Tag Archives: Increasing Profits in Business

A Calculation to Help Determine Potential Profits

A Calculation to Help Determine Potential Profits

A calculation for small business profit improvementThe Pareto Principle (also known as the 80-20 rule) is named after an Italian economist named Vilfredo Pareto. It is an interesting concept which can be applied to help determine insights for potential profit improvement.

Let’s look at two possible applications for a small business:

Possibility 1) 80% of your profits come from the top 20% of your customer base.

Possibility 2) 80% of your customer frustrations come from the top 20% most frustrating customers (better known as the bottom 20% of your customer base).

If the second possibility exists in your business, the reality is that your bottom 20% of customers provide you with no profit at all and in fact are likely costing you time and money.

How can you determine the your most profitable customers?

Do a Pareto Analysis on your customer base.  Here is a simple step by step process:

Step 1) Make a list of your current customers.

Step 2) Determine a ranking system for your customers.  A sample system would be to score each customer from 1 to 5 on the following attributes:

  •      Payment history – 1 for a quick payer to a 5 for a delinquent.
  •      Hassle factor – 1 for never a problem to a 5 for continuous hassle.
  •      Likability – 1 for we really like working with them to a 5 for we’d prefer not to work with them.
  •      Value for price fit – Score a 1 if they appreciate and really value what you do for them and to a 5 for no appreciation and less desire to pay for your value.
  •      Risk – Evaluate the business risk of doing business with each customer – 1 is for lowest risk and 5 would be the highest.

The above are just examples. You decide the correct attributes of a good or bad customer.

Step 3) Rank the customers according to the ranking scheme

Step 4) Consider the top 20% of the customer ranking.  If Pareto was right, the top 20% of your customers are where you make most of your profits. Don’t forget to thank these customers!

Step 5) Review the bottom 20% of the customer ranking. Ask your accountant, bookkeeper or business advisor to help you determine your profit from these customers.

Even without applying this principle to your specific business, we know there is not only the potential for profit improvement, there will be quality of life improvement to be enjoyed by you and your employees who won’t have to deal with as many frustrations anymore!

4 Simple Ways to Grow Your Business

4 Simple Ways to Grow Your Business

Simple tips to grow your business - Hyatt Lassaline Windsor Ontario

Get back to business basics! 

Many business owners spend much of their time working in their business, often spinning their wheels just trying to stay in business.

Let’s stand back, take a good look and get back to business basics.

1)    Referrals

  • Do you ask for referral business? Do you ask every time in a systematic way or just when you think of it?
  • Do you thank current customers for referrals when you receive them?
  • Do you act like you want more business? If you give the impression that you’re too busy to handle more customers, your existing customers won’t refer you more business. Why would they if it appears you are struggling with the customers you have now?

2)    Customer Retention

  • Do you know when customers ‘drop off’ your customer list? Do you know why they ‘drop off’? Is there any area for improvement?
  • Do you calculate your ‘attrition rate’? This is the number of customers that stop doing business with you over a certain period.  If you have 1,000 customers at the start of the year and only 800 of these customers are left at the end of the year, then the 200 that left represents a 20% attrition rate.
  • Reducing your attrition rate by one customer is better than adding a new customer due to marketing and other costs of acquisition.

3) Employees

  • Are your employees fully knowledgeable about all of your business’s service or product offerings? If they are lacking, it might be affecting your bottom line.
  • Are you employees equipped to work productively? Do they have the right tools to do so? If you’re unsure, you should ask them!
  • Are you employees active and engaged in your business? Does your business embrace a culture of respect?

4) First Impressions

  • First impressions can go a long way. Is your storefront clean and inviting? Are your trucks in good repair? Does your website’s landing page pass the 5 second rule?
  • Look at businesses you frequent, what are they doing right? How can your business emulate their positive first impressions?

Getting back to business basics is an excellent strategy for profit improvement. All businesses have areas of improvement they can focus on.

Are Your Employees Equipped For Productivity?

Are Your Employees Equipped For Productivity?

One of my favourite expressions is, “You need to spend a quarter to make a dollar”. This is very true when it comes to equipping your employees to be productive. Here are some real life situations I have experienced as a small business advisor:

Equip your employees with the right tools to increase productivity - Accountants Windsor OntarioProblem #1 – Two work crews but only one saw – Every morning before each crew went in different directions there was a discussion to determine who needed the saw most. One crew had lost the second saw and the owner did not want to pay for another. In fact, there were quite a few tools and basic equipment that were lost. From a financial standpoint the payroll for the two crews was about $200 per hour. The new saw cost less than $200.

The solution – I convinced the owner to restock the crews with everything they needed at a cost of around $1,000. We then set up a $500 tool fund. If the crew lost or broke a tool it was replaced and paid for from the tool fund cash. If at the end of the season they didn’t spend all of the money, the crew got to keep the remainder of the tool fund cash.

Problem #2 – Employees sharing computers – The  version of the software program that three employees used  was only licensed for one user and wasn’t set up to run on a network. The employees took turns using the computer which was located in an inconvenient place for two of them. From a financial standpoint, the three employees produced a total revenue of $210 per hour when productive.

The solution – We determined productivity would increase at least an hour a day with two new computers added. On an annual basis that’s $52,500 more revenue! That is a good return for roughly a $3,000 investment in two computers networked together and 2 more users on the license. (We didn’t even calculate the uplift from much happier employees!)

In both of the above examples, by spending a quarter, the business made far more than a dollar!

My suggestion is to talk to your teams about what tools they need to be more productive. When you evaluate the investment, calculate the value of the lost revenues from downtime and the payroll costs of unproductive employees, I suspect every business has an opportunity to spend a quarter to make a dollar.

Successfully Converting Leads into Sales

Successfully Converting Leads into Sales

Every business has some ‘low hanging fruit’ to pick. There are ripe profits stuck between the leads your business generates and the actual revenue dollars you convert from these leads.

A lead is created by your referrals, your marketing and advertising efforts, your location etc. A lead could be a potential customer walking into your store, a phone call, a website hit or a cold-call by your sales team.

Out of every 100 leads, there is only a percentage that gets converted to actual sales. Some of the leads that did not become sales may have happened for the following reasons:

– The business missed answering the phone call. Perhaps the voice message was not followed up in a timely manner.
– The lead was not properly followed up by the sales team. Be certain that your sales team properly educated about the products or services your business offers.
– Nobody followed up with the potential customer after the initial contact. This could be because the sales team get the contact information or ask for permission to follow up. This could also be because the information was obtained, but the lead was still not followed.
– Maybe your staff is good with converting walk-ins, referrals and phone calls, but the system to properly follow up emails leads or website hits has not been perfected.

Create and perfect systems to ensure that every lead is followed up in a timely manner. Be certain that your sales team is properly educated in all aspects of your products or services.