Andy will be speaking on the subject of ‘Profit’ at three ‘Love Business’ breakfast workshops to be held in Leicester, Nottingham and Derby on the mornings of 23rd, 24th and 25th June 2015 respectively, and he has written a series of blogs to set the scene for the workshops. If you’re in business entry is free. Each one will be packed with dozens of ideas around the theme of doing great business in the new age of the millennial buyer. Click here for more details and a registration form.
I have a friend and long-standing client who is focused on cost reduction in his business, and has been for years. Over time his business has become more efficient, leaner and better run.
His problem is that, in all of that time, his turnover has remained stationery. He now delivers his service for less money than he did ten years ago. His business is slowly, inexorably, strangling him to death.
He hasn’t learned the lesson that Ken Blanchard expressed in his seminal book, ‘Big Bucks,’ the third of his cardinal rules of business. It’s a simple rule, and it says ‘Income Less Expenses Equals Profit.’
Now you might imagine that is just what my friend is practising. If you do, you’ve missed the most important part of the equation.
There are two variables in play here; Income and Expenses. One has limited application. The other is completely without limits. Which will you spend your time working on?
Let me expand. You cannot cut your expenses by more than 100% of their current level. The more you cut, the harder it will be to grow. A business spending nothing is unlikely to move forward (although if you know of a way to run a business with zero costs, I’m all ears!).
Income, on the other hand, can be expanded exponentially without limit. Yes, this expansion is likely to mean higher costs, but my point is that the fastest way to more profit in your business is more income, not lower costs. That’s why the world’s great companies devote so much of their revenue to marketing and revenue expansion.
My friend lives in the shadow of the stigma of failure. Yet unless he changes his ways, failure is inevitable. In your business, are you prepared to countenance the risk of success by focusing on growth?