Do You Know What Drives Your Profit? (There Are 4 Drivers)



For profits, entrepreneurs must learn how to manage their financials and performance, which are difficult tasks. Savvy business owners know who their ideal clients or customers are.

Entrepreneurs realize financial benefits when their revenue from business exceeds their expenses and taxes.

This results in a much easier task – deciding whether to save, spend or invest the profit back into the business.

Until employees and customers actually walk a mile in an entrepreneur’s shoes, they often think a small business owner is wealthy.

That may or may not be true.

In recent years, the odds are that many small business owners are still struggling.

Smart, hardworking business owners enhance their chances for success.

They accomplish this by completely understanding the critical factors that drive profits and they tirelessly focus on those profit-drivers.

Savvy business owners know who their ideal clients or customers are.

Profit drivers

The four basic drivers of profit:

  1. Price
  2. Variable costs (variable costs change as a result of revenue from the cost of sales)
  3. Fixed costs (also known as overhead)
  4. Sales

Which of the profit drivers have the most impact on an entrepreneur’s success? Price. That’s because increases in price immediately add to any profit margin.

Many entrepreneurs make the mistake of focusing on sales volume without regard to price. Especially, in a sour economy, business owners are focused on selling to alleviate ageing issues.

The dilemma, however, is that sales increases are tied to increases in variable costs, which lead to less profit.

Conversely, decreases in variable costs increase profit margins, but total revenue will not increase.

Many business owners fail to realize that cutting fixed costs do not affect revenue, which means it has the least effect on profits.

Entrepreneur mistakes

The three biggest profit-mistakes of entrepreneurs:

  1. Business owners are so focused on developing revenue from prospective customers, they fail to concentrate on their existing customer base.
  2. They fail to build their brand image so they miss opportunities to increase prices.
  3. When they cut good marketing and lay off employees to cut costs, most often they’re cutting their investments in their business muscle — not fat.

To elaborate on mistake No.2 — missing brand-building opportunities to increase prices — successful entrepreneurs determine how much they can hike prices without losing profit.

Many entrepreneurs make the mistake of focusing on sales volume without regard to price.

True, you will most likely lose the 18 percent of customers who only buy products at the cheapest price. But depending on the amount of a price increase, you can still make a better profit.

Price-sensitive customers who do not appreciate value, most-frequently make the most-undesirable customers. They’re high maintenance, and demand the most service. They complain the most and most-readily return products.

The moral: Build your brand to maximize prices and target the best customers. That’s what leads to long-term profits – and success.

From the Coach’s Corner, here are more relevant strategies:

8 Simple Strategies to Give You Pricing Power –– If you’re struggling with pricing strategies, you’re not alone. Many big companies have struggled, too. By way of explanation, according to a study, almost 90 percent of executives in a global survey forecasted their continued growth. However, they anticipated implementing just minimal price increases as they continue to slash costs, or at least closely monitor expenses, for positive cash flow.

For Stronger Profits, Avoid 11 Typical Pricing Mistakes — In general, how can you manage the sweet spot – between your price-optimization and costs? Dennis Brown of the consulting firm, Atenga (www.atenga.com), says many companies make 11 pricing mistakes: Companies base their prices on their costs, not their customers’ perceptions of value…

Quick Checklist for Profits You Can Implement Today — Here is a top-10 checklist for profits: 1. Review and fine-tune your business plan. Be sure to discern your competitive landscape and benchmark your main competitors. 2. Bring on the A team – both in staff and advisors. Recruitment and training will remain important, and seek the best mentors and professionals for inspiration to help you sustain growth…

Why Your Customer-Loyalty Program Might Not Be Profitable — Researchers are warning businesses that their customer-loyalty programs, which are designed to increase repeat business, may be causing more harm than good. Even though “customer prioritization” is widely used by companies, the researchers warn they’re a double-edged sword and represent the dark side of customer loyalty programs. As a result, businesspeople get stressed out after implementing customer-loyalty programs because they lose profits when they unknowingly and disproportionately increase service costs.

For Profits, Manage Your Growth at the Right Pace — Entrepreneurs frequently try to rush their business growth. Certainly, growth is great but if you scale too fast, you’re looking for trouble. The key is to prepare. Note: You aren’t ready to grow if you haven’t developed a business model that will enable you to attract customers – at less cost – than what they pay you. How do you get there? Success comes after you develop habits that will help you build your brand, develop sound business operations and successfully deal with people.

