You know the old saying – “Be careful of what you wish for; You may get it!” Now we all wish our business was more profitable. That’s fair enough, but it’s how you get it that can be the problem.
The first reaction is to look at lifting sales; we must sell more. Sell more, make more money – simple! But that can bring its own problems, as I’ve addressed a few times.
• “I can’t do that” – looked at the problems that can arise in seeking to increase sales
• “What would you have done” – the perils of profitless cashflow
• “Can you get off the sales treadmill” – putting all your effort into increasing sales, rather than the profitability of those sales.
A second, immediate reaction we have when looking to increase profits is to cut costs. It comes to mind almost as quickly as the thought to increase sales, and is especially prevalent when times are tough.
But cutting costs can also lead you into unchartered waters. As I discussed in “Do you make it easy for customers to buy?”, cutting costs can make it more difficult for customers to buy from you.
Larger firms cut costs. However, for most small businesses their cost structure is fairly lean so there is little to be gained there. In fact, trying to do something in the cost-cutting area could even further damage the business, and ultimately lead to reduced profit, rather than the hoped-for increase.
There’s no doubt people are the largest cost for small and medium businesses. They are often around 50% of more in many small businesses. But customer service is a critical element in customer loyalty. If staff numbers are reduced, the customer experience can become less than satisfactory, leading to loss of customers.
And sometimes you have to let go people who have been with you a long time, or have skills which are hard to replace. That happened recently with a client; they had to let go a “front of counter” lass who had been with them a long time. Losing her meant a loss of knowledge of the business, a face and personality customers knew and liked. It has an impact on other staff, and their loyalty.
Don’t forget the training you have put into long-standing employees. When things improve, you will have to recruit again (a cost) and train once more (another cost).
The training budget is another target for the bean-counters in tough times. There are two costs of training; the cost of the trainers and courses they provide, and the loss of productivity while your staff are out of action while being trained.
Of course there are very good reasons for training:
Don’t laugh, I’ve seen it happen! Times are tough; we need to cut the advertising or promotional budget. Yet you need to keep marketing to keep those precious sales coming in.
Those who blithely toss such suggestions at you usually have little idea of the complexities of marketing and the messages you need to put into the marketplace to get a sale. Consider this; it’s all about “awareness” - awareness drives your promotion.
Think about this – you can divide prospective customers into three groups:
There are not many customers in the last, more in the second, and much more again in the first.
Just think about the message you need to give each of these groups. They will be different
Marketing is complex, and can be costly. Simply taking the cost-cutter to it is likely to cost you leads, customers, and profits.
So, just what costs are you going to cut? The act of getting what you wish for may become the problem.
Cutting costs can help tide your business over tough times. There’s no doubt about that. But it can be a short-term sugar hit, and leave you with on-going problems that cost you profits.
When clients approach me for coaching, so often, they are not getting the clients they need, the right clients. Eight times out of ten this comes down to not knowing what is working, and what is not working, and why it is not working.
For more than 28 years I’ve been helping small business owners plug the profit leaks in their business and restoring their cash flows by assisting them understand where there profits really come from, where they’re leaving money on the table, and where their sales are costing them profits.
If you would like to discuss with me how you might do that, book a Strategy Consult here.
© Copyright 2017 Adam Gordon, The Profits Leak Detective
Some profit losses are pretty obvious - so you fix them.
BUT, what if you don't know profits are leaking, cash out the door?
Possible leaks could be anywhere.
Are there some clues or symptoms that are tell-tales?