An extract from the book ‘Stress proof your business and your life’ written for the clients of Keen Dicey Grover by Steve Pipe and Elisabeth Wilson
“Making more profitable sales is crucial and there are three ways to start approaching this challenge:
• Benchmarking – when you benchmark your gross margins against others in your industry you will begin to understand how much scope for improvement there really is.
• Product profitability analysis – which helps you see which products / services are adding the most to your profits, and which are underperforming
• Customer profitability analysis – which helps you to see which of your customers are most profitable, and to identify any that you are making hidden losses on.
We are going to look at something which is arguably even more fundamentally important: the five sales drivers and three cost drivers that together constitute your eight profit drivers.
The five ways to increase sales and your sales drivers:
There are only five ways to increase the sales of any business, including yours:
1. Getting more sales leads of the type you want.
2. Converting more of your sales leads into customers.
3. Increasing loyalty – improving customer retention, and reducing customer defection.
4. Increasing the average number of times your customers do business with you in a year i.e. how many times buy from you.
5. Increasing the average amount of customers spend every time they do business with you. i.e. how much they buy from you. (One of the most important factors here is the way you price, which we will focus in detail shortly)
The three ways to reduce costs and your cost drivers:
And there are only three ways to reduce costs in any business:
1. Improving productivity and efficiency so that you need fewer inputs (i.e. labour, materials, services, etc) to support each £ of turnover.
2. Reducing the price you pay for inputs, including labour and raw material, i.e. by negotiating bigger discounts and lower wage rates, and switching to cheaper suppliers.
3. Managing your balance sheet better – so that balance sheet driven costs such as bad debts, funding and interest costs are reduced.
Your profit drivers action plan:
Together these five sales drivers and three cost drivers constitute the eight profit drivers for your business. And the key to improved profits is to create an action plan that focuses on these drivers.
So here are my six top tips for creating your profit driver action plan:
1. You can’t cut your way to greatness. Working on the cost of drivers tends to be slow and painful – after all, if cutting costs was quick and painless you would have done it already. It involves difficult decisions and stressful situations. Generally it also reduces the sum of human happiness and wealth (after all, if you pay a supplier less, they and their employees are less happy and less wealthy)
2. Remember too that the scope for cost savings is finite, since the lowest you can theoretically reduce costs to is zero, whereas there is almost no limit to how far you can increase sales. So whilst your cost drivers are important, and should not be ignored, your sales drivers are far more important, and should be your main priority.
3. Start by considering your current action plan for each of the drivers. Do you have one? If not, your need is more urgent! And if you do, how well is it working?
4. Then answer the question: what have we successfully done in the past that we no longer do enough of? So many businesses simply get out of the habit of doing things that work. For example, I regularly hear entrepreneurs say things like, “We used to get a lot of referrals when we asked for them, but I don’t think we ask anymore”.
5. Don’t just focus on the obvious – which for most businesses is to do more advertising and other marketing to generate more sales leads. Look equally at the less obvious area, such as how to improve your referral systems, sales meeting systems, follow-up systems, pricing systems, up-selling, and cross-selling systems, repeat business and customer loyalty systems.
6. Notice that the key word in the previous point is ‘systems’. Don’t leave your great ideas to chance. Instead build them into your systems so that they happen every time.”
Here at Keen Dicey Grover, we understand that by spending time with you, and by taking the time to understand your business from every angle, we are better able to give you comfort and the ability to control your business by providing the visibility of your business’ financial performance that you need.
We believe that producing and maintaining profitability analyses, along with offering strategic advice, is an important service to enable you to feel safe, supported and confident in running and growing your business.
Keen Dicey Grover
We care……………….we really care