A lot of business owners will often fall into the trap of believing that in order to make more money, they need to sell more of their product or time.
On the face of it, that sort of makes sense; selling more should mean generating more income.
However, if you ramp things up to the point where your business is at full capacity, and you’re still not making money – or worse, you’re losing money – then it’s not a sales challenge you’re facing. Instead, you’re up against an issue with profitability.
Maxed Out
If you find that your resources are being run into the ground in order to make more sales, then you need to take a step back and look around; what you see might surprise you.
Systems creaking under the pressure. Employees with steam pouring from their ears. Processes deserving of scrutiny being carried out in a certain way, because that’s the way they’ve always been done.
The fact is, more sales won’t necessarily mean more money. If you are unprofitable, then increasing those sales numbers will only serve to magnify your loss making.
Say, for instance, you are an agency who can sell a service for £10k. If it costs you £12k to resource this, then you’re losing £2k on that job. And if you increase your sales by tenfold without addressing the issue of profitability, you’re looking at a £120k loss on £100k of income.
Realistically, that’s simply not sustainable.
Get Busy Getting Profitable
When your business is busy, you need to identify and maximise opportunities to get and stay profitable. And there are really only two ways to do this: increase efficiency or increase price.
Increasing price can be tough to pull off with existing customers, so increasing your company’s efficiency is often your best bet in improving profitability.
This could involve reviewing internal systems and implementing a means of tracking the time spent on particular aspects of a project. If it can take fewer man-hours to accomplish something, which in-turn propels a project towards completion faster than before, your costs will be reduced and your profit margins widened.
And when it comes to new projects, accurate estimates are crucial to achieving profitability. By quoting based solely upon the length of time to complete a project, you are quite often setting yourself up for a fall.
Instead, you must appreciate that your resources will only be productive for a certain amount of time, and that unexpected incidents – such as illness, equipment failure, or random client meetings – will rear their heads throughout a project.
One of the best ways of improving the accuracy of your estimates is to apply the Pareto Principle (otherwise known as the 80/20 rule). This rule suggests that eighty percent of the output comes from twenty percent of the input.
You should therefore try to identify the parts of a project that are the most productive, and subsequently eliminate or minimise any time wasting activities that surround them.
For example, if you are designing and building a website, you might find that the development stage of the project goes off without a hitch, but the time spent replying to emails and dealing with revisions during the design stage has actually pushed everything back. You now know which aspect of a project needs to be made more efficient.
Once you factor this into your estimate, and cost accordingly, you will almost certainly see an improvement in profitability.
Control the Chaos
Finally, you must ensure you are delivering ahead of schedule. Building a bit of wiggle room into your deadline can help you do this, but if you fail to control the chaos that can surround a project as it nears its completion, you can land yourself with more stress and ultimately less profitability.
No matter if you’re good at what you do – or indeed good at selling in general – you cannot get too carried away with the doing and selling for the sake of it.
You must review and iterate, make sure you’re tracking time and productivity, and only take on projects that you know you can deliver within the required timeframe.
What’s more, you must employ logic when deciding who to work with next. Being dazzled by a big job and jumping into a working relationship without even a little bit of due diligence can leave you up scope creep creek without a paddle.
Instead, make sure you’re working with the right type of client. Someone who respects your skills and experience, and understands your process. That way you’re likely to spend less time managing them and more time delivering to agreed milestones and deadlines. And that means less money spent on resource and, ultimately, more profit.
