As we roll into 2017, the theme is always New Year resolutions, goals and targets for the upcoming months. "2017 is going to be our most successful year ever" the entrepreneurs' cheer in unison. Hurray!
Probably the most popular goal is to grow your business. The question is how and the answer is to get more customers. It's all wonderfully simple and we all go out and buy some advertising, maybe do a couple of networking meetings, go home and then the vast majority of us will go back to doing exactly what we did during 2016. It's the same for everyone else who decides to join a gym or vows to cut out carbs; we find comfort in our habits which makes them notoriously hard to break.
If we were to draw a diagram of how a business works, most of us see the sales funnel. You have the wide bit at the top which represents the turnover and then it continues to narrow with the bottom bit being your net profit. The general idea is that if you want more money to come out of the bottom then you pour more into the top. It makes perfect sense but it's a bish, bash, bosh kind of plan.
Now as I'm an accountant, I'm going to tell you that the funnel doesn't work that way. It leaks all over the floor and customers are not equal. Or should I say, all customers are equal but some are more equal than others?
The thing is, I know that you enjoy what you do. It's why you've set up a business that does that very thing. Marketing is also fun. Getting new customers is fun. It's the hunt and chase and the ego and adrenalin that goes with it.
But what about finance: your bookkeeping, the forecasts, the cash flows? Not so much fun. There's not a party in the finance department – certainly no carbs to be found in there.
So, let's back track to your goals of growth and focus on the top of the funnel. The interesting stuff. Let's say that you want to double your turnover during 2017. How are you going to do that? Find more customers… okay I get it.
But what kind of customers? Remember what I said before and that is not all customers are equal.
Do you know who your best customers are? Both in terms of how much they spend but also in how quickly they pay. There's no point in going for the big guns if they have a payment term of 60 days and you don't have the cash flow to cope with such a delay. Equally, there's no point in chasing a million customers who only spend a nominal amount because even though you might get the money a lot quicker, you'll be run ragged trying to serve them all.
Do you know where these customers are? I mean this in both in terms of niche and geography. If they are hard to find, then you might have to increase your marketing costs so that your message reaches them. If you need to spend time with the customer at their premises then travelling around will increase these costs and the amount of dead time, whilst you're sat in the car. These are both profit leaks that you might not think of when considering the price of your product or service.
Do you know what your most profitable service or product is? I've seen businesses put way too much of their resources into selling a product that actually made a loss when all costs are factored in, because they believed it was profitable. Sometimes it's so easy when we price a product or service to forget about our own time, travel, printing, postage costs… These "lower funnel" expenses that we think are general business expenses.
Do you have the cash flow to support these new clients? We all must pay out something before we get any money in. That could be buying stock, or materials or even simply in our own time. If you only have enough money to support taking on 5 new customers, don't rush out and get 6. It will cause you no end of stress. Business can fail because they grow too quickly. Get the 5, wait for one of them to pay you and then take on the 6th.
Do you know your breakeven point? Some customers will want a discount. Some will expect one. Sometimes you may need to offer one to win the job. Know how low you can go. 10% off the top is not 10% off the bottom. It can be so easy to throw 30% off into the mix just to win the job and end up making a loss. Yes, it's money going into the top of the funnel but nothing will make it to the bottom this way.
If you have a good bookkeeping system, then you should be able to answer these questions with relative ease. That way you can sell your most profitable service or product, to your ideal customer and know that the money you are pouring into the funnel will have the best chance of increasing what makes its way to the bottom.
If you don't know the answers to these questions, then it's guesswork. It's gut feeling and hope. You could end up spending all of 2017 working really hard and actually ending up worse off. No one wants that, so maybe spend some time doing the books. Talk to your accountant. Draw up a plan and work towards that. You need to make the business funnel work for you rather than against you.
Probably the most popular goal is to grow your business. The question is how and the answer is to get more customers. It's all wonderfully simple and we all go out and buy some advertising, maybe do a couple of networking meetings, go home and then the vast majority of us will go back to doing exactly what we did during 2016. It's the same for everyone else who decides to join a gym or vows to cut out carbs; we find comfort in our habits which makes them notoriously hard to break.
If we were to draw a diagram of how a business works, most of us see the sales funnel. You have the wide bit at the top which represents the turnover and then it continues to narrow with the bottom bit being your net profit. The general idea is that if you want more money to come out of the bottom then you pour more into the top. It makes perfect sense but it's a bish, bash, bosh kind of plan.
Now as I'm an accountant, I'm going to tell you that the funnel doesn't work that way. It leaks all over the floor and customers are not equal. Or should I say, all customers are equal but some are more equal than others?
The thing is, I know that you enjoy what you do. It's why you've set up a business that does that very thing. Marketing is also fun. Getting new customers is fun. It's the hunt and chase and the ego and adrenalin that goes with it.
But what about finance: your bookkeeping, the forecasts, the cash flows? Not so much fun. There's not a party in the finance department – certainly no carbs to be found in there.
So, let's back track to your goals of growth and focus on the top of the funnel. The interesting stuff. Let's say that you want to double your turnover during 2017. How are you going to do that? Find more customers… okay I get it.
But what kind of customers? Remember what I said before and that is not all customers are equal.
Do you know who your best customers are? Both in terms of how much they spend but also in how quickly they pay. There's no point in going for the big guns if they have a payment term of 60 days and you don't have the cash flow to cope with such a delay. Equally, there's no point in chasing a million customers who only spend a nominal amount because even though you might get the money a lot quicker, you'll be run ragged trying to serve them all.
Do you know where these customers are? I mean this in both in terms of niche and geography. If they are hard to find, then you might have to increase your marketing costs so that your message reaches them. If you need to spend time with the customer at their premises then travelling around will increase these costs and the amount of dead time, whilst you're sat in the car. These are both profit leaks that you might not think of when considering the price of your product or service.
Do you know what your most profitable service or product is? I've seen businesses put way too much of their resources into selling a product that actually made a loss when all costs are factored in, because they believed it was profitable. Sometimes it's so easy when we price a product or service to forget about our own time, travel, printing, postage costs… These "lower funnel" expenses that we think are general business expenses.
Do you have the cash flow to support these new clients? We all must pay out something before we get any money in. That could be buying stock, or materials or even simply in our own time. If you only have enough money to support taking on 5 new customers, don't rush out and get 6. It will cause you no end of stress. Business can fail because they grow too quickly. Get the 5, wait for one of them to pay you and then take on the 6th.
Do you know your breakeven point? Some customers will want a discount. Some will expect one. Sometimes you may need to offer one to win the job. Know how low you can go. 10% off the top is not 10% off the bottom. It can be so easy to throw 30% off into the mix just to win the job and end up making a loss. Yes, it's money going into the top of the funnel but nothing will make it to the bottom this way.
If you have a good bookkeeping system, then you should be able to answer these questions with relative ease. That way you can sell your most profitable service or product, to your ideal customer and know that the money you are pouring into the funnel will have the best chance of increasing what makes its way to the bottom.
If you don't know the answers to these questions, then it's guesswork. It's gut feeling and hope. You could end up spending all of 2017 working really hard and actually ending up worse off. No one wants that, so maybe spend some time doing the books. Talk to your accountant. Draw up a plan and work towards that. You need to make the business funnel work for you rather than against you.
