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Build your business on the Pillars of Profitably

Written by: Sam Allman

Article Overview: Most businesses don’t maximize profits. Indeed most businesses fail - usually because owners and managers are reacting more than focusing. “Crisis-fires”, daily and hourly, command their attention and consume the day. As a result, they find themselves staying busy, instead of being highly productive.

Build your business on the Pillars of Profitably

In a recent study of 500 corporations, researchers determined that the No.1 cause of managers’ failure was their lack of focus. Managers run around, staying busy, but seldom doing the things that produce results. In our consulting business, I see the same behavior undermining good intentions. So, my nomination for the single most important ingredient of success is energy well directed – focus.

Most businesses don’t maximize profits. Indeed most businesses fail - usually because owners and managers are reacting more than focusing. “Crisis-fires”, daily and hourly, command their attention and consume the day. As a result, they find themselves staying busy, instead of being highly productive.

Let’s get one thing straight — hard work does not equate to “focus.” It’s true that highly productive people work hard. But, industry graveyards are full of businesses whose owners worked hard or long.

I grew up working with my father, who’d advise me, “The more you sweat, the more you get.” However, he expected me to work only half of the day — and he’d let me choose which twelve hours that would be! I never worked hard, only long. My father, now almost 80 years old, still works as many as 12 hours a day at his store.

The majority of owners who go broke, go broke tired. Of course, my father was right about working hard. He just didn’t emphasize that I needed to work harder at the right things. (Working hard at the wrong things just leaves a person tired.)

The question, then, is: Which are the right things to work hard on? In other words, on which critical things should we focus? The simple yet oft-ignored answer is: The ones that produce results.

One measure of a productive manager is his or her ability to stay focused on the important, and refuse to be tyrannized by the urgent or be ruled by crisis. The most profitable companies keep in mind the words of Wolfgang Von Goethe, “Things that matter the most, must never be at the mercy of the things that matter least.”

This philosophy applied to business has one key theme – to generate the most profit with the least time and effort. As we consult with our clients, our goal is to impact their business quickly and dramatically to justify our fees, especially when we guarantee their satisfaction with our efforts.

There are certain performance measures in a business, which when improved, will dramatically impact the company’s profitability. The problem is that when we focus on just one or two of the factors, results are improved, but not substantially. When we hear the word focus, we believe our attention is directed to one or two things. Paradoxically, we have discovered that our focus has to be on multiple factors, because when these seemingly independent factors act interdependently, the profitability increases exponentially, rather than linearly. Jay Abraham, a highly paid marketing consultant, likens these factors to a building with multiple pillars. A building built on multiple pillars can withstand storms, earthquakes, calamities, even if one or two pillars collapse, or become damaged.

There are many measures or pillars, way beyond what I can include in this article that will sustain the profitability of a business. I include the most impactful ones.

Growth of sales is the most basic pillar. Sales volume tends to drive everything else. The sales growth rate is the first line lenders examine when evaluating a business. You either grow, or you rot. All things being equal, significant changes in sales volume will radiate major ripple effects through the company’s balance sheet, income statement and especially its cash-flow statement.

Many retailers spend much of their time focusing on this pillar, but if the overall net profit % of the business remains the same, increased sales volume by itself doesn’t substantially affect results. For example, a million dollar store with a net profit of 3% increases sales to 1,100,000 (10%), with other measures remaining the same, makes an additional $ 3,000. Does that excite you for doing 10% more work?

What if the retailer improved volume, but did it by increasing the average sale or ticket? By increasing the average ticket, a business becomes more effective. Costs drop. Basically, it’s teaching your salespeople to ask for “French Fries.” A manager at McDonalds told me that for every $.69 increase in a purchase, $.63 goes to the bottom line. Assuming that your operating expenses were paid by the first part of the purchase, an average store could idealistically add $30,000 (based on 30+% for operating expenses) to the bottom line, by increasing the average sale ten percent. Do you know your average ticket?

But, what if a retailer increased volume by increasing the closing rate? Suppose with training, improved hiring, or better follow-up, the salespeople could close one more person out of ten who walk in? My research verifies that it is certainly possible for most stores. I realize one can do anything with numbers, but the numbers begin to get scary. Assuming an average closing rate, sales could improve up to 33%, but profitability could skyrocket. Do you know your business’ average closing rate?

What about improving your margin? It’s not only what you buy it for, but also what you sell it for that counts. If a million dollar store with a net profit of 3% raised margins 3%, they would double their bottom line. In down times, it may be more important to hold your prices and sell a little less, than try to sell more at a lower margin. Did you know that if you raised your prices by 10%, you could earn the same profit even if you lost up to 34% of your business? “Business is a game of margins!”

