Here’s the question on every business owner’s lips: how can I increase my profits? With over thirty years of consulting experience behind me, I can confidently give you three options.
- Increase your prices.
- Reduce your costs.
- Lift your productivity.
Let’s explore all three in a little more detail.
Increasing Prices
I’ve found a lot of business owners are reluctant to raise their prices. They worry that they’ll price themselves out of the market, that their customers will desert them, that they’ll receive constant complaints about the size of their bills.
Bunkum.
Sell at a Premium
If you sell a premium service—excellent workmanship, quality products, fast turnaround—you can command a premium price. If your offerings are average, then yes, folk will complain if you send them eye-watering bills.
So my first question is: why aren’t you providing the absolute best service or products to your customers? High quality should be at the core of your business strategy.
Every business operates within a marketplace. So if you’re twice as expensive as your competitors, you’d better have a compelling reason to keep those customers flocking to your door.
Inflation is Booming
But there’s a second, more mundane reason to review and increase your prices regularly. The era of low inflation is over. The cost of doing business is going up. If you don’t review your pricing every three months, you’re just going to fall further behind.
(Even an inflation rate of 1% will see your profitability drop if you wait several years to review your prices.)
So my second question is: if you charge out labour at a certain price, when did you last increase that figure?
And my third: are you absorbing the additional cost of materials or components, rather than passing these costs onto your customers?
Which brings me to my final question on this topic: how regularly do you review your pricing, and increase it if necessary?
If your answer isn’t once a quarter, you’re doing it wrong.
Reduce Your Costs
Of course, if you’re nervous about raising prices, you can always cut costs. What are your options here?
- Rental costs: can you negotiate a better deal with your landlord?
Answer: given the current climate, it’s unlikely.
- Staff costs: do you have surplus staff, or are you paying over the odds?
Answer: as previously discussed, there is a war for talent right now. So cutting salaries is going to hurt your business. If by some strange quirk of fate you don’t have enough work to keep your staff fully engaged and hungry to do more, then maybe it’s time to trim the fat.
- Input costs: can you buy cheaper consumables—raw material, electricity and gas, or tools and equipment?
No? I didn’t think so, either.
Increase Your Productivity
I’m not talking about replacing your fluorescents with LEDs—although depending on the size of your business, an energy audit might disclose some hidden savings. No, I’m talking about getting the best out of your people—channelling their enthusiasm and knowledge, and giving them the freedom to implement their best ideas.
Last newsletter, I mentioned three different kinds of employees—Greens, Yellows and Reds. If you want to increase your business’s productivity, if you want higher profits, start with your people. The Greens are where the money is. Every Green you employ will add to your bottom line—provided you invest in them and take their suggestions for improvement on board.
Coach for Success
Coaching your Greens and Yellows is the best investment you can make in your staff. Internal coaching makes your Greens greener, and transforms your Yellows into Greens. Your ultimate goal is to build a team of people who turn up every day wanting to do their best, to contribute their ideas, to take pride in the work they do.
Second, move your Reds out of the business. That’s your best option. Some people believe they can coach their Reds through Yellow and into Green. Nine times out of ten, they’re wrong. So save yourself some heartache. Give your Reds the chance to move on with their dignity intact.
This last point is important. Who doesn’t enjoy a well-deserved sacking—apart from the Reds themselves, most employers, and the Fair Work Commission? Much wiser to set clear expectations for performance and behaviour, then have one of those tough conversations with your Reds. Once they know you’re serious, they’ll walk.
This all sounds good—but how do you set up an internal coaching program?
Simple answer? Call me. I’ll work with your people to set up a coaching program that blitzes your expectations.
Or tune in next time when we talk about coaching in more depth.