I realise that it’s just gone tax time here in Australia and many have looked at their bottom line and wondered where all that money has gone. Expenses are creeping up and margins are sliding down. So it’s no wonder that I’m often asked how to increase profits. Well, there’s three way. (no I won’t say they’re easy)
There are three main ways I walk my business coaching clients through looking to increase their profit margin. In the main, you can decrease costs, increase the number of jobs/services you do, or you can increase your prices/spend. Before you jump headlong, you need to have your last Profit & Loss statement printed, you need to know how many hours you worked last financial year (or a good idea how many you would have liked to), and you’ll need to know what the average industry rate is for your field. Got it? Let’s go!
More Profit : Decreasing costs
Ok, so it sounds like it’s easily enough done but you’d be surprised how often it’s not. For example, I’d been holding onto a US$99/month piece of software that I needed for one client when if I had read the fineprint the free version would have worked. So, I cancelled and saved myself over $1000 a year!
My favourite place to start is insurances, yes I understand that if you have them then you need them but do you have to pay that much? One coaching client wanted to join the industry body but couldn’t afford it. We looked at it and realised that one of the perks was cheaper insurances and so they saved themselves the membership. The membership also gave them 6 months of free access to a piece of software they were paying for monthly, there’s another saving. Don’t get me wrong, I’m not telling you to join your local chapter if you’re not going to get benefit; it then just becomes a cost.
You need to objectively and systematically go through your expenses list and work out where you can make savings. Can you change internet or phone provider (this is something I’ve done this year)? Could you buy larger amounts of stationery? Would you be better off on a commercial postage plan? Could some of the things you buy be bought using reward points?
This might seem like a thankless task, but you will thank me next financial year when you reap the benefit of reduced costs.
More Profit : Increased number of jobs/services
I am not asking you to give up sleep or weekends. I promise you. In fact, I have recently increased my client load by 50% but I now work fewer hours. How do I do it?
You would be surprised just how much time we waste on various things:
– social media
– emails & message alerts
– thinking what we had to do
– planning our week
I know it’s ironic that I put social media first, and yes I spend a ridiculous amount of time on it, but there are times (like now) where I actually turn it off. I wrote about this a while ago, but I switch it off and then rely on my devices for notifications. They sit on my desk and I can see them out the corner of my eye, but it takes longer to log into them than having a tab open on my browser.
Did you know that I have my devices on silent, even my laptop?! Every single ping & bing takes my attention, like Pavlov’s dog, away from my task and then it takes me time to get back into the groove. This is why I have a smart watch, and even that only buzzes. What I suggest is muting your computer, except for watching videos, and see how it works for you. When I started I also switched my phone to vibrate, this is handy for those in the service industry who need to answer calls but can’t always. Alternatively, set up your phone so that when you are in an appointment that your phone is put to ‘Do Not Disturb’ and only emergency contacts will get through. Then you can block out time as appointments and go undisturbed.
Make a to-do list, or better still, make a to do schedule each week with your appointments, tasks, and other obligations. I’ve recently done this and found I then spend the time I used to use trying to remember or think of tasks, actually achieving them. It also means that I can see when I have slower periods, I can block in some ‘me time’, or I can work on those passion projects. Having time mapped and scheduled doesn’t make you more rigid in your time use, it actually makes you more flexible as you know when you can move things to.
So now that I’ve given you hints on how to make more time, what do you do with it? Well you can book more jobs in, look for more prospects, or you can work on additional services to increase the spend of your existing clients. All increase the jobs you do.
More Profit : Charge more
Now this is often the first change people make, but I always have it as the last. Why? I prefer efficiency gains first. I like efficiency gains as they will often be long lasting and can be cumulative. There’s generally only one way to go when you solely rely on increasing your prices.
There are a few ways I have helped businesses increase fees, but in the main it comes down to knowing your cost per unit (be that physical item or hour of your time), how much you want to earn in the coming period, and how much time you want to dedicate to making that money.
It does come down to straight maths:
– total expenses/total hours
– total expenses/number of products
From there you need to add a markup, it’s this markup which is your profit. For most business I have them double their costs and then compare it to the industry. In product based businesses we normally add 20-30% to arrive at the wholesale cost and then double wholesale to arrive at the retail price; we still then look at the marketplace and consider what the market will bear.
So you’ve done that? How do you feel with the end figure? Not enough, less than your current charge (if so go look at the first 2 tasks again), feel sick to your stomach because it’s too much. You need to then sit with this figure for a few days, think about it periodically and write down any fears or objections that pop into your head. From there consider the likelihood of them eventuating, you could change the wording to “What would I do if (fear) happened?”, you can discuss it with a friend or mentor, or we can discuss it in the Facebook Group.
In the end, the aim of this exercise is to increase your profit so that you can achieve the goals you have for your business and yourself. If you have no idea what that is, then I suggest downloading my Dream Business worksheet or we can set a time to discuss moving you through this into a more profitable business.