I like metrics. My favourite is profitability.
Over a three-year period, my team analysed the profitability of 2,059 small businesses. In the process we found the most profitable businesses were following these steps.
1. Take your profit first
The principle behind my system (outlined in my book Profit First) is basic, but it can be effective: For every single dollar of revenue that comes into your business, you set aside a predetermined percentage as your profit. I recommend doing this first, before you pay bills or sign paychecks. Then that money—your profit—goes into a bank account at a different bank than the one you use for everyday expenses.
When you implement this strategy, you may find that you will find ways to meet your expenses and invest in growth. But if you fail to set aside your profit first, you may never get around to it.
2. Be creative
The Savannah Bananas, a minor league baseball team from Savannah, Georgia were in a bind, with expenses, debt and an arguably massive shortfall in revenue. They implemented Profit First, and started exploring ways to cut costs and boost revenue.
You can’t know if you’ve achieved your goals if you don’t bother to articulate them. Goals that are Specific, Measurable, Attainable, Realistic and Time-sensitive can help you with that.
At the time the Savannah Bananas were considering buying a new ticketing system, which typically runs about $30 to $40K. Instead, they discovered they could print an entire season’s tickets for about $3K. An added bonus? The tickets are banana shaped, so fans keep them as souvenirs. The team cut costs and generated fan buzz just by approaching their problem from a fresh perspective.
3. Cut costs
Yeah, I know this is a common refrain, but it really is important. I was working on my own companies at the end of 2016, seeing if I could find ways to squeeze more out of the tools we already used. Turns out, we could!
We use Nextiva for our VoIP, and we had another (pretty pricey) service for our CRM. We’ve always been thrilled with Nextiva, and I discovered that they also offer a CRM service. I dropped the other pricey service, and now we’re up and running with Nextiva at no additional cost.
4. Get your team on board
It’s easy to think of ourselves as the sole preserver of our company’s fiscal health. But your employees also have a vested interest in your success as well.
I’ve found that sitting my staff down and explaining the big-picture goals I hope to achieve with a more profitable company helps give them a different perspective. They understand why it’s important for the business to be profitable, and it helps keep profit in the front of their minds.
5. Set SMART profitability goals
It may sound obvious, but you can’t know if you’ve achieved your goals if you don’t bother to articulate them. Goals that are Specific, Measurable, Attainable, Realistic and Time-sensitive can help you with that. (And these SMART goals should be clearly communicated to your team.)
Whether you set goals based on revenue, new customers, spend per customer, profit margin or cost cutting, it helps to track any progress made toward your SMART goals. You may even want to consider rewarding your employees who contribute.
6. Take your profitability personally
Profit is not a dirty word. Profitability is what lets you continue to employ your staff. It’s what supports your family and the families of your employees. It’s what funds the good work you do in your community.
One of the strategies I recommend for boosting profitability is figuring out what you need to bring home to live the lifestyle you desire. Then you can determine what revenue you need to make that salary happen. From there, you can build value-based pricing that delivers the services your clients want at the prices that keep your business healthy. It all begins and ends with profit. If your business isn’t profitable, it may not be sustainable. You owe it to yourself and your employees to turn a profit.
There’s a lot in business that we can’t plan for or account for. Market swings, natural disasters and revolutionary new products that reshape industries… All of these forces are beyond our control. But what we may be able to control is the financial health of our companies.
Author: Mike Michalowicz
Author, Profit First