Increase profits starting today. 7 easy tips.

There are some simple things you can do today, to start increasing your profits without winning new clients. Making some minor changes to the way you do business will be barely noticeable to anyone- apart from you, of course, as you’ll know you are becoming more profitable.

1. Increase your prices. No really.   A small increase in price will not drive your customers away. Even if it does drive some away, it will be a small number and you will still be better off with your remaining customers at the increased prices. “Amazon raised its price of annual Prime Subscriptions from $79 to $99 in 2014. Despite the $20 increase, the company expected to lose less than 5% of customers, resulting in a hefty $400 million increase in income.” John Boitnott, Oct 7, 2014 “In a McKinsey study with the Global 1200, they found that a 1% price increase – if the demand remained constant – would result on average in an 11% increase in profits.  Not bad.” Richard Ruff, Feb 9, 2015 Getting the picture?

2. Price alignment.  Are you charging all your customers the same amount for similar products or services? Get everyone on the same price list or rate card. You may be charging some customers the same rate card you agreed when you signed the contract in 2005. Get up to speed.

3.Do not discount. It will be the death of your company.  Just as incremental price increases can increase your profit, so can the same incremental discounts be the death of you. Don’t do it. Emphasize the value you bring. Not the price.

4. Cash discount from suppliers. It is better to get a discount to pay upfront, rather than pay full price and delay payment, even if you are borrowing. Just ask. They can only say no. And the chances are they won’t ALL say no.

5. Check supplier bills. Do not assume that everyone invoices you correctly. Humans make mistakes. Are they overcharging you? Duplicating invoices? Do they add up? I have personally seen atrocious invoicing. Checking invoices from a film production company and questioning them once saved me (or rather the company I worked for at the time) £40K for one TV ad.

6. Same fixed costs, but cheaper.  Check your running costs. Don’t change what you’re getting. Just pay less for it. There is a lot of competition out there for basic business supplies. For instance, everyone needs electricity. But are you paying the cheapest you can for it? There are companies out there who will analyze your usage and tell you what the best rate you can get is and from where. And it’s free! The same goes with phone calls, broadband, even your stationery. Prices really differ from supplier to supplier for the exact same stationery.

7. Quotes for Capital Expenditure. For IT equipment, decide on a preferred supplier, which you promise to use as long as they always charge you 10% lower than if you bought directly from source. It works. I’ve done it. Their discount is more than yours so they still make a profit. Don’t worry about them -worry about you. For any other big ticket item, never EVER buy anything unless you acquired three separate quotes. Make this a company rule.

Want to read this blog as soon as it comes out? Please ‘follow’ on bottom of page. If you need Finance Director services, from a rolling flexible contract to one-off financial health checks, please visit my website http://www.wrightcfo.co.uk , or email me at sophie@wrightcfo.co.uk. 

Client Profitability- All Clients are not Created Equal

Businesses are in the habit of measuring many things: customer satisfaction, financial performance, staff performance, market share and share value to name a few.  And then there are hundreds of key performance indicators out there.  David Parmenter has some books on the subject, in which he describes an endless number of them.

But I think, one of the most powerful things you can measure is client profitability. Because frankly, all clients are not created equal. There are various methods to conduct a CPA (Client Profitability Analysis) and it does depend on your industry.  If you are a service business such as advertising, you will want to use time sheets to be able to know where your greatest assets (your staff) are spending their time. Or if you are in the business of conducting property inventories, then you need to identify all costs associated with a job, typing costs per report, time it takes per rooms in a property etc,  in order to properly calculate your margins.

