How Healthy Are Your Profits?
How healthy is your business?
Are your sales rising?
Are your margins good?
Do you have control of your costs?
Are your Profits growing?
If your sales and profits are growing then you should have a healthy business. But if your sales and profits are flat or are decreasing, then your business is not so healthy and you need to take action.
In such a situation, your business needs a complete re-think – you need to re-think everything within your business, starting with FOUR major areas:-
- Your Products
- Your Customers
- Your Margins
- Your Costs
You should ask yourself questions about your products:-
- Are your products matched exactly to the needs and wants of your customers?
- Do your products bring real benefits to your customers?
- Do your products make the lives of your customers better?
- Are your products priced right to give value for money but also a good margin?
- Have your product sales dipped in the past 12 months and, if so, by how much and why?
You need to sell a high number of your products to generate high sales that keep growing, but you will only achieve that if your products match exactly the needs and wants of your customers.
You should ask yourself questions about your customers:-
- Do you understand fully who your target customers are & everything about them?
- Do you have an army of customers that is growing?
- Do your customers return to buy more from you?
- Do your customers tell their friends about you?
- Do your customers get a good customer experience from your business?
- Has your customer numbers dropped in the past 12 months and, if so, by how much?
It is imperative that you understand who your target customer is and you understand everything about the needs and wants of that customer – then you should be able to sell them the right product and achieve a large army of customers and keep growing that army.
You should ask yourself questions about your gross profit margins:-
- Is your margin sufficient to pay your costs and to give you a good net profit?
- Are your selling prices lower than the equivalent charged by your competitors?
- When was your last selling price increase?
- Are you paying too much for your products?
- Has your margin slipped in the past 12 months and, if so, by how much?
It is important to understand how your margin affects your net profit – it must be large enough to comfortably pay all your costs and to give you a high net profit. Are your prices too low and if you were to increase them, would sales slip? In my experience, if you have a strong product offering, price increases should not affect sales.
You should ask yourself questions about your costs:-
- Do you have a clear understanding of all your costs?
- Are you as efficient and lean as you could be?
- Do you know which costs have increased over the past 12 months, and by how much and why?
- Are there purchases being made that could be trimmed or eliminated?
It is very easy for costs to creep up and to not be noticed. You should look at each cost and analyse each one and see where quick savings can be made.
From experience, doing this exercise can often generate significant changes to the health of a business. Even just a 10% increase in sales, a 2% increase in margin and a 10% decrease in costs can have a dramatic effect on the net profit, often adding as much as 40% – now that is surely worth having?
Have a think about this now!
This is a very quick snapshot of possible remedies for an unhealthy business, but if you would like some more advice, email me now: Robert@prestigebusinesscoaching.co.uk.
Or leave me a comment below.
THINK SMART, ACT SMART!