LACK OF BUSINESS ISN'T ALWAYS THE PROBLEM by CJ Hayden, MCC
When you're just starting out in business, it's a safe bet that you
need more clients. But what if you have been up and running for
a while, and you're still not making as much money as you would
like? You may be in the habit of thinking that attracting new clients
is the answer, but this isn't always the case.
There are many reasons why a professional services business might
not be earning enough, but they typically fall into four categories: not
enough revenue, not enough profit, not enough customers, or not
enough time.
Start by looking at your gross revenue -- the total amount your
customers pay you over the course of a year. How does it compare
to others in the same line of business? Ask some trusted colleagues
or check with your professional association for any statistics they
may have.
What percentage of your gross revenue remains after you cover
cost of sales? This is your gross profit. As a service business, you
may have no cost of sales. If, however, you are selling books, tapes
or software, or accepting credit cards, your inventory cost and
credit card fees need to be deducted from your earnings before
making other calculations.
Now deduct your business expenses from your gross profit. What
percentage of gross profit remains? Is this a typical percentage for
your industry? If you can't gather comparable data from colleagues,
your professional association, or a published source like
Dun & Bradstreet's "Industry Norms & Key Business Ratios,"
compare your profit margin (net income divided by gross profit)
to a desired goal of 70%.
LOW REVENUE
If your gross revenue seems low for your
industry, your profit margin is at least 70%, and you have about
as many customers as you can comfortably serve, concentrate on
increasing your revenue, rather than trying to improve your profit
margin or bring in new customers.
Consider raising your rates, which may mean finding a market
that is willing to pay more. Look for customers who will give you
higher dollar volume contracts or place larger orders. Think about
hiring more administrative help, which would free up more of your
time to charge out at professional rates. You should also work to
increase your passive income by selling products created by you
or others, reselling some of your existing work, or licensing a
process you have developed.
LOW PROFITS
If you are spending more than 30% of your
gross profit on overhead and marketing, work on improving your
profits. Look for ways to cut expenses by reducing your overhead,
or focusing on your most profitable line of business.
In addition, if more than 15% of your gross profit is spent on
marketing alone (assuming you are not a start-up business),
consider cutting back on advertising or mailings, and using more
referral-based marketing strategies. Seek out customers who
will give you repeat business or long-term contracts.
TOO FEW CUSTOMERS
Low revenue combined with not
enough billable work to keep you busy means you really don't have
enough customers. If you don't have a marketing plan, it's time to
create one. Focus your plan on the most attractive service you have
to offer and the most lucrative market, rather than diffusing your
energy by marketing several different service lines to more than one
type of customer.
If you already have a marketing plan, but it's not paying off, you may
need to break into a new market, look for a more appealing way to
package your services, or form an alliance with someone who
can send a steady stream of business your way.
TOO LITTLE TIME
It's possible that you simply don't have
enough time to earn more money. When you are consistently
spending over 25 hours per week serving clients, with more
potential customers in the pipeline than you can realistically serve,
it's time to hire an employee or bring in a junior partner. If you're
not ready to take that step, think about subcontracting work to
a trusted associate, and keeping a percentage of their billings.
In reading the suggestions above, you may have discovered that
you don't have enough information to diagnose your earnings problem.
There are six statistics every service business owner should
know: revenue, expenses, profit margin, number of customers,
average sale amount, and billable time. If you don't have the
answers, start tracking these measurements today.
C.J. Hayden is the author of Get Clients NOW! Thousands of
business owners and salespeople have used her simple sales and
marketing system to double or triple their income. Get a free
copy of "Five Secrets to Finding All the Clients You'll Ever Need"
at http://www.getclientsnow.com
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