Ready, Aim, Fire
In my previous blog titled “Do More Customers Equal More Profits?” I began to answer a question I received:
“How can I better utilize the customers I currently have to become profitable and how can I market and attract more customers to become consistently profitable?”
I am answering this question in my 2 minute video series: “Daily Guidance with Practical Encouragement” on my YouTube channel: The Entrepreneur Guide.
In this video from my Daily Guidance I share a real story about an entrepreneur that will help you understand how to better utilize your current customer base to become more profitable!
Remember: more customers don’t necessarily equal more profits.
Ready, Aim: You must evaluate your maintained margin.
If you took the action in the previous blog, then you checked out your margins and done some work to properly “aim” and adjust your target margins to a level that can produce profit.
Fire: Now you’re “ready” to “fire” and begin scaling your business with more customers, because you know your target margins are profitable.
Watch this next video from my “Daily Guidance” 2 minute video series to avoid a costly mistake I’ve seen other entrepreneurs make when attempting to scale.
Scaling can be particularly difficult for small businesses, here’s an illustration to give you some ideas.
If labor costs are a part of your gross margin calculation, then as you scale you will reach a point when you’ll need to hire another person.
The challenge at this stage is that there isn’t enough work for another employee, but there’s just too much for the current staff.
One way to overcome this is to begin to implement some overtime. This has to be done very carefully though!
I’ll let you in on a secret…overtime can be the silent killer of profits margins, if it is not well managed. Overtime executed poorly can slaughter your profits.
Another option is to bring in a part-time person.
Ultimately, if your growth is successful you will need to add a full time person.
Small business will feel this labor increase in a decrease in profit margins, until the growth fully absorbs the cost of the new position and margins increase back to your target margin.
But, guess what?
Just as you reach your target margins, the cycle repeats itself and you have to add more labor.
Solution: “re-aim” your target margin to include this partial labor growth cost. In other words, you increase your margin at full capacity, so you hit your margin target when you operating at less than full capacity.
Does this make sense? (Feel free to leave questions or comments in the comment section below.)
Emotional Reactions vs. Financial Decisions
Most entrepreneurs operate more from a gut feeling rather than actual financial data. This is like driving cross country without a map.
Imagine, you’re driving from Florida to California, you can’t just head West. It’s much more complicated than that. You have know when to turn off and how to connect to the next road, etc.
Scaling requires good financial metrics, so you can make decisions based on the reality of your business.
One Action You Can Do:
Study your Profit Margin in both dollars and percent,
and set targets to maintain each.
For more help on this watch my Daily Guidance video: What is Gross Margin?
All for your success!
P.S. Wait! I have something for you!
Opt in to my FREE eCourse “The 4 Keys to Record Breaking Success”!
This blog touched on 2 of the 4 keys: profits and people.
Profits and people play a huge role in your company’s ability to scale and I cover these 2 topics in more detail in this FREE eCourse.
The other 2 keys I cover are: Operations and Strategy. Both are essential to your ability to scale and achieve your profit goals.
Just click the link below and you will receive 5 videos (1 per day) via email containing my teachings on these 4 keys. Each video has 1 practical action to do to begin moving towards record breaking success!