Secrets to Increase Profit

Secrets to Increase Profit

Profit is one of the indicators of how you will know if your business is progressing. Also, this is the result of all the strategies that you put into your business. Furthermore, as a business owner, you have to gather data in order to know whether you are gaining profit or not.

Annette will shed some light on the secrets of how you can increase the profit in your business and the pieces of data that you need to track those sales and marketing strategies. She will also give different exercises that will surely help you increase profits in your business. 

First, is identifying money leaks in your business and eliminating them. These are expenses that are necessary for your business and may slow down your profit.

Next, you have to examine the products, programs, services, and offerings that you have in your business. As a business owner, you have to understand if those that you are offering to your client are profitable or you may need to analyze the pricing on the value of your service.

Lastly, be aware of the percentage of the leads that you can turn into clients. This is vital in your business as this is the outcome of your sales process.

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Highlights of this episode:

  • Top 3 data in tracking your sales
  • What is a money leak?
  • How to identify money leaks in your business
  • How to analyze the products/services that you offer your clients
  • The importance of the sales process in your business

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00:01  

You are in control of your profits, you can predict them accurately when you fully understand the data in your business, I will outline a strategy and plan for maximizing profitability. In this episode. I am Annette Ferguson, chartered accountant and certified profit first professional and I run Annette and Co, a UK based accounting firm. There are various profit strategies, many of which are sales and marketing based. I'm going to go through three financial strategies to help increase your profitability, and the top three pieces of data that you need to track for those sales and marketing strategies. 

00:41  What are money leaks? (...An exercise to find and eliminate money leaks.)

The quickest and easiest way for most businesses to increase profits is to find and eliminate money leaks. So what is a money leak? A money leak is money being spent in your business that is not either one, delivering you a positive return or two, is not 100% necessary to keep the proverbial lights on in your business. Here's an exercise that you can do to help you find and eliminate those money leaks. The first thing I want you to do is to gather together all your business bank and credit card statements, anywhere where business spending is happening. It might be in PayPal, as well. So gather together all those statements for the last 12 months. Now I'm going to talk you through this exercise as if you have the physical paper copies. And personally, I find that I like to do this with the paper copies. But of course, you can do this with CSV files as well. But when you gather together all those statements, and for the past 12 months, don't skimp on this, it does need to be the full 12 month period. Gather those all together and get yourself a highlighter and a red pen. And first off, I want you to go through that pile with the highlighter in your hand and ask yourself, is this expense 100% necessary to keep the proverbial lights on in my business, not 80% necessary, not all I really liked this. One 100% necessary. Your business cannot operate without it, it is just not possible. This will by the way, include things like insurance, and taxes. So highlight those expenses, where it is 100% necessary. You need to go through every single page, every single month, every single line in those statements and ask yourself that question over and over and over again. Now you may have some expenses that you pay for monthly, but it does no harm to ask yourself a question 12 times as you're going through it, because sometimes you start off thinking things are 100% necessary.and by the time you've asked yourself the fourth or fifth time, you think, 'Wow, actually if I do something that's really nice to have and not actually 100% necessary.' 

So make sure you stick to that and you do it every single page. And once you've gone through all of that, I want you to flip your bundle back to the beginning and this time, pick up your red pen. And with your red pen in your hand, you're going to ask yourself a second question. And that is, is this expense delivering me a positive return in terms of money? Or time? And what I mean by that is, the money I am spending on this, is it giving me more money back? Or the money I'm spending on this, Is it freeing up my time so that I can perform profit producing activities? If the answer is yes, it is, then I want you to circle that with your red pen. Unlike before, I want you to go through every single page every single month, every single page, every single line and ask yourself this question. And like you did with the first one you may have to ask yourself at 12 times and that is completely okay. So go through every single item asking yourself that question. And once you've got to the end, flip your bundle back over to the start again. And you will have some things that are highlighted. You'll have some things that are marked with your red pen, and you will have some things that are not marked at all. The question I have for you is what is the purpose of those things not marked at all? Well, they are in my view potential money leaks in your business because they are not delivering you a positive return and they are not 100% necessary. So in all likelihood, they are things that you'd like to have or have forgotten to cancel or just fancy doing. And those things ultimately are taking money away from your profit. They are ultimately taking money away from you and your family to enjoy. So while some of these things might be nice to haves, is it nicer to have that money in your family's pocket or be spending that money in your business? Now, only you can decide the answer to that. But I can guarantee you when you do this exercise, you will have some things that you are able to cancel with no negative effects on your business, that free up money for profitability, and for your own take home.

05:26  Examine every offering you have and include all the costs to deliver those.

The next thing you can do to ensure increased profitability in your business is to examine all the products, programs, services and offerings you currently have and understand whether those are in themselves profitable. So looking at the income, and the costs associated with the delivery of those products, programs, services and offerings in a silo on their own, and saying is this offering in itself profitable to us. So making sure that you include all the costs that are associated with the delivery of that whatever it is, whatever that offering is, making sure you include any cost of sales if you have materials or products, if you send your clients anything in the post, including the cost of those, including the cost of things like Stripe fees.  Anytime that any of your team spend on these things, whether it be marketing teams, sales teams, a virtual assistant, whether it be delivery of the product program or service of some kind, and understanding every offering you have, and what that contribution is to the overall overheads of your business. Once you look at your various offerings, you may find that some in themselves might be even loss making, or at least not contributing in the way that you might have thought in your gut to the bottom line of the business.  You might actually feel like some of the offerings you have should be canceled if there are loss making, or perhaps change your focus on what you are promoting and selling based on the profitability of each of the offerings that you have. 

