
They all have learned how to generate revenue from your data. And you don’t even know it!
If you have data in your business… analyze it. Study it. It may have value to someone else… and they might be willing to pay you a big hunk of cash for it!
Ok, this is getting long… we went deep on building up your revenue… but that’s not the only way to increase profits… you can…
Reduce Costs In Many Ways.
Now this is a huge area of opportunity.
There are entire books on this subject… So I’m going to try and keep this short with a few real world ideas.
When I get involved in a new business, the first thing I do is look at their credit card statements… and their bank statements. All I’m looking at is the expenses… the money flowing out of the accounts.
Then I ask myself WHY?
Why is this expense needed… Is there a cheaper alternative… Or a better way?
In the software business I’m always finding monthly fees that rack up thousands of dollars a year. $19 here, and $39 there… every single month… often for software we no longer need or use.
Also don’t be afraid to challenge your employees.
I know one business where the IT guy casually mentioned they’d probably save some money by moving to amazon servers.
I talked to the business owner a few months later – they didn’t just save money – they cut their server bill by half – and improved service and uptime. This turned out to be a savings of over $10,000 a year!
TEN friggin grand!
Don’t forget to give your employee a bonus for saving you money like that!
How else can you save money?
Have a big contract with a service provider – look to renegotiate. Order products from a manufacturer, ask about volume discounts. Selling a physical product? Change up your packaging. Don’t forget to look at shipping costs.
As a business owner you also have an advantage…
Tax deductible expenses can be huge. I’m not a tax guy, so find a good one and talk to him often… but deducting things like travel, and vehicles, and retirement packages… Those should all be great ways to cut your tax bill.
Before we move onto the next topic, I want to share with you one BIG way to cut your costs… and this is controversial.
Fire Your Customers.
Yep – you read that right. Fire your customers. Look for customers that are a pain in the ass. The ones who call into customer service and bitch for hours on end. Those customers that complain every time prices go up by a nickel, or expect a major credit when something goes wrong.
Here at Betwext, we deploy this very strategy.
One day I was working beside our customer support rep and they received a very disturbing call. It was from a client who had a string of endless complaints.
They were upset about almost everything. They wanted us to build them special features, and change how our system operated.
They complained about our billing cycle and how we processed payment (which is very clearly explained). When this customer realized we were not going to just modify our world for them… they started swearing at our customer service rep. Shockingly, my customer service rep kept his cool.
But I was mad as hell.
I immediately jumped on the phone and told this customer in no uncertain terms he was no longer our customer.
We refunded him every penny he spent with us… and banned him for life.
It was only after this interaction I learned this wasn’t the first time we’d had a problem. Looking back I discovered we’d fielded dozens of support tickets over email… and spent hours of support time on the phone trying to help this ONE CUSTOMER.
And to boot, this wasn’t the first time he’d verbally abused our staff.
Immediately we implemented a zero tolerance for jerks.
Then something funny happened… morale improved in customer support. No big shock.
But then, we purged a few more bad actors, and our customer service workload eased up… we responded to questions and problems more quickly and discovered our support team was more efficient. That meant they could help out on other tasks – like marketing!
When we purged the jerks, we freed up a huge amount of resources… and improved service for everyone else.
This is a long story to say don’t be afraid to prune customers who are overly demanding or under appreciative of you and your products and services. In the end it will make you a better company… and make you more profitable.
Alright we’ve covered a lot.
We’ve focused on improving profits by increasing revenue… and the 4 ways to do that.
Plus we discussed cutting costs. I gave you a simple method for finding those hidden expenses… plus a few ideas on how to reduce expenses overall… including asking employees for help, and not being afraid to prune bad customers.
This leaves us with the third and final way to increase profit…
Spend LESS Time Working on your Business.
How does this increase profits?
Let’s wrap our heads around a big idea… money is the same thing as time.
I’m a big believer in this fact… MONEY is the same as TIME.
For example, you don’t want to mow your lawn… so you pay someone to do it for you. You trade 2 hours of work, for a fist full of dollars.
I have house cleaners for the same reason…
This is also how I think about profits from my business. Remember I own multiple businesses. Some take more time than others to run.
So let me ask you… which business is more profitable for me… Business A that sends me $1,000 a month… but I have to work 20 hours a week. OR Business B that sends me $1,000 a month, but the hardest work I do is cashing the check.
Technically, both businesses give me the same profits.
But in reality, one business is much more profitable than the other.
So, let’s apply this to your business. One of the best ways to improve your profits is to get someone else to do all the work.
Don’t think you can do it… I call B.S.
Do you know who Christopher Kempczinski is? He’s the CEO of McDonalds. Do you think he knows how to make a hamburger… you bet he does. But how often do you see him man the grill at McDonalds?
Let me give you a hint – Unless it’s a photo op – NEVER.
The CEO of McDonalds could man the grill, but there’s a reason he doesn’t… it’s because his talents are better served elsewhere.
As a business owner, no matter how hard it seems, you need to act the same way. No you might not be able to get out from under all the work right away… but you need to work yourself out of a job.
The best way to grow your profits exponentially, is to not do the day to day work on your business.
This is the holy grail of business ownership… and something every business owner should be striving for.
Ok, I’ve blathered on long enough…
Why you NEED to Focus on Profits
Today we spent a bunch of time talking about profits… and why profits should be the number one focus of every business owner.
We talked about the three ways to increase your profits…
- Growing revenue,
- Cutting costs, and
- Eliminating your time in the business.
I tossed out some crazy ideas like:
- Uncovering new revenue opportunities with data
- Why firing a customer can be a good thing, and,
- How the same profit from different businesses can have different values.
All that’s left is for you to spend some time with your business, and look to see how you can increase your profit levels. Remember every penny of profit you save is another penny in your own pocket!
I hope you found today’s article very helpful.
If you implemented a strategy here to grow your profits… shoot me an email and let me know. I’d love to hear from other business owners about how they improved their business.
And remember… if you want to try text message marketing… look no further than Betwext.com. Like the example I used above, just sending a message or two at the right time could significantly increase your revenue… with very little work.
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