15. 5 Ways to Improve Your Profit Without Cutting Expenses or Increasing Revenues

This week I'm blowing the lid off one of the biggest myths out there about improving your profit. Profit improvement isn't just about increasing revenue or cutting costs.

In this week's episode, I'm sharing 5 much more nuanced strategies that can improve your profit without you hustling to chase more revenue or taking an axe to your expenses.

You'll learn:

• Why increasing your revenue or cutting expense isn’t a fix all for improving profit
• 5 ways you can improve your profit that don’t require you to go hustle to find new revenue and take an ax to your expenses
• The one thing that’s the secret ingredient to profit improvement 

Mentioned in this episode:

• Get your free cash flow guide
• Learn 10 ways you can improve your profit
• Continue the conversation and book a free call

For the full show notes, including the transcript, go to www.carlamoats.com/podcast/episode15





This episode was produced by The Podcast Teacher.

DISCLAIMER: The information in this podcast is for informational purposes only and does not constitute an accountant-client relationship. While we use reasonable efforts to furnish accurate and up-to-date information, we assume no liability or responsibility for any errors, omissions or regulatory updates.

Transcript

Hey there, and welcome back to the Purposeful Profit Podcast. I'm your host, Carla Moats. This week we are talking all about profit improvement. When I start talking to business owners about increasing their profit, there's almost always two things that come to mind to them. The first one is “if I just increase my revenue, the profit will follow.” So, just keep chasing a revenue number and, you know, eventually that profit margin will improve. Or, “if I want to increase profits, I need to slash my costs.” And so I want to go on the record today saying that this is this huge myth that exists about profit improvement. And the myth is that you have to hustle to chase an ever increasing revenue number or you just have to start cutting costs.And that is not the case. 

In fact, from my experience in corporate, while that is always a part of their strategy, they have other strategies that don't have anything to do really with revenue or cutting costs. Today, I'm going to give you five of those strategies that you can deploy to make more profit that aren't about chasing more revenue or cutting expenses. So today we're going to talk about why increasing your revenue or cutting expense isn't the fix all for improving profit that everyone thinks it is. Then I'm going to share with you those five strategies that will not require you to go hustle to find new revenue, and they will not have you blindly taking an axe and slicing through your expenses. And then I'm also going to share a secret ingredient that I am finding to profit improvement that especially applies to small business owners. All right, so let's get at it. 

So, first of all, revenue is mostly a vanity metric. And I don't want people to think I'm a revenue hater. I'm not a revenue hater at all. The ability to create consistent revenue is one of the first skills a business owner needs. I know that as a new entrepreneur, that's a skill that I've had to develop. I have expertise, but going out and creating consistent revenue, it was a skill I had to build. So not a revenue hater. But one of the things I see a lot is that business owners who have profit or cash flow issues, a lot of what they're doing is they're going out trying to chase a revenue goal. 

I'm all for a revenue goal, and I'm all for improving your revenue. But what I want you to understand is that growing your revenue doesn't mean your costs will remain constant. Often companies that have a hyper-focus on revenue will grow expenses faster than revenue. And if I'm growing my expenses faster than my revenue, I'm actually lowering my margins. And this is why a lot of your fast-growth businesses can just pull, a big example is Amazon. They lose money for years and years and years but the difference is they're heavily funded, they're heavily invested, and that's part of their business plan, okay? But for most business owners, we don't have large investors, we don't have capital sitting out there to fund those losses. 

So when you chase revenue without focusing on profit, you're often building an outsized or an inefficient business. I've talked about this in prior podcasts. Your business can't support the spend. Your expenses are growing faster than revenue. You become less profitable. And a lot of times you don't have the infrastructure to support the business because when you grow really fast, you need infrastructure. Okay? And again, a lot of these larger companies, that's what they're using their capital for, where they go on Shark Tank or whatever, they are using a lot of that to build some of their infrastructure. So you can't just go chase revenue without also focusing on profit. So let's put that myth aside. 

