Actions that Lead to Profits

The goal of every business is to make money or a profit.  For some reason profits seem to elude some businesses more than others.  They are working hard day in and day out, but they seem to just be spinning their wheels and not getting anywhere.  They are trapped in the American dream treadmill, moving faster and faster but going nowhere.

The reason they are working so hard and not seeing any fruits from their labor is that their actions are in the areas that do not lead to the profitability of the business.  We are busy, but we are spending our time with non-productive activities.

So what is a productive activity?  The definition is very simple.  An action that moves us toward making money is productive and an action that leads away from making money is non-productive.

In business we have to realize that “people working” and “making money” are now the same thing.  Once we understand this, we can now look at our business from a different perspective.  We now need to look at our profitability per activity.  So now we can start looking at a different set of metrics to measure how profitable a particular job or activity is in our business.

The financial measurements we now have to look at to see if we are making money are:

[1] Net Profit    [2] ROI – Return on Investment    [3] Cash Flow.

We need to determine our Profit KPI’s (key performance indicators) by determining profit per....

• Direct labor hour
• Team member
• Transaction or Job
• Customer
• Product or Service

The first area you should look at is gross profit per labor hour.  This will help you to determine what types of jobs you should focus on to increase your overall profits.  Let’s take a look at this example...

	Job A	Job B
Revenue	$3,900	$9,000
Material Costs	$2,250	$3,000
Labor Costs	$450	$2,500
Direct COGS	$2,700	$5,500
Gross Profits	$1,200	$3,500
Gross Profit Margins	30.8%	38.9%
# of Labor Hours	18	100
Gross Profit per Labor Hr.	$67.00	$35.00
Determine Labor Hr per month 10 Techs @40 hrs  (@90% compactly * 4.3 wks) 36 hrs per tech	1560/hrs	1560/hrs
Gross Profit per Month	$104,520	$54,640

In this example we are comparing 2 different types of jobs.  At first glance, Job B has a higher gross profit margin and seems to be more profitable.   However, when you further analyze the gross profit per labor hour, doing more of Job A type jobs can double the profitability of your business.

By understanding this, we can now direct our marketing to target more “A” type jobs.   Or, we can look at how we can be more efficient with Job B type jobs to reduce our labor hours per job.  Once we implement these 2 basic strategies we can begin to learn how to work smarter and not harder in our business.

Business Advice… Stop Discounting and Start Increasing Value!

Discounting if used properly can be an effective strategy to increase profitability and cash flow, but if not used properly it can cause serious consequences to the growth and profitability of your business.

Most of the time discounting is a gut reaction to a slowdown in business.  Businesses find it easier to discount the value of their product than to sell on value.

One of the biggest negative consequences of discounting is that we are training our clients to buy only on sale.  This can have a big affect on our bottom line.  I’m not really sure a business understands how much more they have to sell just to stay at that same profit level.

For Example if you have a…

30% margin
You discount your product or service 10%
You will have to sell 50% more to make the same amount of money.
Contrast that with…

If your margins are 30%
You increase your prices by 10%
You can sell 25% less and still make the same amount of money.
Now isn’t that interesting…

Discounting is an appropriate strategy if your inventory is high and you need cash to pay bills or if it’s a perishable item that you will have to throw away.  However instead of just discounting your product, use it as an incentive for your customers to purchase more.

Let’s assume you have a product that costs you $5.00 and you sell it for $10.00.  If you were to have a sale of 25% off, you would now be selling it for $7.50 and only making $2.50 instead of $5.00.

Instead of discounting the full price you can have a buy one get the 2nd item at ½ price.  Now you’ll at least be making the same $-profit if you sold 1 at full price.  Another option is a buy 3 get the 4th free.  You are in essence still providing a 25% discount but you are now making $10.00 profit per sale instead of just $5.00 if you sold just 1 item.

The advantage here is that you are moving more inventory and turning it back into cash.

When it comes to marketing, “perception is reality”.  If you have a 25% off sale you become labeled as a discounter.  If you have a buy 3 get the 4th for free sale, or buy 1 and get the 2nd item at ½ price, you now are perceived as a place where you get more for your money.  You are now distinguishing your business from your competition by providing adding value to your customers instead of being viewed as just another discounter.

6 Little Things that Make a Big Difference to the Value of Your Company

With the Sochi Olympic Games taking place this month, it is interesting to reflect back on some of the big events of the 2010 Olympic Games in Vancouver.

