I went to a business conference recently and ran into a colleague from my former life as a CEO.
It was nice catching up but, unfortunately, things have not been going well for him. He was growing increasingly frustrated by his company’s anemic profitability.
He knew that other companies of his size and in his industry were doing better. But he didn’t know how to move the company forward.
This was a family owned business and he and his brother had made a lot of tweaks over the years and had seen some slow and steady progress. But they hadn’t made any significant gains in margin growth. And, with no liquidation event on the horizon (they want the business to remain in the family for future generations), they are well aware that their respective retirements are based on the return the business generates on a day-to-day basis.
Unfortunately, he was thinking backwards. He kept trying to figure out how to fix his old strategies which obviously were no longer working.
Focus on what’s working. Stop trying to fix what’s broken.
As business owners, we tend to focus on problems and how to fix them. Often, that includes looking for ways to increase margins and sales on products and services that are not very profitable. The result of this “do everything” approach is that not enough time is spent on maximizing what is working well.
We mistakenly believe that doing a lot of things – having lots of “value added” products and services – is what our customers really want.
We try to “revenue” our way to greater profitability.
It gets worse over time. As the business grows, we add even more products and services. The downside is that as you do this, the complexity and chaos in your business increases exponentially and your costs can get out of control – both of which result in lower margins.
How to choose a better, more profitable margin growth strategy
My approach to growing profitability is different … it starts with a simple question:
Where are you making the most margins?
That’s where you should be concentrating your time, effort and resources.
You want more of what works and generates profit. Worry about the rest of your stuff later.
So begin by breaking down your products and services into small, logical groups or categories. Analyze these categories and determine which ones are selling at volumes that are acceptable and are generating the level of profitability expected.
Which of these are truly valued by your customers?
You want to find the overlap between:
- what your customers value the most
- what generates the highest volume
- what you are uniquely the best at
- where you make the most money
Look at the overlap. Those are your winners – your money offerings! Figure out how you can leverage what’s working and do more of that.
Here’s the bottom line
If you want to grow margins, focus your time, energy and resources on your winners.
Every business has losers – stop trying to fix them.
If you can figure out how to sell more of what’s already working, then put strategies in place to increase volumes and lower costs on these products and services, you’ll soon find yourself at the wheel of a thriving, profitable business.