When I conduct a CPA, I investigate client income, associated labour and product costs and compare margins and growth opportunities between clients. The results are piled into a number crunching, sorting, filtering, moveable, living and breathing, data filled, excel spreadsheet. It’s a beautiful thing. From here, the analysis begins.   Clients are then plotted onto a matrix. The results of which might clarify, for example, that Client A brings in a margin of 5%, but it brings in 50% of your revenue and Client B brings in a healthy margin of 25% but you only ever sold one item to them and they don’t look like they want to return. The wonderful thing about this analysis is your clients are categorised and according to that category, an appropriate strategy is allocated. Here is an example: The result is a written report or presentation whereby I reveal which of your clients are the most and least profitable, not in terms of income, but margin and volume. It is a powerful analysis which often leads to a change in client strategy. I will assess which clients, according to my analysis, you should aim to grow because they reap higher margins or which clients should be maintained with minimal effort, for example.

“A company can outperform rivals only if it can establish a difference that it can preserve. It must deliver greater value to customers or create comparable value at a lower cost, or do both” Michael Porter 1996. “What is Strategy”, Harvard Business Review (Nov-Dec)

I have never conducted such an analysis, without management immediately making strategic changes to their business. If you want to grow your business, become more profitable and pose a bigger threat to your competition, a client profitability is a must. Without it, you are driving your business blind. Regain control.

Want to read this blog as soon as it comes out? Please ‘follow’ on  the top of the page. If you need Finance Director Services, please visit my website at http://wrightcfo.co.uk, or contact me at sophie@wrightcfo.co.uk.  I also offer a “Client Profitability Healthcheck” service, which includes a site visit, investigations and report for £500.

How to write a business plan in 4 hours

If you run your own business, no doubt you have had ‘writing a business plan’, on your to do list for some time. But who has time for that, when you are trying to get your business off the ground, right? Wrong. According to many sources, 90% of internet start-ups fail. You can lessen those odds by writing a plan. After all, “failing to plan is planning to fail”.

This is why I have created an easy to follow summarised business plan, which you can do in four hours. If you need to raise capital or are asking a bank for a loan, you will need a more comprehensive plan. You can do that later. This will get you started and focused.  It is also something you can share with suppliers, customers and potential partners who you’d like to invite come on board with you. So no more excuses.

Description.  Write one paragraph which answers these questions: Who are you? What do you do? Where do you do it?

The vision. What will this business be in five to ten years’ time?

Brand promise.  Write one paragraph. What will your company do for its clients?

Values. What are your core values that your business will stick to?  Choose three and keep it short.

Objectives.  Describe your business objectives. They should be long-term, e.g. in three years from now. They need to be SMART. ( specific, measurable, achievable, realistic and timely) Choose three . (We only have four hours remember)

Market research.  This can be a two or three paragraphs but need to cover the following. What do you know about your industry? Who are your competitors? Who are your target customers? What is your unique selling point? What methods are you going to use to deliver your brand message.

Sales. How are you going to generate leads, get in front of customers and close the sale?

Housekeeping.  This is one or two paragraphs explaining the operations of the business. Include an organisational chart showing who is involved and where they are in the organisation.(No time to make a chart? Write a list instead) Include any business processes you may have.  How are you going to measure quality satisfaction?

Financial plan.  You should have three tables.  1. List of your start-up costs.  2. Revenue projections for three years.  3. Cashflow projections for three years.

Now, when I say you can do this in four hours, it’s a bit like Jamie Oliver’s meals in thirty minutes. Before Jamie starts his clock, his kettle is pre-boiled and his kitchen equipment is laid out on the counter before he even starts cooking. So get your grande skinny cap ready, laptop is on charge, kids are out of the house (if you work from home) and you make sure you have no distractions. Don’t answer email. Just sit down and write this plan. And in four hours, it will be done. You will feel so relieved to have crossed it off your list and you’ll have a plan to get working towards. You will also have just increased your chances of business success. Congratulations!

 

Want to read this blog as soon as it comes out? Please ‘follow ‘ on the top of the page. If you need Finance Director Services, please visit my website at http://www.wrightcfo.co.uk , or contact me at sophie@wrightcfo.co.uk.  Happy business planning!