Oh, I know that you’ve been looking around and finding out how important it is for you to craft a snazzy Mission Statement so you can align your priorities and attract an investor. That’s all well and good.
But, if your highest goal in your business isn’t Profit, then you’ll likely miss the mark.
Profits are Good
Profit is what distinguishes a Business from a Hobby. So, if you want to have a business, then you need to be making a Profit. Otherwise, you’re not really serious, and your very expensive business will end up being a Very, Very espensive Hobby.
Every transaction doesn’t necessarily need to be profitable, but your pricing and expense-controls need to be well-enough defined that profit is assured overall. So, at the end of the day, week, month, year, you need to be able to show a profit, or how you are at least reducing expenses to stem red-ink.
I build profit into my daily and weekly goals. I know how much of what products I need to move in which channels in order to be profitable at the end of the week.
What About Customer Satisfaction?
Naturally, you need to find and retain customers in order for your business to grow and succeed. So, if you always put this instant’s profit ahead of the long-term profit, then you’ll end up failing or at least having a business that is difficult to sustain.
Customer Satisfaction is the engine that drives repeat business, word-of-mouth advertising, and in the long-haul, leniency when you inevitably screw up and let your customer down.
So, you’d better be offering and delivering products and services, that customers want, in ways that exceed their expectations in quality, value, and excellence.
The Bottom Line is the Bottom Line
It is important to know how every part of your business day impacts the bottom line. You need to know how much your merchandise and supplies cost, how much your labor costs rum, and what your variable and fixed expenses are.
You also need to understand how the pieces of your transactions affect that bottom line.
I worked for a time as the Operations Manager of a 50-person company. We sold $20k and up fax systems. (Yes, they really did cost that much, and there really was demand for them…) We paid the sales guys a commission on each sale, which is typical.
It seems that every day, one of them would come up with some sort of discount or free add-in for their sale that they just HAD to close. If they discounted the sale by $1,000, their commission would go down $150. I could never quite get them to understand the it also cost the company $850 in lost profits.
Think about this formula. P=S-C-E. Profit = Sales – Cost of Goods – Expenses. If all remains the same except the sales price, a reduction in the price reduces profit by the exact amount. Discounting a sale costs the bottom line.
By the same measure, not controlling costs will affect the bottom line in the same way. Ben Franklin said it best. “A penny saved is a penny earned.” Plug that penny into the Profit formula, and you’ll see – It’s True! Whodathunk???
Does this mean that you should never give a discount? Absolutely not!Discounts, Special Sales, Quantity Discounts, and the like are proven methods of generating more business.
What it Does mean, however, is that you need to account for these sorts of reductions in sales dollars in advance and in your plan, not on some impulse to generate a bump in sales. Your business needs to be able to absorb such discounts and still deliver a profit.
The Main Thing is to Keep the Main Thing the Main Thing… Don’t get distracted by the crush of business or the excitement of a new product line or the allure of a new set of techy-thingies. Keep your eye on Profits. Measure them. Understand them. Make them…
How have you lost track of your profits? How have you recovered from distraction? Tell me what you need to know about being profitable.