How To Make More Net Profits Without Adding More Customers
At last month’s Boot Camp I opened up with a session on how to raise your rates and get paid more for the services you are already delivering. I personally believe I need to drive home on this point more with all clients, pressing them to answer the question: What can you do, offer or change that would allow you to substantially increase profits from each and every client you have? That’s a very smart question to think on when planning quarterly initiatives. Why? Most business owners are compulsively and disproportionately focused on getting more new customers and increasing top line revenue to the point of ignoring or neglecting other key goals and metrics that, arguably, are more important. Profit being one big one. Contrary to popular belief, more top line does NOT translate into more bottom line.
Of course, adding new customers is good and necessary, but it also adds to overhead and complexity. It often will require you to add more staff, which in turn further sucks up time in hiring, training and management, as well as infrastructure, office space, technology, business expenses, inventory, etc. So the smarter way to FIRST approach growing a business, in my humble opinion, is to look at ways to boost income without adding on “more.” For example, if an IT firm has 50 customers that are, on average, spending $800 per month (or $9,600 per year) with a GP margin of 50% ($240,000), bumping that spend by just $100 more per month at the same profit margin adds $30,000 in PROFIT to the business; and $100 per month is an easy goal to shoot for. Plus, these clients will be easier to sell provided, of course, the relationship is solid and the product/service offered is in alignment with what they want. Another example: The same business decides to find more clients who fit the profile of their top 20% of clients and to DROP the bottom 20%, thereby keeping the same number of customers, but instantly increasing the profitability of their business.
You should start by asking yourself: what are your clients asking for (or quietly wishing for) that you’re not currently providing? What other problems can you solve? If you don’t know, you’re out of touch with your customers. Another option is adding a high-end service to what you’re already doing. Starbucks has been very clever about this, adding Clover machines to up the price point of coffee from $2 a cup to $4 and offering limited edition coffee, in numbered bags for $50 to $60 per lb. Smart. How can you do this? First, create a raving fan base that loves your services. Second, offer a higher price-point, luxury version of what you already sell.