Key Foundation to Grow Profits
If you’re like most businesses, big and small, you are always looking for ways to increase profits. The problem many find is that as their business increases (i.e. more customers or increased revenue) profits don’t always follow suit. In fact, sometimes revenue and profits move in an inverse relationship. Revenue up, profits down.
If this sounds like you then read on…
Higher Revenue Does Not Always Translate to Growth
An interesting example of what I just mentioned is the maker of that high end electric car that seems to be the pride of many “green” motorist, Tesla. The company experienced revenue of $3.2 and $4.0 billion in 2014 and 15 respectively with a loss of $294 and $889 million in those same years. (click for reference article)
This should be a quick lesson that more customers and increased revenue are not always a cure for poor profits. Also, every business needs to not make the excuse that they’ll make a profit once their business reaches a certain level. You need to know how to make a profit when you’re small otherwise you may become like Tesla and be bigger but with larger problems.
So, what could be the source of poor profits? For many, it would be what I call, a “value identity crisis.”
This is an epidemic that many startups and small businesses suffer from. But as you can see from my illustration, even large companies can catch it.
What is the “value identity crisis?” It’s when a company does not realize or secure enough in the value that they bring to the market to price themselves accordingly.
In other words, they are under priced.
Are You Under Priced?
How do you know if you are under priced? If one of the symptoms below resonate with you, then you may be under priced:
- Don’t feel customers will pay the higher price that you’re worth
- Keep prices lower to attract more customers
- Company keeps getting busier and busier but profits don’t seem to be increasing
- Production is max’d out but you can’t afford to invest into growth without getting a loan or investors
Most of the time when I identify a business that needs to increase their prices based on the above symptoms, a common response from the owner is that their customers won’t pay the higher price. My response to that is if you don’t increase your prices to fair market value, then you may not be around much longer or at the very least, struggle fiscally for the rest of the business life.
Ok, so you realize you need to increase your prices but “how do I do that without alienating my customers?”
I will start to answer this important question in the next article.