Marketing is a great way to generate revenue (if you can convert the leads) but it needs to be considered alongside margin and productivity of your team.
If you pour more dollars into marketing, generating more leads and ultimately more work, you create risk to your business in the following ways:
- Working harder for less money
- Team and owner burnout
- Loss of existing customers
1. Working harder for less money
Before you bring on more work, make sure the work you already have is at an industry standard margin. If the work you’re already doing isn’t making you enough money, the problem is unlikely to be marketing but rather it could be margin.
Low margin is the result of number of areas that you might need to take a close look at including pricing, people and productivity.
1. Prices are too low
Every business in every industry are increasing prices right now. You should be too.
Did you know if your current gross margin is 30%, you could increase prices by 10% and you would have to lose over 25% of your sales before your profitability went down?
2. Productivity is too low
How many hours that your team work do you actually invoice to your customers, and how many are hours that you cannot invoice? Some causes of this are too many staff for the amount of work, too much rework and mistakes.
If you sell parts or widgets, how many of those parts never actually get invoiced because no-one recorded their use? And can you increase the margin you’re putting on those parts?
2. Team and owner burnout
If you bring on more work at the same margin (without reviewing pricing, without improving productivity, and reducing rework and wastage), you and your team could be at risk of burning out.
Burn out for you means stress, waking up at 3am, quoting and invoicing after hours, dealing with customer complaints as your team have more and more work to do, mistakes happen and customers get disgruntled.
Burnout means not having the time, headspace or strength for your family – the very family you are doing all this hard work for.
We only want to bring on work when
1. It’s at the right margin – this means the work you do win, will be profitable and ultimately you’ll have more money in your back pocket, and
2. Your people and productivity are right – your people are effective, your processes and customer service are slick. Your team make less mistakes and cause less rework. Your customers will be happier and pay their bills and ultimately you’ll have more money in your back pocket.
3. Loss of existing customers
We believe there are two types of customer ‘losses’. The intentional and the unintentional.
The unintentional are often caused by too much work for too little margin. We bring on more and more work because we think that will grow our profit. In reality it grows our top line sale, but our profit line either stays the same or goes south. .
We spend too much time on painful customers who don’t value what you do, complain and don’t pay their invoices, we call these D clients. And as a result of focussing on these D clients, we start losing our good customers.
Which brings us to the intentional. These are clients that we identify as D customers, who cannot (or will not) be retrained into a better way of working with you. In these cases we want to show them the door of opportunity (ie: invite them to go to your competitor instead).
Your margin will thank you for it!
These concepts are not easy to put into practice. But we can help.
If you’re keen to sure up your revenue please come and talk to Pathfinder Solutions about how we can work together towards your even more successful business future.
Keep an eye out for more blogs in this series.
Get cash confidence – if there’s ever a time you should be regularly focussing on your cash position, this time is right now! We’ll show you how.
Focus on the future – now is the time when businesses need to ask themselves where their future lies and how they’re going to get there. Businesses who regularly do business planning and set and focus on goals will achieve those goals with intent, instead of missing the mark year after year.
About Pathfinder Solutions
Pathfinder Solutions advisory team members have either owned or managed businesses, or are investors themselves, so we know first-hand the challenges you face in your world.
Sure we’re Accountants, but the best solutions in business come from focusing on more than just the numbers. Our real-world business experience delivers just that.
Get in touch – we’d love to help