You started your own business because you have a great talent for providing a particular service. You make a decent living, but you never feel as if you are getting ahead. Why is your experience not being reflected in your bank balance?
In the business world, they often talk about ‘levers’ that you can pull to improve profitability. For most service providers, there are 3 key levers:
- Reduce costs
- Optimise price
- Increase sales
1. Reducing Costs
Reducing costs is the quickest way to improve profitability. It can be done instantaneously and usually does not directly affect your customers i.e. your revenue source. However, it can be a dangerous route to take, especially if it starts affecting the quality of your service in the long-term. For example, if you stop investing in your equipment, your performance may decline and your customers will pay less for your service or worse go to another provider.
A small business provider is unlikely to have many cost-cutting opportunities (dissimilar to big corporates). Unless there is obvious misuse of cash, this is probably not the best option for you.
2. Optimising Price
Optimising price can be achieved in 2 ways:
- Increase your prices. For the same number of customers, you earn more revenue. Unfortunately, the market often determines the price, so this method only goes so far.
- Optimise the price of each individual service so that the ‘product mix’ improves profitability. For example, if you have 3 services (low price, medium price and high price) and your customers always choose the lowest price item, you can decide to increase the low price and possibly offer a discount on the medium price service, to make it more attractive. Customers may start buying the medium price service as they see it as better value for money, and your revenue increases. If your cost for each service is roughly the same, all of this extra revenue goes straight into your pocket.
Let us now assume your cost-base is as low as possible and your pricing is on point. There is still one powerful mechanism available.
3. Increasing Sales
Old logic suggests that clever business managers cut costs, while inexperienced managers try to grow sales. This may be true in larger organisations but even then, the famous quote by Ruth Porat, CFO of Google, comes to mind, “you cannot cost-cut your way to greatness.”
In a small business, marketing tends to be a low priority, so there is always opportunity to do more. Historically, finding cost-effective marketing channels was difficult, however, with the advent of the internet and apps, anyone can easily circulate their messages across the world. That being said, a free social media platform does solve the complexity of competing against a barrage of selfies and the many businesses that have a dedicated ‘Tweeter’. Lest we forget, that websites and blogs can be expensive and difficult to create, run and maintain.
I think we need is a simple solution to ‘marketing your services’ woes that enables customers to easily find service providers. A platform allows you to create a free profile and list your skills and services online, so that new customers can locate you easily. Your existing customers can also sign-up and recommend you, a platform that fuels the most powerful form of marketing out there - word-of-mouth. Think TripAdvisor for people.
Yes there are many services arbitrage platforms out there but these platforms 'own' the providers rather than being like LinkedIn where you are free to reap the rewards of a hard-earned profile.
When profits fall, many service providers choose to improve their service by buying more machines or studying more. This might be right for your business if quality is not up to scratch, but more often than not, you would achieve better results by focusing your attention on securing more customers.
The good news is that future customers are already looking for you online, on Google and hopefully soon on this platform [insert name].
Would you sign-up? If it were indeed a 'free' service, how do you think the platform should make its money? After all, businesses cost money to setup and customers cost lots to acquire. I’m keen to hear your views.
Please Like, Share, Follow and Subscribe to The Tippy Top!
Twitter | Facebook | Instagram | LinkedIn | Snap | BlogLovin' | Medium | Pinterest
#entrepreneurship #smallbusiness #strategy