Let's also talk that slashing expenses also isn't an easy fix. And I'll be honest, I've been in corporations where that's kind of what they've done is they go, and we're going to reduce expenses this year by 15%. They force efficiencies. And the companies that don't do it well, they break their business. And so blindly going in and slashing your costs is the best way to break your business. Can have negative impacts on the customer experience. And guess what happens when we have a negative impact on the customer experience? We don't get referrals. We don't get repeat customers. We get negative feedback out in the virtual world and we have fewer customers. You have poor employee morale. It can hinder your innovation.

So neither one of these is your quick fix. So that's the thing I want to emphasize here. They can play a part in it. But actually, I think the strategies below that I'm going to talk about right now, these are the strategies that are kind of maybe hidden off in the corners a little bit that you can go tap into to start to have an impact on your bottom line without having to chase that revenue and without having to slash those expenses. 

So number one thing - improve your customer retention. Really maximize this. Have a tremendous process in place for retaining your existing customers. It can cost a business up to five times as much to obtain a new customer as it does to retain an existing customer. That's because new customers take money. There's a new client acquisition cost. You typically have sales, salary or commissions. You have ads and marketing costs. You might have lead gen cost. So one of the things you can actually look at in your business in terms of improving your profit is what is your cost to acquire a new client and then track your retention rate. What percentage of your clients are repeat clients? What opportunities do you have to upsell existing clients? It's so much easier to go out and get business from an existing client than it is to go get it from a new client. You could also look at your referral system. Even a referral system where you're paying some type of referral bonus or doing some type of loyalty or reward program is going to be much less expensive, typically. So go out, maximize your customer experience, maximize your customer retention. 

Tip number two, eliminate less profitable customers or products. If I ask you who your top customers are, how do you rank them? Are you ranking them by revenue? Are you ranking them by profit? And there's value in ranking them both ways, by the way. But it's important to know which ones are your most profitable. So the first thing to go look at is, do you even have that data? A lot of businesses won't. You do have the ability. Again, most of my clients are on QuickBooks Online. You do have the ability. There's a project feature in QuickBooks Online plus, it's a project function that basically allows you to track your profitability by job or by customer. Are your highest revenue clients also your most profitable? And they don't always have to be. Do you have a client that's generating 40% of your revenue, but if they're only generating 10% of your profit, they're not one of your most profitable customers. Sometimes you actually add through subtraction. I can become more profitable by eliminating things that are less profitable, especially once you're beginning to generate consistent revenue, this becomes really important. Okay, you've got consistent revenue. Maybe you have more business actually, than you can even handle. Now you can start to get really selective about the customers that you're bringing on the offerings that you have. 

One caution note here is don't forget about overhead. Overhead are your ongoing expenses that are not directly tied to the production of goods or services, but they're necessary to operate your business. These are going to be incurred regardless of the level of sales. This is things like rent, utilities, admin, salaries and benefits, office supplies, insurance, et cetera. A lot of business owners aren't necessarily taking those into account when they look at their profitability or even when they price. These all have to be considered when assessing your profitability of your customers and products and insetting your pricing. 

Okay, tip number three that you can go after. Go create some higher margin offerings. You got a core offer out there, but is there an offer you can make, a service you can provide that has a higher profit potential than your current offering? There's a term we use in finance. It's called accretive to margins. Accretive to margins means that it's going to expand the gap between revenue and costs, which is just another way of saying it's going to improve my margin. Versus something that's dilutive to margins, which actually reduces the gap between revenue and costs. So you're looking for things that are accretive to margins. So you basically look at my current margin. If my current margin is 20%, anything that's 20% or higher is going to improve my margins. If I'm adding something that's maybe 25% margins, it's probably only going to move the needle a little bit. But if I have a 25% margin, but there's something I can go out and offer that's got 40 or 50% margins, even if it's a small offering, it's going to have a much bigger impact on moving that needle. 

