Every business needs to make a profit, we already know that, but when should that profit be measured?
And as for many questions, the first response is “That depends”.
It depends upon why you are measuring the profit.
Ideally, and unless you can afford to run “loss leaders’, every transaction needs to deliver a fair profit. That is a sales price that makes it worthwhile for the business to sell it, and that makes it a good deal for the person or business buying it.
A successful business also needs a longer term perspective. There are bills that only need to be paid after a longer period – rent is maybe weekly or monthly, suppliers often provide monthly accounts, utilities might only need to be paid every quarter, and some memberships or licence fees are due on an annual basis.
So your measure of profit has to take into account a longer time frame than just a single transaction. Your sales price has to cover the cost of acquiring what you sold, plus a contribution to these other costs of doing business.
That’s all probably stuff you’ve heard before, but have you heard of behavior being a measure of profit? Before exploring that, let’s take a step back and agree on something: What you do today will build the world you live in in the future. Taking it easy will not provide you with a nice house and car. Managing your money, taking control of your finances will be more likely to do so.
The point is that behavior that your market disapproves of will eventually cause the business to fail. It may survive on past glory for a while, but it needs to truly serve the needs of the market or it will eventually fail when people stop coming in to buy, and that makes a big difference to your overall profit position.
Think of it this way: if you don’t truly serve your market they will go to someone who does.
What business issues do you think other business owners would be interested in? Let me know in the comments section.
That is a question that very few people ask, and it has two meanings. Both of them are important to you if you currently operate a business, or plan to.
There is truth in the saying that “You only ever sell yourself”. That is, building rapport with your client/customer is the first step to making an eventual sale. It follows that you have to be ‘saleable’. Your knowledge of your industry and product, your appearance, and your behaviors all contribute to the level of rapport you are able to build. Do you know what you are talking about, and can you explain that to your non-expert client? Are you dressed in an industry- and location-appropriate manner? Normally doctors don’t wear hi-vis clothing and work boots, whereas a building contractor probably should. (And would you trust a building contractor with a stethoscope around their neck the way you trust a doctor wearing one?)
Do you stand by your word? Does your market believe what you say? If not then you are giving them reasons to not buy from you.
Then of course there actually has to be a viable market that you can connect to and influence. That influence has to encourage them to buy from you instead of some other business, otherwise your business will slowly (or maybe not so slowly) just fade away.
What are your answers to these questions? Are you earning your market’s trust and influencing them to buy from you? And if not, why not?
There’s another question that is also important about now: Why should I care? The answer to that is relatively simple. You can build a long term, sustainable business and secure your future, or you can head for the ‘dark side’ and not always do what is best for your clients. The dark side leads to a ‘feast and famine’ cycle where you need to restart the business every so often, which eats into your profits, and eventually can cause the business to fail. The ethical approach, by comparison, maintains good relationships with the people making up your market, which maintains your profit level.
The ethical approach means that your income planning can sit on solid ground, the other way means that you always have to hope that people don’t find out your secret.
More on this topic later, and let me know you agree or not. I’m also interested in what you’d like covered in the next post.
What is the most effective way to generate higher profits? In 1844 Charles Dickens wrote about a scheme very much like a Ponzi Scheme, in 1987 the movie Wall Street warned of doing things the wrong way and in 2013 the movie Wolf of Wall Street demonstrated that these aren’t just stories, this is what happens in real life.
These stories are relevant because first they tell us that it has been generally accepted since at least the early 1900’s that long term profits are not generated by inappropriate business practice, either illegal or just antisocial in nature.
You prefer to buy from people who you know, like and trust. So do your customers. So why do some people still persist in acting against their customer’s best interests?
One reason may be that the salesperson is attempting to maximise their profits, and some jurisdictions require Company Directors to maximise the profit of the company. Surely that’s all good?
It may be until you take actually think about it. Which gives you the biggest overall profit – ripping a client off once or maybe twice at the highest possible profit margin, and in the process driving them away so that they find someone else to do business with or maybe settling for 75% of that profit and keeping that customer for four or five years? Even at half of the original profit you make more money by working with your customer base.
The real point is that we know the right way to treat customers and treating them that way delivers what both of you want: they get good value and you get solid long term profits. Treating your customers so they naturally want to buy from you gives you time to improve your business so that even more people want to buy from you and the existing customer base is even more certain you are the right person to do business with. What would an ever-increasing number of return customers do for your profit margin?
And isn’t making a profit the idea behind being in business?
Today I read that Facebook is predicted to fail. Not immediately, but it has been suggested that it will be 20% of its maximum size by December 2014. The cause of the demise is that younger users have been moving away. Read more about it here:http://www.abc.net.au/news/2014-01-23/facebook-could-fade-out-like-a-disease-researchers/5214524
And there seems to be a debate about the value of Twitter. The company, not the tweets you send out. It is currently valued at 70 times its annual revenues. Refer http://www.abc.net.au/news/2014-01-22/kohler-what-is-twitter-worth/5212376
So what does this mean for you and your business? There are two major points that I think every business owner needs to consider.
The first is that any business can fail. The biggest business on the planet in your industry is not safe. No business is too big to fail.
The second is the power of the customer. Your business must provide a need (or want) and take steps to make sure that the customer is happy. Existing customers have a habit of leaving. They change jobs, move house, retire … there are many valid reasons why their situation changes, but they will – sooner or later – stop buying from you. That just means you never stop looking for new customers.
Governments can get away with not always being polite because they legislate for people to use their services, they do not compete.
There are a number of attributes a successful business must have – and one of those is innovation. In this case innovation means additional products or services that add value to your customer, not additional problems for your customer.
How can you treat your customers better?