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  • Aspire » Small Business Strategy

    01 Sep

    Grow Profits

    How do you make money in your business?

    I’m not talking about top line sales kind of money, I’m talking about the money that ends up all the way down at the bottom line – your net profits.

    This came up in a great discussion at last week’s Business Book Review on the book Ownership Thinking by Brad Hams. One of the keys to getting everyone in your company on the same page is educating them on how your business works…how you actually make money and ultimately how much money is actually made once everything is paid off and the dust settles. It turns out that many employees don’t know how profits are calculated or created and often confuse sales and revenue with what a business actually makes.

    The good news is that although many businesses may seem confusing, with a lot of moving parts and variables there are actually only 5 ways to impact your profits – and if you can get everyone to understand those 5 things and how they work at your company, then you’re well on the path to start improving your profitability.

    5 (and only 5) ways to impact your profits!

    1. Generating Leads (or Opportunities) from new customers, existing customers and past customers.

    Everything starts with someone raising their hand and indicating an interest in your solution. Often this is driven by marketing efforts – especially for ‘new’ customers but great customer service and a great experience in using your product or service will impact this as well – both in terms of referrals and repeat business.

    Ideas for improving your number of leads:

    • Improve your marketing message – identify your best target market and why they are buying what you’re selling. Are you clearly communicating those benefits?
    • Create ‘wow’ moments for your customers – something they will appreciate and value, but didn’t necessarily expect (and doesn’t cost much)
    • Stay in touch with everyone you’ve encountered – create a mailing list and consistently reach out to prospective, existing and past clients with something interesting and useful.

    There are  ton of other ideas on improving marketing and customer service – pick one or two that resonates with you and make it happen.

    2. Improve your Closing Ratio and your sales effectiveness

    The best marketing in the world doesn’t matter if you can’t convert that initial interest into a sale. Your closing ratio is defined as the number of leads that convert to an actual sale. If you talk to 100 people and 50 of them end up buying something from you, then you have a 50% closing ratio. Getting better at closing sales will increase that ratio and drive more revenue.

    Ideas for improving your closing ratio…or your sales effectiveness:

    • Implement a sales system – having a clear process on how sales works in your world will not only allow you to be more effective, but it will allow you to scale so someone else can take on that sales responsibility.
    • Get some training – selling is a skill and if you don’t work on it, you won’t get better at it.

    Improving your closing ratio by even just a few percentage points can make a big difference – find some ideas that will help you be more effective at sales and put them into action.

     3. Increase your average sale amount

    Perhaps the fastest and easiest way to make more money is to increase the amount that existing customers are spending with you. You could sell them more on each transaction or you could raise your prices – the beauty of raising your prices is that the increase flows directly to your profits (note – you might reduce your sales volume with higher prices…but there’s often room for an increase).

    Ideas for improving your average sales amount:

    • Raise your prices – if it’s been a while since you’ve raised prices, you’re likely overdue and most small businesses tend to under price especially considering the value they generate.
    • Upsell or cross sell – what’s a natural addition, something of value that your clients should also be buying from you?

    4. Improve your Gross Profit Margin – reduce your variable expenses

    Depending on your business you may have expenses that are directly related to your product or service – these are expenses that are only incurred when you deliver to the customer. Your Gross Profit Margin is the difference between the selling price of your product or service less your ‘variable’ expenses (but before you take into account your fixed costs). Let’s say you sell a widget for $100 and it costs you $60 to produce it – your Gross Margin is $40 per unit. Every dollar you can cut from your variable costs will improve your gross margin (and your bottom line).

    Ideas for improving your gross margin:

    • Actively study and understand your variable costs – you can’t improve what you don’t know. Dig into your costs over time and make sure you understand your gross margin for all of your products.
    • Emphasize selling your higher margin products or services – what’s your most profitable product? What would it take to sell more of that?

    5. Reduce your overhead

    The last opportunity to impact your profitability is to reduce your fixed costs – those things that you pay for every month whether you sell or deliver anything or not. This is stuff like your office or retail space, leased equipment, utilities, phone, internet, etc. Every dollar you can save (that doesn’t impact your customers) goes directly to your profitability.

    Ideas for reducing overhead:

    • Identify your biggest monthly costs and see if you can put those up for bid or renegotiation.
    • Maximize your capacity utilization – if you’re paying for expensive equipment or space find a way to get more use out of it (i.e. run another shift or lease it out to someone else when you’re not using it).

