Are you a 'For Profit?'
Staff -- Home Accents Today, 1/1/2007
We all want to believe we are in business for profit. Unfortunately, I find that companies don't always make decisions with profit on their minds. Many businesses believe as long as they grow fast enough, they can sell their way to profitability.
Always remember this: You cannot sell your way out of a bad business model. It simply cannot be done.
You must be certain your business model is a profitable plan. Here's how I believe you do that, whether you are a retailer, a manufacturer or a sales representative.
Raise your customer's expectations, and your prices and margins can follow. We expect the lowest prices at Wal-Mart because they constantly tell us that's what we'll get. Conversely, we expect, and are willing, to pay top dollar at Nordstrom's. Why? They told us we would.
What are you telling your customers? Are you giving them service, selection, a "shopping experience"? If you are, chances are they will see value and be willing to pay you a higher price for it. The only way we can raise our customers' expectations is to raise our own performance. As soon as you do that, you can raise your prices (margins) and your customers will gladly accept it.
Every sale should make a profit of some kind — no excuses! I have heard so many "reasons" from businesses why it is okay to sell this customer below cost, or to take a shorter mark at retail. All of these "reasons" were to gain "market share." The world is full of bankrupt companies that gained market share by being unprofitable.
This does not mean you have to sell every item at maximum profit. One of the smartest things any company can do is sell obsolete items quickly. Every day you keep a bad item on your shelves, it is worth less. Selling it quickly and turning the trash into cash is a profitable thing to do. It allows you to invest new-found cash in better selling products.
Sales should always grow faster than costs. This is a simple statement that speaks volumes. This is not easily accomplished, but if you are about to spend money that will put you in an uncomfortable position, be certain the expenditure has a direct path to revenue. Otherwise, you are just adding overhead.
Business is never simple. Success is hard. That's why so many businesses fail. Don't be obsessed with sales growth, be obsessed with profit. That's the only thing your employees, family, bankers, and everyone else in your life will care about.
Nobody remembers businesses that flame out with fast-growing sales. We remember the ones that produce earnings consistently.
Focus. Believe. Be disciplined. Succeed!
Randy Eller, a 30-year veteran of the industry as a retailer, sales representative, and former partner and president of CBK, is president of Eller Enterprises, a consulting firm. He also is a professional speaker. He can be contacted by e-mail at reller@ellerent.com
Watch this space every month for BUSINESS MEMO. Our three experts will present ideas and examples to help you be more successful in operating your own business. Next month: Lynni Megginson on Retail.
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