There’s not an entrepreneur on this planet who doesn’t want to get paid more. Even if money isn’t what drives you, you’d just plain be a bad businessman to turn down more cash for the same amount of work.
Money opens doors, and with more of it you’d be able to funnel more money back into your business, pass profits on to your employees, invest in philanthropic initiatives and so much more. So, are you making as much money as you can for the work you’re doing?
In this post, we’ll break down the two critical steps to increasing your revenue without changing your product or doing any additional work. Those two parts are 1) cutting expenses and 2) maximizing your value.
Part I: Cutting Expenses
What do you do when your household budget is in the red? You can’t magically increase your salary, so you trim expenses to balance what’s going out with what’s coming in. If you want to make more money in your business, you have to go through the same process.
Hopefully you’ve already got more money coming in the door than is going out. If not, you’ve got negative cash flow and a serious problem. If you’re not sure what your cash flow looks like, we’ve got a free cash flow tool that’ll help you figure it out. You can also enlist our CFO coaching services that will help you establish a real budget and set up some accountability in your finances.
Once you know you’re at least breaking even, it’s time to look for ways to cut expenses, which immediately increases your profit margins. Increasing your margins gives you more money like magic.
Here are some steps you can take to lower your expenses and make more money:
No, not at Target, sorry :(
Think of all the non-personnel related things you pay for in your business each month. Shipping costs. Rent. High speed internet. Office supplies. Chances are you just pay for most of these things like a robot month after month, because after all, your business needs them to function. But when was the last time you shopped around for a better price?
Don’t accept the status quo from vendors and service providers you work with. Ask for their best possible pricing, and if you’re already getting it, shop around for alternatives that are more affordable. A 10% savings on a single invoice might not seem like much, but imagine if you saved 10% on your total overhead costs each month. That’s a big chunk of money left over in your bank account, not because you won some new customers, but simply because you took the time to shop around.
Ideally, you should shop around annually to ensure you’re getting the most bang for each buck you’re spending to run your business.
I’m always surprised by the number of business owners I talk to who are still sending paper invoices or giving clients hard copies of every document. Why? Even if you deal with a physical product, most of your business can be done completely digitally.
Switch to a fully digital system for accounting and invoicing. Eliminate hard copies for clients and provide them only upon request. Add a surcharge for customers who opt to receive a paaper bill in the mail. It’s one of the easiest changes you can make and one that will help not only cut down on supply costs, but streamline your operations which saves on labor.
Manage Inventory Effectively
Inventory is a wild beast that must be tamed. If left unchecked, it’ll eat up money, time and assets you could be using elsewhere in your business, like to improve your margins.
To manage inventory effectively, use a dedicated inventory management system (rather than a spreadsheet or pen and paper), which will cut down on errors and improve turn times. Track key inventory metrics like turnover, days to sell and holding costs in order to identify places where your inventory is costing you money.
If all of this sounds a little foreign, it might be time for an inventory crash course. Check out our post on 7 Common Inventory Mistakes That’ll Cost You Money.
Narrow Your Marketing Efforts
We’re firm believers in the power of marketing. In fact, when you’re just starting your business, we recommend allocating about 30% of your spending on marketing to acquire customers who will be come raving fans of what you do.
On the flip side, though, marketing can be one of the most wasteful line items in your budget if you don’t know exactly what your marketing dollars are getting you. Here’s a hypothetical example to demonstrate.
Acme, Inc. spends $5K on marketing each month and does $50K in monthly sales. Their marketing budget is allocated as follows:
PPC ads: $2,000
Social media: $1,500
Print advertising: $1,000
Email marketing: $500
Since $50K in sales are coming in the door each month, it seems like Acme is getting a pretty good return on their marketing investment. They might leave it at that and keep doing what they’re doing. Hey, as long as they’re making money, right? But if Acme wants to make more money without doing any more work, they need to break the numbers down further.
When we look at Acme’s ROI by marketing channel, it might actually look something like this:
PPC ads: $10,000 in sales
Social media: $2,500 in sales
Print advertising: $8,000 in sales
Email marketing: $10,000 in sales
Organic/unknown: $19,500 in sales
Remember, Acme is spending just $500 on email marketing each month, but it’s yielding them a whopping $10,000 in sales. That’s a 1900% ROI. Based on these numbers, Acme should ditch or seriously scale back its other marketing channels and funnel that money into email marketing. Doing this could easily save them thousands of dollars each month while bringing in exponentially more in sales per marketing dollar spent.