    That’s it – 5 (and only 5) ways to impact your profitability. Have you looked at your business in this way? What your current net profit and what are some ideas you could implement to improve your situation? We’d love to hear your thoughts – share them in the comments below.

    Shawn Kinkade Kansas City Business Coach

    12 Nov
    Soup Nazi

    Seinfeld’s ‘Soup Nazi’ – No Soup For You

    Sometimes when you channel surf late at night you get lucky…and you run across a great Seinfeld rerun. Last night I happened to catch ‘The Soup Nazi’ episode – which if you happen to be one of the small number of people who hasn’t seen it, is about an amazing new soup restaurant that’s opened up and has started a soup craze in New York. However the brilliant chef that runs the place is seriously hardcore – if you don’t follow his rules to the letter…then it’s “No Soup For You!” and you’re immediately kicked out of the restaurant.

    It’s a great episode…definitely worth finding if you haven’t seen it. If you’re interested you can find highlights on Youtube. But this episode is more than just a piece of pop culture history – it also has some great business lessons to share.

    #1 Word of Mouth Requires more than just a great product

    Jerry, George and Elaine first hear about the ‘Soup Nazi’ from Kramer…but what makes the restaurant remarkable is more than just the great product (although that’s critical as well) it’s that the owner will yell at and ban anyone who doesn’t follow his ridiculously strict rules.

    It’s the combination of things that really set the ‘Soup Nazi’ up for successful Word of Mouth. According to the bestselling book Contagious – Why Things Catch On by Jonah Berger, the Soup Nazi phenomena covers multiple principles that makes things go viral.

    • The ‘Soup Nazi’ story has Social Currency (makes you feel like an ‘insider’ with cool information)
    • It has emotional resonance (drives particular strong feelings…fear? anger?)
    • It’s observable (in other words people can see the crowds out the door)
    • It’s a story – much more than just great soup…it’s the ‘Soup Nazi’ and banning customers for life

    How can this apply to your business?

    It’s probably not a great strategy to start being really rude and kicking your customers out, but it may be worthwhile to be selective…or to have a clear code of who you work with – and if you can make that into a great story…even better!

    #2 Play to your strengths if you want to stand out

    Kramer describes the ‘Soup Nazi’ as a tortured genius…a true artisan when it comes to Soup. Imagine if the ‘Soup Nazi’ had instead opened a full service diner…and spent 2/3 of his time making burgers, sandwiches, breakfast, etc. The food would have probably been good, but not great. The soup might have still been great, but it would have been buried in a big menu and not stood out – plus the chef wouldn’t have the time to really innovate and create the best possible soup with all of the other dishes that would need to be made. In short it would have been an average diner, doomed to mediocrity.

    How can this apply to your business?

    You’ve got to narrow your focus down to what you’re really good at. It’s only at that point that you will be able to stand out as a genius. That’s when people will stand in line to work with you, that’s when they’ll pay a premium for what you do. Not when you’re trying to do everything…or working on your weaknesses.

    #3 You’ve got to figure out a way to scale

    They don’t cover this in the show, but clearly a major reason why the ‘Soup Nazi’ is unhappy is because he’s working really hard. He’s on the front line of the restaurant, serving the soup and enforcing the rules. It’s pretty obvious that if the ‘Soup Nazi’  calls in sick one day, the restaurant is just going to close. Imagine never having a day off, only being able to sell as much soup as you can make and dish out in a day…all in all, an exhausting business.

    How can this apply to your business?

    Are you constantly working really hard in your business? Is it all about you? If you’re on the top half of the matrix of Effort vs. Success, then you need to figure out how to automate, delegate and systematize what you do to get yourself off the front line. If you can’t figure that out, then you’re doomed to be unhappily slinging soup all day long without a break.

    What lessons can you learn from the ‘Soup Nazi’? We’d love to hear your thoughts – share them below.

    Shawn Kinkade   Kansas City Business Coach

    05 Nov
    Clock picture by eflon via flickr

    Clock picture by eflon via flickr

    Every business needs strategies in place to “fall back” on for the unexpected.  No company is 100% insulated from unexpected challenges that interrupt the normal operations of owning or managing a business…even yours.

    This past weekend was the annual “catch up on all the sleep you lost over the last year in one hour event” more commonly referred to the End of Daylight Savings Time.   We fall back and get to enjoy one extra hour of sleep without being late or having to hit the snooze button!  And you have probably been reminded by the media to change the batteries in your smoke alarms at least a dozen times in the past week!

