Own a trade or service business and want to know how to grow it? Learning business and management will give you huge rewards, so using the KISS Principle here’s a video on real-world, practical business manage, which is then discussed more below.
The Most Important Number in All Businesses
All businesses run on cash flow and lack of cash flow is why they fail. Ever heard of a cashed up business failing?
Would you like more cash in your bank?
Silly question yes! Who wouldn’t?
The key to having more cash in the bank – as stated on the video – is the increase the Net Profit Margin of your business.
The Net Profit Margin is the percentage of net profit your business has. If you have a $1,000,000 annual revenue with a $100,000 net profit, then the net profit is 10%.
It’s that simple to work out, but the percentage is far more important than the dollar figure, and this is what the mistake is made by considering only the dollar figure.
As businesses increase in revenue each year (let’s assume), the net profit margins decrease each year in the huge majority of cases.
That’s going unnoticed and it’s super critical to become aware of because it’s like working for less money each year. You don’t want that, and no one does.
As the revenue increases, using the above figures again to $1,200,000 the net profit may well be $100,000 or $110,000, which is a lower percentage of the revenue.
When net profit margin figures decrease, you have less cash in the bank (all things being equal). Cash then becomes ‘tight’. Sometimes you can get around it, however its far better and SMARTER to focus on increasing your business’ net profit margin.
By applying strategies, like all the ones in the video, and more.
First, keep in mind you can always improve on any area of your business. The way or ‘mechanism’ of improvement is to first of all measure.
When you measure you break assumptions and realize ignorance and that’s where you can always improve.
Take conversion rates for example. Less than 2% of all businesses consistently measure their sales conversion rates. The figure is identified by counting the quotes gone out and what percentage of them are won – i.e. turn into paying clients.
If you issued 30 quotes last month and 10 become clients, the conversion rate is 10 in 30 or 33%.
When businesses don’t measure their sales conversation rate, it’s out of the business owners focus and isn’t considered important. It can take to set up measuring systems too, plus there aren’t a lot of competent people to advise business owners on how to do this, what tools to use, which specific things are important to measure and how to do it time efficiently.
All of these challenges can be overcome easily and quickly with a good mentor or practical management training.
When conversion rates aren’t measured regularly, there’s typically an assumption of ‘it’s good’.
One area clients have seen sensational sales and income growth have been through increased conversion rates.
How much growth?
Try $20,000 to $400,000 in just 30 days.
And this is with businesses who didn’t believe this opportunity existed and had to be persuaded that this opportunity existed for them to even consider the training.
By the way, the training took just ONE day.
This is just one of dozens of examples of how to increase profit margins. It all comes down to finding or being shown opportunities in your business and knowing what strategies to apply to increase the profits in the business with a very well executed strategy.
All of this training, measuring tools needed and strategy execution are included in the Business Freedom Mentoring program.
How to Double Your Net Profit Margin
It’s actually much easier to double your business profits than to double your revenue in a year, or even months.
To double your revenue you need more leads, from a lead generation that is cost-effective and works. Those two ingredients can be a real challenge with a lot of businesses.
Take a $500,000 revenue business with a 10% net profit margin – so it has a $50,000 net profit.
This business would generally have about 3 or 4 employees (in Australia) including the business owner as revenue reflects turnover.
To double the revenue a bunch of extremely well executed lead generation strategies would be required. These strategies would almost certainly cost money too, before they worked so $10,000 of the net profit would probably be “burned” before sales were generated.
That’s very common with most new lead generation strategies. If you have one that’s working and can scale it by just spending more money, then great but in the majority of cases it will require a “learning curve” which means spending money before results (i.e. sales and income).
In this example the revenue would be double and the net profit probably a bit less now. Plus the business needs vehicles, a place/office to work out of so the net profit will probably be much less. It wouldn’t be uncommon to see it being just $70,000 on the (now doubled) $1,000,000 revenue.
That’s the hard (but oh so common) way to grow a business.
What’s SMARTER is to focus on increasing and doubling the Net Profit Margin.