I’ll give you an example. A $1-million-a-year store with a 35 percent gross margin that lowers prices by 10 percent will sell more, but it won’t make any more profit until it has sold over $1,810,000. That’s right. Sales would have to rise by 81 percent to make the same profit after a 10 percent cut in prices. (Check with your accountant if you don’t believe it.)

Next, consider the pillar of overhead. Every dollar saved from current operating expenses goes directly to the bottom line. Therefore, it pays you to examine and justify every expense – every day, every month, every year. Eliminate nonessential expenses as soon as you spot them. Start by analyzing your five largest expense categories. Are you getting the maximum return for each dollar you spend? When you mis-spend one dollar you have really wasted two – the dollar you mis-spent and the dollar you could have spent well. “Waste is worse than loss.” Remember, a one percent decrease in operating expenses for a million dollar business will add $10,000 to the bottom line.

I realize that one can manipulate numbers to show anything. But, our clients have found that when they can improve these key measures: sales, average ticket, closing rate, margins, and operating expenses, all at the same time, the bottom line results become almost unbelievable.

In your mind’s eye, picture the Parthenon or the Lincoln Memorial and visualize the pillars. They represent the pillars of profit that support your business. The question all retailers have to ask is: “Are we really effectively maximizing results in each of the key pillars … or are we just busy?”

We all owe it to ourselves to get the most out of everything we do. When a business is built on multiple pillars, growth and profits are exponential rather than linear. Make yours exponential! Build your business on the pillars of profit.

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Article Tags: consulting business, corporations, failure, fires, goethe, good intentions, graveyards, half of the day, nomination, profitable companies, profits, things that matter, twelve hours, wolfgang von goethe



Related Forum Posts
Re: Great start, but no finish - My advise is FOCUS on your business. Focusing is the main factor to succeed on business. If you have a great idea, then follow it only, don't look anywhere else. It is especially essential in an online business. Because there are a lot of mind blowing sales letters promising millions dolllars or overnight success, people find it difficult to concentrate on one business and they lose their energy. Concept is simple. 1- Have a good idea; 2- Build your business on it; 3- Monetize your business; 4- Promote it; 5- Build list of responsive customers; 6- Maintain You Business. Focusing and not fearing from competition (instead you can learn from competitiors) are main tips of billionaires ,BTW. Orxan
How do you know if you have a good idea? - [quote="orxan":3118uboz]My advise is FOCUS on your business. Focusing is the main factor to succeed on business. If you have a great idea, then follow it only, don't look anywhere else. It is especially essential in an online business. Because there are a lot of mind blowing sales letters promising millions dolllars or overnight success, people find it difficult to concentrate on one business and they lose their energy. Concept is simple. 1- Have a good idea; 2- Build your business on it; 3- Monetize your business; 4- Promote it; 5- Build list of responsive customers; 6- Maintain You Business. Focusing and not fearing from competition (instead you can learn from competitiors) are main tips of billionaires ,BTW. Orxan[/quote:3118uboz] Thanks orxan! But how do you know if you truly have a good idea or not? If we ask ourselves, we may be suffering from tunnel vision. On the other hand, friends/family may try to discourage us from pursuing a small business because of their own fears, while others will simply give us an empty "you can do it!" line.
Re: Startup funding for a broke college student? - Hi EDNDev, I'm not a huge fan of spending money until I'm making money - if I were you instead of taking on more debt, I'd start the business as a service and start charging people for your time. Build up some capital and then invest some of it back into the business as you pay off your debts. If you provide some more details on the business I can try to help a little more. Good luck!
Starting A Business - go get a customer! you can have a great idea but if you don't have a customer you'll never be successful. Build a product / service around someone who will pay you for what you can offer! It's the best way to build a business.
Re: Why do people hate Network Marketing / MLM? - You make a great point abotu the sales industry GT. Unfortunately, sales businesses have a really high attrition rate. From car salesmen to real estate or insurance agents, anywhere from 60-80% (depending on the chosen market) fail and quit without ever making a single sale. Since most people think of MLM as a sales business, it's no wonder the attrition rate is that high or higher. The fact is, MLM is NOT a sales business. It's a PEOPLE business, or more specifically, a Coaching and mentoring business. As for an example, I do have one, as you would expect. But, rather than pitching my company here, I would suggest learning the basics of what makes a successful mlm company. A mentor of mine, Michael Dlouhy developed the 5 Pillars to Network Marketing. If the company has all 5 pillars, you can almost guarantee success. If not, the chances are not good. Michael developed this over 20 years ago. He knew MLM could work, but had no luck himself. SO, he joined over 100 companies in under 2 years just so he could compare and see what worked, and what didn't. Bottom line, you need a 5 pillars company if you hope to be successful. Bill


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