    But what about your business?  This is also a great time of the year to review strategies your business has in place to “fall back” on when unexpected events interrupt daily operations. Determining what should be on this list to review and prioritizing it will vary depending on your company.   That said, below are some of the more common interrupters we see businesses expose themselves to without a good plan to fall back on and keep their business running as usual during times of turmoil.

    Data Backup:  This is one of the most obvious, though surveys still show that less than 50% of businesses are backing up all their data on a regular basis.  There are a lot of options out there.  Several of the on-line cloud storage companies offer 5 GB or more for free.  Just last week I learned of another local business that had a server crash and they did not have a backup of their data.  It is a painful process to go through.  Don’t be next.  Consult your IT professional; don’t be a victim.

    Passwords & Keys:  If your business uses password protection for sensitive information, electronic locking devices, business related websites, etc. you must have all those passwords in a secured location.  Do you have the passwords of your employees or administrative controls in place to gain access if needed?  What about duplicate keys or master keys for your vehicles and locks?

    Cross-Training:   If two of your key employees unexpectedly submit their resignations tomorrow and announce they are starting their own business the next day, do you have anyone trained to do their jobs?  Insufficient cross-training of employees can severely interrupt the daily operation of a business.  Everyone should have a “fall back” person who is capable of performing their role at a functioning level.  Not an expert, but at least business continues without a significant loss of productivity.

    Sales leads:  If you have a sales team, do you have a system in place assuring you have records of all pending deals?  If you use a CRM is your sales team’s data being backed up and synced regularly to a master database?   The day after your top sales person announces they are going to be leaving is not the best time to start trying to review all the business they have in their pipeline.

    Insurance:  When is the last time you reviewed your business insurance?  Your personal insurance? The changes in health care are top of mind right now, but don’t forget about protecting your business.  Finding out you are under-insured the day after filing a claim on a policy is never a good thing.  Schedule a meeting with your insurance professional.

    This is meant to be a starter list and hopefully it will help you jump start a detailed list, tailored just for your company.   Don’t forget to check the smoke alarms at your business too.  And while you’re at it, test your security system.   Our hope is that you never have to use any of these “Fall Backs” but being prepared in case they are ever needed will provide valuable peace of mind. Please feel free to share your thoughts and add any additional items you think should be included in the space below.

    Chris Steinlage Kansas City Business Coach

    27 May
    Picture by Mark Chapman via Flickr

    Picture by Mark Chapman via Flickr

    There was a little secret sauce released in an interview this past week that reaffirmed that any business can be reinvented.   And based on this example, business age and size has little to do with it.   It was much more about having vision and creating a plan of where they wanted to go and then putting the wheels in motion to make it happen.

    “The future belongs to those who see possibilities before they become obvious.”

    — John Sculley
    Former CEO of Pepsi and Apple Computer

    KC Source Link recently held a “Battle of the Brands” competition, pitting Kansas City businesses against one another for a friendly competition to see who had the most passionate fan base.   The bracket of 64 included many of the respected companies Kansas City is known for including a brewer of beer, a roaster of beans, and a company with products that can guide you from the beer to the beans.

    As the tournament played out, it became clear size was not the only thing that mattered and some of the big players were knocked out in the first round.   When the companies squared off, voting was on-line and big advertising budgets were no match for the eventual champion who used the same strategies that dramatically changed the course of the 16 year old business, approximately 3 years ago.

    “2 ½ – 3 yrs. ago maximum, that’s when it really started, even though we’re (a)16 year old (business), we like to think that we’re just 3.”  Jeff Morgan: Morgan Miller Plumbing, when asked when he really started Getting the Vision?

    Jeff Morgan, the 2013 Battle of the Brands winner said the vision started shortly after being exposed to Facebook and he anticipated what social media could do for his highly competitive service centered business.  Looking back, the change has been so dramatic, Jeff now views the first 13 years as simply building the foundation for the last 3.   They have basically reinvented themselves as a company.

    The point here isn’t about jumping into Social Media – if this is making you eager to ramp up a social media campaign, turn the faucet off (pun intended). For some, that may be a great idea, but that’s not the important part of the message.

    Key to Success – Be Open and act on New Ideas…!

    The underlying message is regardless of how long you have been in business or what your industry is, you have to be open to new ideas and opportunities.   Once identified you need to develop plans with vision to achieve them.   Today in business if you aren’t getting better, you’re getting worse; complacency is a merciless option.

