How to Get ProfitableNov 15, 2021
It’s what every business should strive for, yet they tend to be elusive for so many entrepreneurs.
Two of the most common questions asked by entrepreneurs are…
“How do I get profitable?”
“How do I improve my profit margins?”
The core of the answers to both these questions is pretty much the same. Before we get to that, it’s important to understand why profits are so important.
Profit is what allows you to develop & improve your products offerings, build a bigger team, and grow into new markets. In order to develop and scale (if this is the direction you want to take), your business must be profitable.
To ensure profitability, every entrepreneur should focus on the following 7 areas:
- Strategic Implications
- Understanding The Numbers
- Product Positioning
- Customers Support
- Marketing & Sales
- Streamlined Operations
Let’s dive in!
The common school of thought is that if you want to improve profit, you’ll want to focus on increasing your sales and reducing costs. As simple as that may sound, there are a lot of nuances to it.
Whether you are increasing sales or reducing costs, it is important to lay out a plan to implement this. Developing a “plan” is essentially devising a strategy. A common reaction that people have is that if they create and follow a plan or strategy, and it doesn’t work out, then they are left utterly confused because they believe that following the plan should have resulted in a guaranteed outcome.
Here’s some advice that you should add to your list of mantras:
“Strategies are approaches, not guarantees”.
When creating a strategy, you are essentially stating an approach to reach the desired end goal. The flaw of most strategies is that it doesn’t account for the second, third and fourth implications that may arise when executing the first strategy.
For example, if you are launching a new online digital course and you want to start building a following (people registering for your email list, joining your Facebook group, following you on social media and/or subscribing to your content), then maybe one of your strategies is creating a Podcast as a form of content marketing.
So, you put your time and effort behind building and producing a Podcast, but you may have not taken a deeper dive into the implications of this strategy…both positive and negative…such as:
- High Number of Downloads
- Large Following
- Sponsorship Opportunities
- New Revenue Streams
- Low Number of Downloads
- Too Much Time To Produce An Episode
- No Immediate Revenue
- Spending Money On Equipment
Looking at each of these factors can help you better plan your next steps so that you aren’t left in a situation where you are lost as that can be very costly.
To be profitable, it’s important to do these types of excercises. The “strategic implication” exercise is a core component in my consulting, coaching and online programs because it is one of the most important skills an entrepreneur should develop…which is building sound strategies.
Understanding The Numbers
Always know your numbers! Even if you aren’t financially “savvy”, it’s important to be on top of your financials…at least on a high level.
You don’t want to leave it up to your accountant or assistant to track how your business is doing financially. Until you are in a position to hire a CFO or in-house Bookkeeper, you will be responsible in managing your pricing, creating your budgets and overseeing your operational expenses.
Here’s how your numbers can help you in getting profitable:
If your business is making a profit, then it’s important to know your profit margin because it can very well tell you how your business is doing. Additionally, it’s important to compare your historical financials with your current ones to see if your business is doing better or not.
If your business isn’t making a profit, then it’s important to understand your revenue and cost figures. You should explore what is your average monthly loss and the historical trend of those losses.
Additionally, you should be mindful on how long your can sustain losses before having to close the doors. It’s vital to get a feel of what it will take to get your business to the “green”.
Let’s dive a little deeper on Revenue and Costs.
Your revenue figures will help you recognize the consistency of your sales. By taking a closer look, you may discover that your pricing needs to be changed, or that your sales are stronger during certain times in a year versus others.
If you begin seeing a decline in sales, then it may be a marketing issue, or a sales funnel problem or even a product quality issue.
Finally, when it comes to price…be sure to price your product or service with confidence. Too many entrepreneurs underprice themselves, and thereby leaving money on the table, which results in profitability issues!
Your costs figures will help you recognize your expenses and whether they are going haywire in a particular area.
For example, if marketing costs have skyrocketed, but your revenue numbers have decreased, this may signify that either your marketing messaging needs to be changed, or that you are targeting the wrong demographic or that your value proposition needs work.
Cutting costs are not always easy, but understanding your cost trends is vital to maintaining or achieving profitability.
How you position your product is integral to sales. Even most experienced entrepreneurs struggle with this concept.
