Profit or Wealth?
Price For Profit:
Pricing for real profit uses the net profit per hour methodology. Unfortunately, some business owners price by figuring out what their competitors are charging and making their pricing a little less. This is insane. How do they know their competitor is covering all of his costs? Their competitors may have economies of scale that they don’t have.
Ensure Continuous Profits:
Continuous profits are critical to long-term survival. And continuous, predictable losses do not make sense. Do something to prevent the losses! ..The major mistake I see companies make with growing recurring revenue programs is thinking that these programs are a loss leader and that the losses can be made up through other, “regular” sales. Most businesses are not supermarkets that advertise a phenomenal deal on milk to lure you into the store. Then, the milk is at the back of the supermarket so you see everything you might possibly need and walk out of the store with much more than milk.
Gross Margins Don’t Matter. Dollars Do.
Determine your company’s overhead and net profit per hour. This is your true profit, based on your true revenues and expenses. Percentages don’t matter. Dollars do. What net profit per hour should I earn?
Many company owners have asked me this question. I never answer it. Why? Because the net profit per hour you want to earn is up to you. It is your company. It is your bottom line.
Building Recurring Revenue
Building a loyal customer base is critical for building wealth. Most customer bases are built using recurring revenue programs. These programs tie your customer to your company. You give them reasons to use your company year after year. Your recurring revenue programs give you predictable revenues, expenses, and cash flow. This allows you to budget. Increasing your sales usually means increasing your recurring revenue customer base.
Build A Great Culture That Is Not Dependent On You
To build wealth, your business has to thrive without you. Can you take a vacation without worrying about your business? Can you go to a conference, a trade show, or another business meeting for a few days without worrying about the business? Do you have a great management team who can run the business in your absence? Can your employees run it without a destroying it? Do your revenues stop when you stop working? And even more important: Do you have to have control?
This is probably the largest wealth destroyer. As your business grows, there will come a point when you cannot do everything yourself. If you try, you will be miserable and the business will suffer because things are slipping through the cracks.
“Profit or Wealth? is a great book that should be required reading for every business owner.”