    For Morgan Miller Plumbing it was harnessing the power of social media.  They saw it as a tool that could potentially move their business from one level to the next and they put together a plan of action to make that a reality.  Maybe for your business it is a new location? Or a product line? Or changing a distribution model?   Those are questions you need to ask yourself or discuss with a business advisor, but you must ask them because someone else in your industry is.   If you’ve been in business for a while, it can be especially challenging to shake things up. If you’re just looking for a fresh perspective maybe a business evaluation would help provide new direction.  Or take a couple of days off, get away from the office and challenge yourself to come up with something new. Whatever you do, taking action will help you move forward!

    Congratulations to all 64 businesses who participated in this year’s Battle of the Brands.   Click here if you would like to hear Jeff share his secret sauce  and please click here to donate to the Red Cross for the disaster in Oklahoma.   As always please feel free to share any thoughts or comments you have in the space below.

    Chris Steinlage Kansas City Business Coach

    30 Apr

    Huge Dog and Puppy

    If you talk to most business owners about growth in the next year they will tell you they’re expecting 10%, maybe 20% growth over last year.  And for a business that’s been around for a while, that’s a pretty reasonable target to shoot for.

    The problem with a 10% target in terms of business strategy is that it doesn’t really stretch you.  More than likely you could handle 10% growth without any significant issues.  Maybe you’ve got extra capacity, maybe you and your team will work just a bit harder.

    It’s unlikely that incremental growth like that is really going to require a serious look at how you do things. But plan that kind of growth over a few years and at some point you will be stretched…and at that point because you are at capacity it becomes a lot harder to make changes.

    You might hear yourself saying things like:  “We’re so busy, I don’t have time to figure out how to do this a better way.”  or “I can’t afford to put in a new system, process, whatever now – it would be too much impact to our current customers.”.

    In fact, by just having reasonable growth over time, you can paint yourself into a corner that’s hard to get out of.  The end result is often working a lot harder, dropping the ball more often and not getting much additional profit despite having a lot more customers.

    What if you were going to grow 10X?

    Here’s a test that can help you identify the biggest constraints in your business…and hopefully do something about them before it becomes a crisis.

    Try this – Imagine your current business is suddenly 10 times larger than it is today.  You’re servicing 10 times the number of customers.  You’re bringing in 10 times the amount of revenue.

    Where’s the most likely place you’d stumble?  If you’ve got a physical location – could it support 10 times the amount of traffic?  If not, what could it support compared to where you are today?  What’s the breaking point?

    You’d likely need to add employees – what’s the first place you’d feel the pain?  Would it be in creating or delivering your product or service?  Would it be in handling customer calls?  Would it be in terms of just being able to invoice and collect on a much larger volume?  Do you need special skills for some aspect of your business?  A typical example is that the business owner often is the only one who has the skills to do certain things.  If you had 10X the volume how would that kind of work get done?

    Would you enjoy being 10X larger?  Maybe that takes you from 5 employees to 50 employees and that was never in your plans.  If that’s the case, how much do you want to grow?  What’s your ‘peak’ size that you can imagine?  What are the impacts if you were at that size?

    Remember the purpose of your business is only to give you what you want out of life.

    By looking through a different kind of lens – magnifying by 10X, it’s often easier to see where the issues are.  It can also be a good indicator of things that probably need to be fixed today but you’ve let them slide because it’s easy enough to handle them with a brute force approach.

    Here’s an example – say it currently takes you, the business owner, 6 hours a week to handle all of your invoicing and bookkeeping.  It’s a pain, but a lot of times you can get it done on a weekend or you just power through it. Multiple by 10 and it’s not even imaginable for you to be doing 60 hours a week of back office stuff.

    What would it take to get someone in today who could take over that responsibility for you now?

    Your current growth target is fine

    There’s no need to change your growth target for this year (although if you don’t have one, you should take the time to make one…and / or we should get together for a meeting…!).  However I am suggesting that you carve out a few hours in the next week or two and take yourself through this exercise.

    Look at all aspects of your business and use the process to identify the highest priority of things you could work on now…when everything’s not urgent.  The goal is continued, managed growth and by identifying your biggest constraints it will be much easier to make that growth happen.

    What do you think?  Is this a test that you’ve tried before?  What’s your gut feel in terms of where your biggest issue would be?  We’d love to hear your thoughts – share them in the comments below.

    Shawn Kinkade    Kansas City Business Coach