Everything from what your product is, to its branding, to its quality to the messaging behind it helps position your product.
Let’s say you own a consulting practice, and someone asks you what you do…which of the following answers would the potential customer be more attracted to?
- I own a consulting practice that helps businesses with their strategy and operations
- I own a business strategy consulting practice exclusively helping companies and entrepreneurs go from 7 figures in revenue to 8 figures while setting long-term strategic initiatives and a sustainable operational foundation to save management time and expenses.
The second answer provides so much clarity in the product offering along with the desired outcome for most businesses. It’s important to set yourself apart in a way that any potential customer who comes across you immediately feels the value of your product offering.
Product positioning is vital when it comes to making the sale…and therefore, helping you achieve profitability.
The support you provide to your customers is the easiest way for continuous sales. It’s important to focus your lead generation and sales efforts on the most profitable customers. They are the ones who will help you generate high sales and high profits.
By consistently being there for these customers, their loyalty and advocacy will bring in more sales and new customers to your business. Many businesses offer loyalty rewards and retention programs precisely because they have recognized the value of repeat business from current customers.
In the online business world, there are two ways to sell more to your most profitable customers (as they account for 30% of e-commerce revenue):
Offer additional or premium products to your customers. A similar strategy is used in offline businesses as well. Think about fast food chains or coffee shops where the staff will offer to upsize your food and beverage.
Sell additional complementary or related products. For example, if you have a loyal following, you can offer affiliate sales to other programs or services that you know can also benefit your customer base. If they purchase through your affiliate link, you will receive a percentage of sales. In the offline world, a cross-sell example would be selling coffee beans to a customer who bought a coffeemaker.
Marketing & Sales
The most interesting concept that surprises me so much is this constant noise on how entrepreneurs don’t have to spend money on marketing and advertising. So many people are told that organic marketing is the way to go.
While I don’t disagree that every entrepreneur should have an organic marketing strategy, it’s still crucial to spend money on paid ads.
The caveat is creating the right marketing campaign, targeting the right customer segment and ensuring the messaging is honed in to increase conversion.
It’s no secret that marketing is an important element to becoming profitable, but it only works if a sale is made.
Having a clear-cut sales strategy, and sales funnel…that works…is imperative to getting profitable.
How you run your company is a key factor in whether your business can be profitable. Everything from your core functions to your strategic initiatives, to your day-to-day deliverables and the team/support you have surrounded yourself with is crucial to the bottom line.
It’s important to develop SOPs (Standard Operating Procedures), streamline operations (to reduce redundancy), implement automation (to remove manual work), and find the right help (so you aren’t left doing everything by yourself).
When it comes to hiring the right staff, you want to hire competent people who love what they do, and you want to treat them well. A well-treated and appreciated team member will become your best brand ambassador. Additionally, by empowering your team, delegating tasks become much easier when the team member is motivated and eventually will begin taking initiative without being asked to do any tasks.
As your business begins making money, what do you do with the increased cash-inflow?
Do you reinvest it back into your business?
Do you take a higher personal income?
Unsurprisingly, most entrepreneurs will increase their personal income, rather than reinvest it back into the business.
Understandably, the entrepreneur believes that they should reap the rewards of their hard work.
Unfortunately, one of the top reasons business not only lose profitability, but also fail, is because the entrepreneur increases their lifestyle expenses resulting in the business being cash-strapped and therefore struggling to operate.
In entrepreneurship, you need to be disciplined, especially early on. There will be a time when you can, and should, reap the benefits of your success.
However, when you are in growth mode, focusing on your business’s upward trajectory should be priority over a new house, car or expensive vacation.
Profitability isn’t a one-strategy initiative. There are many factors that need to be addressed to get profitable…and that’s why it’s not easy to attain it. There’s a reason why so many businesses fail.
If you want your business to succeed, you’ll need to commit to success. This means doing what it takes to achieve your goals, which will prevent you from making excuses during your journey.
The 7 areas laid out in this article are meant for you to plan and strategize around. Remember, business strategies aren’t a one-and-done thing. Your business needs to evolve and therefore strategies will constantly be tweaked, changed and removed.
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