Lack Of Business Isn't Always The Problem
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! Since
1992, C.J. has been teaching business owners and
salespeople to make more money with less effort. She is
a Master Certified Coach and leads workshops
internationally. Read more of her articles at
www.getclientsnow.com info@getclientsnow.com