“I don’t want to do business with those who don’t make a profit, because they can’t give the best service.”

-Richard Bach


 __________

Author Terry Corbell has written innumerable online business-enhancement articles, and is a business-performance consultant and profit professional. Click here to see his management services. For a complimentary chat about your business situation or to schedule him as a speaker, consultant or author, please contact Terry.






Profits Down? 7 Quick Tips to Get a Competitive Edge



Are you an apprehensive business owner? The tepid economy is a sign of declining profits everywhere.

But in Google News, surf the key word “profits” and you’ll see there are many articles about companies making money. You, too, can get a competitive edge and overcome economic uncertainty by increasing sales and improving efficiencies.

ID-100222653 stockimagesHere are seven quick tips to get a competitive edge:

Retain your best employees. Employees with the best potential quit when they don’t feel valued for several possible reasons: Lack of career opportunities, chilled relationships with their bosses unhappiness over wages, health care benefits, and flexibility in work schedules.

So, money is not always the main issue. Workers feel more appreciated when they are engaged with periodic positive communication. This includes giving workers a sense of control over their careers and explaining possible options for professional growth.

You want employees who will push you up the ladder. Here’s more on how not to worry about keeping your top employees.

Planning. The biggest misstep for small business owners is failing to plan for the big picture. They’re so busy with daily emergencies that they don’t believe they have time for planning. They see such time as a luxury.

The solution is simply to budget the time in order to strategize specific actions and timelines. An old-fashioned SWOT analysis – evaluating your strengths, weaknesses, opportunities and threats – will help you create a strategic plan. Also consider 10 basic tips — leadership for business profit.

Entrepreneurs can’t afford not to take the time to plan. That includes determining your break-even point. And remember backup options and equipment are needed for contingencies.

Pricing. The tendency now is to slash prices. However, small business owners needn’t give away their power to the big chains by price-cutting. Here are the eight simple strategies to give you pricing power.

People appreciate outstanding customer service. For most products and services, price isn’t the most important concern for about 80 percent of all consumers.

Customers are like employees – they want to feel special.

Daily prospecting and marketing. Solicit “centers of influence” or strategic partners to attract customers. Look for opportunities to obtain publicity. Advertise to remain in contact with customers and prospects. Use the marketing plan essentials for best results.

Sales follow-up, with phone calls, personal visits and note cards will pay dividends. Don’t forget to ask for at least two referrals from each satisfied customer.

For most small businesses, job one for the boss is contacting customers and prospects. If you’re fortunate to have sales reps, each should contact 15 prospects per day— in-person, as much as possible.

Delegating. Most struggling entrepreneurs usually fail to delegate. You’ll grow by learning to delegate. Good employees appreciate opportunities for teamwork and to make contributions to the business.

A smart boss knows how expensive it is not to delegate. Here are the eight best practices in employee delegation.

Operations and procedures. Develop formal procedures along with checks and balances. To ensure standards of excellence, make certain that you and employees adhere to policies from bookkeeping to operations. Use the mannagement best-practices in solid operations checklists.

This way, there will be no glitches in your receivables. Like you, your customers don’t like surprises either.

Other professional relationships. When you’re able, get proper financing and make sure you have a plan to repay funds. Additionally, develop a rapport with a bank manager, good accountant, lawyer and insurance agent.

The secrets to getting a competitive edge in small business are planning and execution. As a result, a third dynamic, also known as luck, will mysteriously appear from seemingly nowhere to benefit your company.

I love this quote by chemist Louis Pasteur: “Chance favors the prepared mind.”

From the Coach’s Corner, if you’re really in trouble, see how to overcome obstacles for a business turnaround using 13 steps. Like great football teams at halftime, good entrepreneurs adjust quickly to fast-changing conditions.

At the end of every day, do a report card. Review the events affecting your business as well as your response to each situation. Evaluate how you performed and how to move your business forward. Then, take the night off, especially after your daily assessment on a bad-hair day.

And tomorrow – keep on trying. Don’t give up.

“A business absolutely devoted to service will have only one worry about profits. They will be embarrassingly large.” 

-Henry Ford 

__________

Author Terry Corbell has written innumerable online business-enhancement articles, and is a business-performance consultant and profit professional. Click here to see his management services. For a complimentary chat about your business situation or to schedule him as a speaker, consultant or author, please contact Terry.

Photo courtesy of stockimages at www.freedigitalphotos.net



Seattle business consultant Terry Corbell provides high-performance management services and strategies.