I have to clear this up...
I get a few emails or comments weekly about people want to earn more, increase sales, make more profit or take home more pay. These are essentially signals that a business owner desires more cash in a business or life (and I totally get that).
There are many elements that differ case to case, but you could presume that there is a remedy to all these problem and it would be- SELL MORE.
Except here's the thing, there are circumstances where selling more doesn't help.
It doesn't help to sell more when:
- there is an under-priced product (you'll just make a bigger loss).
- there may inefficient systems causing additional expenses (again, you may make a bigger loss).
- a business owners may not have anymore time in their day for clients (time is finite).
- they may not have any more stock to possibly sell.
- their health may be impacted negatively if they do one more thing (hello burnout).
- there is no more people in their physical location to service (you may live in a remote place or in a location saturated with people running similar businesses).
- they may not be desiring to do one more appointment or make one more product (creativity or energy stagnation).
In these cases, selling more; which is a solution to a SALES VOLUME issue, is not necessarily the answer.
It may be that there is a PROFITABILITY issue.
Some signs of a potential profitability issue may be:
- you're booked out but would like to be making more money than you are.
- you have sold most or all of your products and are juggling your bills.
- you are working massive weeks and not paying yourself an appropriate wage.
- your expenses eat away at most of your bank balance.
- you have lots of cash during some parts of the month or year and none in others.
- you sell the same volume as a biz buddy but don't take home as much pay.
How we solve a sales volume problem is different from a profitability issue.
A sales volume issues may occur because your business is young and you're just starting out, you've introduced a new product or it is an innovative product in a conservative market. There really are so many reasons.
Ways to diagnose a sales volume issue include that you have more space and energy in your calendar than clients approaching you. Or your stock is being held in warehouses or stores for long periods of time.
Ways to help a volume issue, is to ensure you have priced your product purposefully for profit, then look to increase sales. This may be through marketing, expanding your target market, finding new sales channels, etc.
Profitability issues may occur because you have not included all expenses when working out your prices, you're under-charging or have misjudged how long it will take to move stock. You may have expenses 'leaks', be giving way too generous discounts, have wholesale purchasers who have haggled down your prices (I've seen this happen a few times) or are potentially overpaying yourself.
I don't like to write that last reason, it doesn't happen often, but sometimes depending on the maturity of the business some business owners like to live like multi-millionaires before their business is capable of providing it.
Ways to diagnose a profitability issue may be that you work out how much your business can realistically make if all your calendar of clients was full or all your products were sold, then minus off every expense you can think of as well as estimated tax- for a particular time period, let's say a month or quarter. It also helps to track your figures monthly in a Monthly Review. This spreadsheet already has some calculations at the bottom to help you pick up any issues. Scroll down to the Sales Info section.
Ways to help a profitability issue include increasing your prices, decreasing your expenses, calculating your profit-margin on all products/services, working smarter not harder or by setting up high profit-margin offerings in the first place. And if you're struggling with setting up high-margin products or services and don't believe people will pay for it, checking out this interview on understanding your inner critic may help.
I understand that this can be overwhelming or confusing if it's the first time you've had to look at this stuff.
I just wanted to let you know that I'm here to help with any questions. I will respond to all questions anonymous in emails to come. So hit reply and let me know which parts maybe didn't make sense, because once you get this, you'll be looking at money in your business a completely different way.
If you're thinking oh dear, I think I want personalised advice, I've set up a sneaky little offer here for November.
And if you're beginning to think about the new year, I'm opening up sessions for Business Money Plans for 2020, this week. Check them out here.
Lynda James, CPA
Accountant and Business Analyst
Find out how Lynda can help you upgrade your business.
More from the blog
- The Purposeful Profit Playbook- a fun and easy guide to begin planning for the new year.