So some of the things you can go look at historically are things like premium services. This goes back to the customer retention. Do you have opportunities to upsell your existing clients to more of a premium service or a VIP service? Bundles is another one. You see this all the time where somebody goes in and they're bundling multiple things into the package. Those are typically much more a higher profit than standalone or Ala carte. Value-based pricing, particularly if you're in the service area consultant quit billing by the hour. Implement a value-based pricing model. Subscription models, which are also like a recurring revenue model, those can also be more profitable. Digital Products if you're in the online space, digital or info products can be higher margin. 

The one thing here is you want to be really clear on the cost for these offers, but you have upfront costs to bring something to market. Maybe small, depends on what it is, could be larger, but know what your costs are to bring it to market and also know your ongoing costs. This is where your CFO can come in handy because we can help you as you develop these offers. We can basically put together like a pro forma P&L that says, when I roll this know here's what the financials actually look like, here's what the impact of this new offering actually looks like on my numbers. We can project out what it will do to your business and maybe even have two or three different ideas. And so we can run scenarios for all three ideas and see which one really has the greatest impact. 

Tip number four drive operational efficiency. Operational efficiency is basically doing more with less. You have less rework, less non value added activities. Especially in small businesses, there's typically a lot of manual processes. There's a lot of things that maybe you started doing them two years ago, but you're just still doing them today out of habit. It's always good to go back and take a complete review of your processes. Make sure your people are in the right roles. Have you taken a square peg and tried to put it in a round hole as things have changed? Because if you don't have people in the right roles, they're often not as efficient as they could be. This is also making sure that if I've had some turnover when I do that replacement, am I hiring? Do I still need to hire that person? Are there maybe some efficiencies I can get? Resources, especially in a small business, isn't one of the biggest things you really have to manage. So before hiring or replacing someone, ask yourself, how can I get more efficient? 

The thing about operational efficiencies that's so good is it can have the added benefit of improving your customer experience. When I become more productive, more efficient, I have fewer errors. I'm generally enhancing my customer experience. And when I enhance my customer experience, that goes back up to tip number one, improving your client retention. So again, operational efficiency can actually support your customer retention goal. 

All right. And the fifth tip and this is the secret ingredient, I think, particularly with small business owners: lean into your zone of genius. Your zone of genius was popularized in a book called The Big Leap by Gay Hendrix. If you haven't read it yet, please run out and get it now. I will try and drop a link maybe to Amazon in the show notes. But your zone of genius is operating a state where you're utilizing your unique strengths, skills, and passions to the fullest extent. I read this book at the recommendation of a friend, I want to say five or six months ago when I was pivoting my business, and it was a real game changer for me because I realized I was spending a lot of my time in my zone of excellence or my zone of competence. And really, when you're a zone of genius, it's like the flow state that athletes talk about. They talk about being in this flow state where it's like everything seems really easy. 

When you do that, you're maximizing your unique gifts to the world. You maximize your productivity, your expertise and natural talents shine when they're in your zone of genius. And when you shine, this translates delivering higher quality and gets attention from prospects and customers. You're more innovative and creative. You're going to come up with more creative solutions. You're going to come up with ideas that differentiate you. If you are in a service business, this is where you may become really recognized as a thought leader. If you are in a product business or say, the construction business, you basically may be recognized as, like, a real market leader, somebody who works in your market and really is the driver in that market space. 

When you differentiate yourself in your market and your niche, it's going to make it easier to sell. It's going to be easier to demand premium prices. So when you're in a zone of excellence, it's helping you in some of these other areas because it's helping you improve your customer experience, which goes back to tip one, improving your customer retention. And then if we talk about creating higher margin offerings, when I'm seen as an expert and I have this really known zone of genius, I can demand premium prices. Premium prices improve your margins. 

So thanks for joining me this week. If this resonated with you and you want to talk about ways you can improve your profit, I would love to invite you to have a conversation about your business, go to www.carlamoats.com/workwithme. These calls are lowkey; we talk about your business, and you walk out with actionable things you can do in your business to improve your profit or cash flow. And then if we both think it's a fit and you're interested, we can also talk about what it looks like to work together. All right, and that's it for this week. You all have a very great week. All right, bye.