In the Men’s Downhill race at Whistler, for example, the winning time of 1:54:31 was posted by Didier Défago of Switzerland. The time among medalists was the closest in Olympic history, and while Mario Scheiber of Austria posted a time of 1:54:52 – just two tenths of a second slower than Défago – he finished out of the medals in fourth place.

In ski racing, one fifth of a second can be lost in the tiniest of miscalculations.  And when it comes to selling your business, markets can be equally cruel. Get everything right, and you can successfully sell your business for a premium. Misjudge a couple of minor details and a buyer can walk, leaving you with nothing.

Here is a list of six little details to get right before you put your business on the market:

1.    Find your lease. If you rent space, you may be required to notify your landlord if you intend to sell your company. Read through the fine print and ensure you’re not scrambling at the last minute to seek permission from your landlord to sell.

2.    Professionalize your books. Consider having audited financial statements prepared to give a buyer confidence in your bookkeeping.

3.    Stop using your company as an ATM.  Many business owners run trips and other perks through their business, but if you’re planning to sell, these treats will artificially depress your earnings, which will reduce the value of your company in the eyes of a buyer by much more than the value of the perks.

4.    Protect your gross margin. Oftentimes, when leading up to being listed for sale, companies grow by chasing low-margin business. You tell yourself you need top-line growth, but when an acquirer sees your growth has come at the expense of your gross margin, she will question your pricing authority and assume your journey to the bottom of the commoditization heap has begun.

5.     Include a "survivor clause".  If you’re lucky enough to have formal contracts with your customers, make sure your customer contracts include a “survivor clause” stipulating that the obligations of the contract “survive” the change of ownership of your company. That way, your customers can’t use the sale of your company to wiggle out of their commitments to your business. Have a lawyer paper the language to ensure it has teeth in your jurisdiction.

6.    Get your Sellability Score. Take 13 minutes to answer the Sellability questionnaire now. You’ll see how you performed on the eight key drivers of sellability and you can identify any gaps you need to fill before taking your business to market.

Like competing in the Olympics, selling a business can be an all-or-nothing affair. Get it right and you will walk away a winner. Fumble your preparation, and you could end up out of the medals.

How to Identify Profitable Jobs

The goal of every business is to make money or a profit.  For some reason profits seem to elude some businesses more than others.  

They are working hard day in and day out, but they seem to just be spinning their wheels and not getting anywhere.  They are trapped in the American dream treadmill, moving faster and faster but going nowhere.

The reason they are working so hard and not seeing any fruits from their labor is that their actions are in the areas that do not lead to the profitability of the business.  We are busy, but we are spending our time with non-productive activities.

So what is a productive activity?  The definition is very simple.  

An action that moves us toward making money is productive and an action that leads away from making money is non-productive.

In business we have to realize that “people working” and “making money” are now the same thing.  Once we understand this, we can now look at our business from a different perspective.  We now need to look at our profitability per activity.  So now we can start looking at a different set of metrics to measure how profitable a particular job or activity is in our business.

The financial measurements we now have to look at to see if we are making money are:

[1] Net Profit    [2] ROI – Return on Investment    [3] Cash Flow.

We need to determine our Profit KPI’s (key performance indicators) by determining profit per....

• Direct labor hour
• Team member
• Transaction or Job
• Customer
• Product or Service

The first area you should look at is gross profit per labor hour.  This will help you to determine what types of jobs you should focus on to increase your overall profits.  Let’s take a look at this example...

	Job A	Job B
Revenue	$3,900	$9,000
Material Costs	$2,250	$3,000
Labor Costs	$450	$2,500
Direct COGS	$2,700	$5,500
Gross Profits	$1,200	$3,500
Gross Profit Margins	30.8%	38.9%
# of Labor Hours	18	100
Gross Profit per Labor Hr.	$67.00	$35.00
Determine Labor Hr per month 10 Techs @40 hrs  (@90% compactly * 4.3 wks) 36 hrs per tech	1560/hrs	1560/hrs
Gross Profit per Month	$104,520	$54,640

In this example we are comparing 2 different types of jobs.  At first glance, Job B has a higher gross profit margin and seems to be more profitable.   However, when you further analyze the gross profit per labor hour, doing more of Job A type jobs can double the profitability of your business.

By understanding this, we can now direct our marketing to target more “A” type jobs.   Or, we can look at how we can be more efficient with Job B type jobs to reduce our labor hours per job.  Once we implement these 2 basic strategies we can begin to learn how to work smarter and not harder in our business.

Looking for more ideas to increase the value in your business to make it sellable one day?  

Take this quick 15 questionnaire to learn how valuable your business in right now and the 8 areas to work on to begin increase its value today! Go to...  www.actioncoachsellabilityscore.com