Why it pays to mind your margins, not just your turnover

By February 27, 2019Feature
Office pen calculator

The “work less, earn more” slogan is not a newcomer on the sales scene. But while it’s often associated with get-rich-quick schemes, there is an actual method to the madness that is basically just a smarter way to approach business.

Everyone wants to earn more and work less. It’s a no-brainer. It frees up time for the things we really want to do in life. Drive that car we saved so much for, spend time with the kids, take that holiday we’ve been putting off or just potter around the yard with the family. All of the things that we don’t have time for when business is under pressure to make more sales and increase turnover.

But is it really turnover we should be chasing? Here’s what you should be focusing on if you want to improve the efficiency of your business so everyone can work less, while the business earns more.

Case One – Mining Services

I had a client in mining services, David, who was frustrated with his sales team’s results. Their turnover was growing and they had new clients signing, and to keep up with the demand they had to bring on new machinery. This would have been OK if they were making enough at the end of the week, but while turnover was growing, profits had plateaued.

David asked me to take a look at their books and the team’s performance and work out where the weak links were, and it didn’t take long to uncover them.

While the team was working their butts off, and clients were happy, the product was seriously underpriced. By bringing in more machinery they’d almost squashed their entire margin. I asked David, “Have you considered a cost analysis of the service you’re providing, and whether it is worth more now?”

He said that he had, but when trying to negotiate a higher price with clients, the clients managed to get them down even lower on price. He said that the problem was that his staff didn’t feel empowered to sell the product for what it was worth, and for that reason were constantly competing on price.

So we’ve found the problem. What now?

Competing on price is the longest, toughest road you can take in sales. David’s team needed to understand the value they could bring to their customers. They also needed to believe in it themselves, and get rid of their own mindset obstacles. Last but not least, they needed to be able to articulate and sell that value to their customers.

Sales teams should be empowered to sell on value, not price #salestips Click To Tweet

“But what about the push back?” David asked. He feared that upping his price would lose the business customers, and he wasn’t wrong. Not all of their existing customers would appreciate higher prices. The low-cost buyers would find other low-cost suppliers (and keep them busy), and the added-value buyers could be served even better (while we would make money).

Case two – Hairdressing Salon

I had a similar case with a friend of mine, Mary, who ran a hairdressing salon in a remote town in Queensland. She came to me fretting because she had put all of her savings into her business, and despite being busy and everything going well, she didn’t seem to be making any money. She was almost out of options and was worried the business was going to go bust.

I asked if I could examine the business for her and have a look at her books. And after a thorough examination of the business, I found the problem. There was not a consistent margin in the services she sold. Even worse, one of the most common services she was selling was hair dyeing. The product she required for a standard hair dye cost the business $45, and she was charging it out at $31.

I told Mary she needed to be charge three times that if you want to make a profit, and I showed her why. She didn’t realise that it was costing her that much but even when she did, she didn’t feel confident charging more.

Mary said that if she put her prices up, her customers would leave and she would have less work. She said that the other hairdressers in town were charging the same amount so it was a no-brainer that people would go there. But she had no choice; if she continued going the way she was, she was going to go broke. So I asked what did she have to lose?

Eventually she agreed to put up that price to $90. As she expected, some customers complained, and some customers left. But a lot of her customers stayed. And most of the customers who left, came back stating that they were not happy with the alternative and prefered her service.

In the end, she was running a profitable, sustainable business with clients that were worth more, taking up less of her time.

Of course, businesses need thorough analysis, a well-formulated strategy of where the owners want to go, a good understanding of the value proposition of their offering and sales people who have the mindset and the skills to articulate and sell that value.

Work less, earn more. The deep-dive will deliver it for you.