This is a tough pill to swallow for many entrepreneurs; it’s hard to look at what you’ve been spending money on and admit that it’s not really getting you anywhere. But once you put your pride aside and get serious about narrowing your marketing efforts to include only what’s working, you’ll be on the right path to making more money without spending an extra dime.
Maximize Tax Benefits
Finally, our personal favorite way to cut expenses: maxing out your tax benefits and deductions. It’s free money! You’d be crazy not to take advantage of the full tax benefits you’re entitled to as a business owner.
Virtual accounting and bookkeeping from Ignite Spot can help you manage your day to day expenses for a fraction of the cost of an in-house accountant. When you manage your finances with us, we make sure your taxes are taken care of, headache free. It’s the easiest and most cost-effective way to make sure you’re not missing any small business tax write-offs that will help you make more money.
Part II: Maximizing Your Value
So, as we discussed above, there are two parts to making more money: cutting expenses and maximizing value. Now that we’ve covered the first part, cutting our expenses, it’s time to move on to the second part—the fun part! Simply put, maximizing your value making your product so attractive and irresistible that customers are willing to pay top dollar for it—and not a penny less.
Are you charging enough for what you sell? I want you to get really honest with yourself for a second. Whether you sell consulting services or car parts, are you being paid what you really deserve? If you feel a twinge of uncertainty—or maybe a massive wave of doubt—the answer is probably no. The easiest way to make more money is to charge more, and that’s exactly what you’re going to do.
There’s a formula to maximizing your value. It’s one that the people behind those late-night infomercials have mastered down to a science: they make the product’s benefit glaringly obvious. They show customers in no uncertain terms how owning this thing will improve their life. They make it feel impossible not to buy it! That’s what maximizing your value is all about, and it’ll allow you to command a premium for what you sell.
Believe You’re Worth It
It might sound cheesy, but it’s something we talk a lot about in our CFO consulting practice: believing you’re worth more. Half the battle in charging more money is believing that people will actually pay you that much, and that comes from knowing your worth.
You’ve poured blood, sweat and tears into your business. You’ve spent sleepless nights and weekends working, sacrificing a comfortable cubicle job for your true passion. You believe in being the best! That means you need to charge like it.
Start believing you’re worth more and you’ll instantly level up the money you’re making in your business.
Get Clear On Your Value Proposition
While believing you’re worth it is all about you, getting clear on your value proposition is all about your customer.
Your value proposition is a clear and carefully-defined statement of the value you bring to your customer. How do you improve their life? It’s not some vague, feel-good statement like “people trust us” or “we do the best job.”
Instead, it’s concrete and specific, like “we help customers save 15% a month on IT costs” or “we help busy moms spend fewer hours on laundry and more time with their kids.” People don’t buy products, they buy solutions to their problems. Show the solution you bring to people and you’ll instantly increase your worth in your customer’s eyes.
Make It Part Of Your Brand
Now that’s your uber-clear on your value proposition, it’s time to live and breathe it in every aspect of your business. To make more money, you need to make your value proposition part of your brand.
Your brand is how you’re viewed in the marketplace, how you’re different from the competition. You can’t have a value proposition that says you’re a Lexus but then charge Honda prices. There’s a disconnect. Infuse your value proposition into every element of your brand. This includes your:
- Logo and packaging
- Company culture
- Brand values
- Ambassadors and brand representatives
That last item on the list is the most important. Your price should reflect the value you bring to customers. Set your value proposition, then set the price you’re worth and stick to it.
Here’s an example of how this road map might play out in real life.
Let’s say you start with a product that costs $50 to make and sells for $100.
Cost of goods sold = $50
Revenue = $100
Profit = $50
Profit margin = 50%
Now imagine you were able to accomplish part I and part II of this guide to move the needle by 10% in both areas—in other words, you saved 10% on expenses and increased your value proposition to raise your prices by 10%.
Cost of goods sold = $45
Revenue = $110
Profit = $65
Profit margin = 59%
This is a conservative example, and it increased our profit margin by 9%. Imagine what a difference it could make if you cut expenses and raised your value even further.
Making more money comes down to two things: spending less and charging more. Follow this road map to make at least 10% more each month, without changing anything else about your business.
You can do it on your own, or you can enlist the experts. Our team of virtual accountants have helped hundreds of entrepreneurs increase profits by 10% or more. Ready to get started? Just click the button below and set up a time to chat with us, risk free. We look forward to meeting you!