Saturday, July 21, 2012

Profit - What Is Profit? How Do I Do More of That?

Profit Is Far and Away the Most Important Marketing Secret - Ask Your Wife and Banker

A prospective client calls a while back: "I'm trying to decide whether or not to keep my business open.  My wife is getting tired of supporting my hobby."

When we discuss the subject of Marketing, most business owners and their employees, managers, and even customers probably think things like advertising, store layout, packaging, product design, or distribution channels.  Actually, only the very astute think distribution channels.  Nobody counts profit and it's negative twin, loss, as part of marketing.  But unless we make a profit, all of the good intentions, products, customer service, and promotion is eventually going to result in the doors being shuttered, and no one gets the benefit of all the good things you've done.

Have you seen your profit and loss statement lately?  Ever?  Do you know how to read it?  Do you understand how to analyze that P & L and optimize your business based on the information contained in that document?  Have you done regular inventories so that the P & L is accurate enough to provide you good data?  Do you take or give money off books so that you can't actually know the true results?

Recently I worked with a service business that was doing almost $500,000 in sales.  The owner was breaking even.  In two minutes I was able to tell her what needed to be done.  Two years later, after making nothing for her work, she decided to take my direction.  The company now yields $6000 a month in profit, and should move to about $9000.  Does your company have a gold mine just waiting to be taken to the bank?  Many, many companies do.

I recently wrote an article for Bicycle Dealer Magazine that laid out how a brick and mortar retailer should be able to take home $100,000 on sales of $800,000 (Email me if you'd like to see a copy of this article.  Most retailers would be astounded by the assertion, and the truth is some retailers should do even better than that.

Profit is loosely defined as gross income less cost of goods and overhead.  Any analysis starts with the cost of goods.  What does it cost you to deliver the product or service to your client.  Is your cost of goods average or better for your industry?  Should you be buying better.  5% less cost on $500,000 in purchases is $25,000 a year.  Buying better might be worth some time and attention.

Selling price is another big issue.  Are you discounting too much?  Are you selling too many low margin items and not pushing higher margin items out with the sale.  Are your service employees paying their weight.  In most cases you should be paying service workers 1/3 of the gross income from their effort.

If the cost of goods is in line, attack the overhead.  Take it line by line and wonder aloud if you could eliminate that cost if it was necessary to save your business from bankruptcy.  A consultant once helped me cut $175,000 in overhead per year that was all essential in my mind.

Profit is the starting point for all marketing efforts.  What would you propose is #2 of the 101 marketing tips I will cover over the next 3 months?  Tell me your thoughts in the comments.

You might want to catch my new video series on Google Search Engine Optimization


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