As a business owner, you work harder than most people with a J-O-B will probably ever understand. Most days, you wake up and go to bed thinking about your business. Your partner may even accuse you of spending more quality time with your business than you do with them or your children.
And you’re doing all of this for some very good reasons. One of which is to be paid well, better than you ever were when you had a J-O-B.
So it really sucks when at the end of the month, you look at what’s left for you to take home and it’s either less than you need or you have to dip into your savings to continue propping your business up. And all you can think about (and probably stress over) is how you will finally consistently make money from your business.
I know exactly how discouraging this is because I spent a long time in this exact situation when I first left the corporate world.
Over the years since I figured out how to make money, I’ve met many business owners with great products or services who aren’t able to take home a steady paycheck. They do everything they can to consistently deliver high-quality products and services, so their customers are happy. It’s a lot of hard work for what seems like not enough payback.
Some of them think that if they were to drop their prices, they might be able to make it up with volume. But sadly, that rarely works for small to mid-sized businesses.
You Work Really Hard, So Where’s the Money?
The money is likely going to all kinds of very important things that keep your business running and your customers happy.
For example, I know a business owner who’s built a service business that picks up things from people’s homes, handles them, and then delivers them back. It’s a brilliant idea, and there was no one else doing it in their area when they started.
The thing about this business owner is that they already have a great-paying full-time job. They chose to build this business as a legacy for their family. And their whole family is in on it with them.
When gas prices went up, they really felt it. Instead of passing any of the increased fuel charges on to their customers, they chose to eat them. They did this because many of their customers are on fixed incomes, and they wanted to take care of their customers.
Last I heard, they were gaining more customers despite their new competitors. They are hoping the influx of new clients, along with managing pick-up and delivery routes, will make up for the decreased profits from higher gas prices.
It’s the same volume bet I mentioned earlier.
Hope still isn’t a strategy.
You’ll Find the Money by Understanding THIS Number
And that number is called profit margin (margin for short). Your margin is how much of the money that comes in actually stays with you after everything it took to earn it is paid for. So, the larger your margin, the more money you, the business owner, have to take home.
Most business owners I’ve met don’t look at their margins, and when they finally do, they’re way too thin.
Thin margins have nothing to do with how busy you are or how fast your business is growing. They have a lot to do with how much it costs you to provide your products or services to your customers.
The obvious solution to a thin margin is raising your prices.
Raising Your Prices May Not Be the Whole Fix
Most people believe the only way to fix thin margins is to raise prices, but it’s not always the whole story.
My first business after finally leaving corporate, about 20 years ago, was divorce coaching. I really didn’t have a feel for how much I should charge for my services, so I just made it up. The fee I made up was really, really low. Now I understand it was at least partly a reflection of how I felt about myself. And back then I didn’t have much self-confidence about being successful as a business owner.
I also thought that I should be giving away coaching to encourage people to hire me.
So, I gave away hundreds of hours of coaching. I was getting burned out by the multiple sessions I had every day with people who just needed a little help and had no intention of hiring me.
The thing was, I was happy to help them because I knew they needed it, and they were usually so grateful for the support.
Unfortunately, I wasn’t running a non-profit. I needed to have income to pay my bills. So, I decided to charge a nominal fee for a first session. $37 to be exact. The results surprised me.
The number of people who scheduled a first session with me decreased dramatically, while the likelihood that one of them would engage me increased significantly.
But getting rid of some head trash and raising my prices wasn’t the whole fix.
Divorce coaching is about helping people navigate a monumental and scary life change. When people are scared, they tend to contract. And with divorce, one of the scariest things to deal with is money.
Most people in this situation don’t want to spend on anything unnecessary. And for many, divorce coaching seems like a luxury instead of a necessity.
I had chosen to serve people at a time when most of them weren’t in a position to pay.
No price increase can fix that.
The solution for me to make the money I wanted from my business required me to change three things: my sense of self-confidence, my pricing, and my market.
My story isn’t unusual. Raising prices is only one of many different ways to begin making more money from your business.
What’s Your Profit Margin Telling You?
Thin profit margins are a signal that you need to take a good, hard look at your numbers. Your job is to figure out how each is impacting your profit margin and then take the appropriate steps to fix things.
Unfortunately, this is where most business owners get stuck. Instead of actually finally seeing how to make money from their business, they wind up more frustrated by their numbers.
If you don’t know your margins, I suggest you calculate them as soon as you can. And when you do, you’ll see which of your offerings are OK and which aren’t.
For those that aren’t, it’s really easy to misdiagnose the root cause.
Remember my friend who chose to eat the increasing gas prices? They can’t quite see what protecting their customers is costing their family or how long they can reasonably continue doing so. They do this because it feels like they’re taking care of their customers and not thin margins.
And then there’s me. I couldn’t see that, in addition to my poor self-confidence and my ridiculous pricing, my whole market was a problem.
Our own biases are what make figuring out what the profit margins are saying so hard and take so long.
Business owners often hire me to help them figure out how to increase their profit margins by identifying the challenges and appropriate strategies to overcome them. If you’re interested in learning more, schedule a 15-minute Fit Call and let’s talk.
About the Author
Karen Finn, PhD is an author and business growth strategist. Download a copy of her book The Business Growth Plan, to get insight into the low-cost and no-cost strategies she uses with her clients to 2x-3x their revenues.
