Profitable Business Tips

Are you on the look out for business tips to improve your business and it’s profitability? These business tips are easy to understand, straightforward to implement, and will lead you to discover information about your business activities that will help you to make profit enhancing decisions.

Tip #1 - Measure the important stuff

There is a saying in business, that you can't move what you can't measure. The question for many business owners is what to measure, and how often? As a rule of thumb the more often you measure it the more control you'll have. Start with these metrics:

Leads
Customers
Sales
Gross Margin
Gross Profit
Net Profit
Working Capital % of Sales
Return on Equity

Tip #2 - Which activities drive what you decided to measure?

Now you've started to measure some important financial metrics, work out what activities that you undertake in your business drive those numbers. To do this look at the source of the result. For example you got a sales lead. What happened to get that lead? Soon you will have a list of activities that drive that result. For example

You know that you prospect for leads (represented by an appointment to visit the customer) by making telephone calls to potential customers. Action = Telephone Calls.

You know that you obtain leads by people filling out your web form requesting a catalogue. Action = Completed Web Forms

The prospect has contacted you after a personal recommendation by an existing client of yours. Action = Referrals

Tip #3 - Express activities and their outcome as ratios

The idea here is that you quickly get to an understanding of what it takes to achieve an end result. A ratio is one number divided by another, and expresses the relationship between the activity and the result.

After determining the activities in your business to generate leads you've now know the following:- Hang on now, here's a few numbers to demonstrate the point,

1 Lead / 8 Telephone calls = 12.5%

1 Sale / 9 Leads = 11.1%

I can now work out that to get 1 sale I need 9 leads, and as each lead takes 8 telephone calls, that to get 1 sale I need 72 (8 x 9 ) telephone calls. This is useful information - here's why:

Tip #4 - Attach financial costs to value driving activities

Until you attach a financial cost to an activitiy that creates value in your business, you don't really know whether you're being a busy fool or making good money.

Expanding on the example above, If I pay myself $25 an hour, and it costs me $2 an hour to be on the telephone then I know it costs $27 an hour. If I can make 12 calls each of 5 minutes in an hour (on average) then each call costs me $27/12 = $2.25.

If it takes me 72 calls to get a sale then it costs me72*$2.25 = $162 to get a sale. Now I can use this information to make some decisions.

Tip #5 - Do more of what works, drop what doesn't

In a way, the best business tip is as much about adopting a smart approach towards failure as it is to success. In the case of the telephone prospecting above I now know that it costs me $162 to get a sale.

This may or may not be acceptable depending upon the value of the sale, or the value of the customer. If my customer is usually worth less than this then I need to redesign my prospecting activity so that it is cost effective or stop doing it as I'm losing money. If I'm selling items that cover the cost of that many times over then I need to ramp up my prospecting efforts to get more sales!

Apply some of these business tips to what you're doing in your business, and quickly find out where to help yourself, and where you're pulling the profit rug from beneath your feet.

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