This is achieved using strategies, like the ones in the video that cost ZERO to implement. There are over 100 strategies that can be implemented to grow a business, without spending $1 on marketing.
It’s a simple matter of knowing which strategies to use, and having the execution skills to implement them. This doesn’t take years, it only requires months of part time work ON the business.
Measuring Reveals Profit Opportunities
Very few businesses are measuring all areas of the business so the owner is very unaware of the profit opportunities just waiting to be “unlocked”.
In the video above there are some direct insights into exactly what to measure, but here they are again…
- All leads from all sources (just ask people how they found your number), collated by source
- All sales for each lead, collated by lead source to show sales income by sources
- All sales for ‘types’ of work to see volumes and conversion rates by ‘types’ (this is incredible powerful to know)
- Conversion rates from all leads to sales to show conversion rates by each lead source
- Gross margins quoted on every sale
- Gross margin on every job (must include all employee and contractor costs)
- Gross margins on ‘types’ of work, collated for the week, month and ongoing
- Gross margins of all employees on each and every job
What’s amazing and not seen to be until your very own business’ figures are looked at for all of these measured areas, are the HUGE profit opportunities that are seen with the mind, not your eyes.
There’s not a lot of things that are obvious to everyone, especially in business. You’ve no doubt noticed this yourself where you assumed something was obvious, that wasn’t to other people (such as clients, or employees).
It’s the very same here as the above list is extraordinary what it will reveal when actioned, but until it is in your business you’ll probably doubt there’s any merit to do so. And if so you’d be like the vast majority of clients who felt the same.
But do all of the above and don’t assume there’s not much benefit.
The record saving of advertising, found not to be profitable was $42,000 a year, by measuring all leads and sources for one month. This was with a tile shop business who assumed all their advertising was working – until they measured with a great tool (supplied to them with training).
Confidence makes you money.
When you measure all of the above, you’ll become very confident with which employees are ‘pulling their weight’ and which ones aren’t. The gross margin for each employee gives loads of confidence about employee attitudes and dedication, whether you’re able to visually supervise them or not.
Confidence with people skills for identifying good attitude employee candidates, in the interview can save you many thousands a year by not hiring poor performing employees and finding that out weeks or months later.
Confidence is fantastic to have for virtually all your decisions and when you make every business management decision with confidence, your profits and margins can’t help but to increase.
By applying these strategies that $500,000 revenue business example figures with $100,000 net profit can increase the figures to $600,000 in revenue (with organic growth and more referrals from the strategies in place to motivate employees). And the net profit could increase to $150,000 (yes – double).
These two increases mean the net profit margin would be $150,000 / $600,000 or 25%, and can be achieved without hiring any more employees.
Happy employees are more productive, which means they get through more work/jobs for what you pay them.
Running team meetings every week to discuss all of the numbers (above) you’ve measured motivates them, because after all they are their numbers of their activity for the week. When you keep measuring every week, that’s where it motivates them after a month or so of doing this. It won’t happen in a week or two as they may feel intimidated by ‘checking up on them’ with all the measuring.
You need to reassure them that’s not the purpose of measuring. The true and best purpose is to know if you’re making the margins you could and need to and why your business isn’t.
Your business definitely has significant, if not HUGE net profit-increasing potential.
That’s because when you’ve worked with over 1,000 businesses for 20+ years, you actually see it being achieved in a matter of months hundreds of times.
It’s up to you if you want to get serious about learn these management skills…
- Selling – based on rapport
- Marketing – to confidently choose a great website develop and what their design must include
- Lead generation strategy types – because you’ll be confident in which ones suit your business best
- People – learning about attitudes and aptitudes to accurately identify these in employee candidates confidently
- Understanding numbers – which numbers and why, with all the management reporting tools your business needs
- Leadership – to impart your wisdom to employees in a systematic way, that leverages your time, and frees it up
- Systems – yes, creating them is a skills as some make you a fortune while others don’t
The Big Question
Would you be prepared to work once for 6 to 12 months, and then be hugely rewarded… for the rest of your life?
Why not book in for a 45 minute free consultation to talk more about your business, your goals and growth challenges and what business freedom would look like for you!