Issue #60 Is Your Business Profitable?
Is your business really profitable? Or are you ringing your sales bell without checking to see how profitable your sales are?
While you are reading this, the rest of the team and I are having our annual Start Grow Manage company break.
So, while we are away, Jeff has prepared an amazing homework assignment for our clients to do. And it’s the Make More Money Playbook.
You can find it and all the bells and whistles that come with it here.
In today’s issue:
- 🗣 Amazing Announcements, our blogs, and stuff coming your way.
- 💸 Back to Business, Jeff talks about why it’s important to know how much it costs to deliver your services.
- 💛 Community Corner – have something to add? Let me know!
💸 You Should Know Your Customer Acquisition Cost. How much money are you spending to acquire a new customer? It may be more than you think, so you should read more here.
⚙️ It’s 8 AM, do you know how your people are doing? Performance management can be tough, but there is a process for that. And we’ve put it together into a blog post and (for Insiders) a Playbook. Check it out here.
Back to Business
It is great to celebrate successes.
But you also want to make money.
So the question is: does making a sale make you cringe with the anxiety of having to deliver?
This is pretty common: MSP owners will often do what it takes to make a sale, even if that means offering discounts and additional benefits to sweeten the package, and that sucks for profitability.
So, the question is: do you actually make money delivering your services to your current portfolio of customers, products, or projects?
It’s probably time to do an audit.
Do you want to be smarter than a $6 billion market cap company?
It isn’t just MSP owners who struggle with profitability.
I once helped a South African mining company get profitable by reopening unprofitable mines.
They’d shut down two money-losing mines to improve profitability. That made the rest of their operations less profitable, and they didn’t understand why.
I know that you don’t operate mines. But this is a textbook example of a textbook example.
Think of a mine as a project or customer. There are operations that happen in a mine that generate revenue, just like a project or a customer. You have projects or customers (yes, I use the word customers instead of clients).
In addition to paying for operations, there are corporate activities that go across each of these mines, projects, or customers. Things like marketing, HR, organizing Discovery Channel tours of the mines – that sort of thing.
What our mining company had done was allocate the cost of those corporate activities in such a way that some of their mines looked unprofitable.
So, they shut those mines.
Even though the mines were not paying for the allocated corporate cost, they were generating a lot more money than the cost of their operations.
That extra money helped pay the corporate costs even if it wasn’t enough to pay for the total allocation.
So, when the company shut down the mines, the corporate costs, which were about as easy to control as a 10-pound cube of jello covered in olive oil, stayed about the same. They were spread out over fewer mines, and now those mines looked unprofitable.
The solution was in vocabulary.
Everyone had to learn a new phrase: contribution margin. That is the money each mine, project, or customer contributes to paying corporate or overhead costs.
If your customer or project has a negative contribution margin, you should stop that project. If it has a positive contribution margin, you keep going because they are helping you cover your costs.
At the gold company, this meant we increased profitability by restarting “unprofitable” mines. They contributed margin, and, like magic (that took a couple of years and lots of work), the company wasn’t teetering on the edge of insolvency anymore.
For you, this means developing an understanding of your business, where you make money, where you lose money, and how to get more money for the time and energy you invest.
That is what our Make More Money playbook is all about. It will guide you through assessing your portfolio so that you know where you make money and who your valuable customers are.
So that you don’t save yourself into oblivion.
🗣 Client Shoutout: Mike Malloy! Mike is one of our Thrivers, and we wanted to give him a quick shout-out. He delivered an amazing presentation about delegation and automation.
He’s an invaluable part of our community and is all about building a business machine so he can “maximize” his time with Max (his son). Learn more about his company Malloy Industries here.
📊 Want to Create Amazing Reports and Financial Forecasts? We at Start Grow Manage love using Fathom with our Platinum clients. It connects to QuickBooks and Xero and pulls that information to create all kinds of reports to better understand your business’s financials.
☀️ Start Grow Manage Shut Down: Remember that we have a company shut down for this week and next week! So if you are a client, do your Make More Money Playbook; otherwise, feel free to let us know when you plan to step away from your business to make room to innovate.