07:18  Your pricing needs to be linked to the value you provide. (...An exercise to determine the right pricing for the value you deliver.

And the third financial exercise I want to give you is all around pricing. Now, I want to caveat this and say that I'm not just going to tell you to suddenly raise your prices, because pricing always needs to be linked to value and I don't know what value you provide. Therefore, I can't just give you a blanket statement to increase your prices. Although what I can tell you from the hundreds of clients that we work with, is that most people, generally speaking, are not charging enough based on the value they are providing to their customers and clients. But most people also feel quite jittery about increasing their prices. So I'm going to give you an exercise now, which will hopefully give you a win-win in terms of increasing what you charge, but also delivering significantly more value to your customers and clients. And thereby creating a positive outcome from your profitability and an incredibly positive outcome for your customers or client's results that they have from working with you. So what I want you to do is to write down your price point and write down all the value you deliver at that price point, all the things you include, whether you tell your customers or clients you're doing these things or not include everything in that list under that price point. And then I want you to consider, let's say that you had to double your price. There was some law that came in that says everyone from tomorrow has to charge a doubled price. But in doing that you can change what you deliver. So let's say that you had to double your price for the core service. But you are allowed to add in more value, what value would you deliver for that doubled price? It's probably everything in the first list and a bit more?  What value would you deliver for that doubled price? And now let's say that another law came in that says you have to double it again. So now you've essentially got a quadrupled price, what value would you deliver, if you had to sell at that price? And once you've got all that written down, I want you to ask yourself, is there any way in your business that you can deliver the quadrupled value at the doubled price point? Now the answer might be all well, we might need to do a bit of a hybrid, but if you start thinking like this, you are still delivering incredible value to your clients, but you've also doubled your price. And in, with the doubled price and the quadruple value, you do need to keep an eye on the costs and make sure you've not just done the same for those because we want to increase the profitability. So you do need to still go back and run that doubled price and quadrupled value through the assessment I talked about just before this, where I was explaining the profit or loss on each individual offering that you have. So you do need to make sure that you sense-check that. But if you are able to do that, if you're able to deliver the quadrupled value at the doubled price, you should get a good increase in profitability as well. 

10:36  Top three marketing and sales data that you need to track to ensure profitability.

So now in terms of marketing and sales data that you need to track to ensure profitability. Here are my top three. Firstly, you want to track lead generation, how many leads are you generating in your business per month? If you don't currently track this on an ongoing basis, I advise you to start today and even see if you can gather together some of the historic data so you can start looking at trends in your business, it means that should anything happen in your business, should you change a way of marketing, or should any external factors impact your business, you can see the effect of the change in leads. And when you look at a change in leads, it can start telling you what your future sales might end up like. And that is an important number for your own future proofing of your business. The second thing is conversion rate. Again, if you don't track this now, start today, if you can gather their historic data, that's amazing too. But if you can't, don't worry about it, start tracking it today, the conversion rate is the rate, the percentage rate at which a lead becomes a client. So how many, what percentage of the leads that you get in, turn in to clients? Again, this is really important because it tells you how efficient your sales process is, and how good your sales processes. You have people coming in as leads, are you converting those people into clients? Hopefully at some level, the answer is yes, but this is a number that you can work on your sales process to increase your conversion rate. And in doing that, you end up with the same number of leads, but more clients. So you can see why this number is important to monitor because if it drops, this tells you that something has happened with your sales process.  Perhaps market conditions have changed, or perhaps your sales person has started saying something different on calls. So it's important to track and monitor this number to ensure that you can be on top of it, should this start to change. And thirdly, average transaction size. This is how much each customer or client spends with you every time they spend with you. And the more they spend with you, that typically should mean, the more profitability that they are delivering into your business. We want to make sure that we have the opportunities for clients to upgrade or to upsell them as they come into contact with our business. Because we can start seeing the trend again, we can examine the trend and if the trend is upward, amazing. But if the trend is starting to pull down, then we need to take measures in place, perhaps with our sales process, but also perhaps with the delivery process that we are doing for those people who come back and repeat purchase. Why are they not spending as much as they were before, we might need to examine the operational side of our business to determine that. But I think you can possibly see that when we have these three numbers together, when we look at them, you can get a picture of the future of the business. If we know how many leads are coming in how many are converting declines and what the average spend that they have every time they purchase with us, we can start predicting future trends in our business, which helps us make decisions about the future and it helps us make cost decisions, which therefore translate to the bottom line, the profitability of our business and what we can take home as business owners. And this is why tracking non- financial data is really important in being able to predict profit in our businesses.

14:39 

Now if you're struggling with the accounting for your business, I would love to help. Do you reach out to me at Y T at annette and co dot co dot uk and let me know how I can support you. If you enjoy this podcast I invite you to join our free Facebook group, just search for Profit First UK in Facebook or click the link in the show notes it is a free profit first group run by me, Annette Ferguson,  the longest standing UK accounting profit first professional.

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About the Author

Owner of Annette & Co. - Chartered Accountants & Certified Profit First Professionals. Helping online service-based entrepreneurs find clarity in their numbers, increase wealth and have more money in their pockets.

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