How to Increase Profits through Operations

I have had a lot of meetings with newer entrepreneurs who have a lofty financial target in mind like getting to $10K of monthly sales but don’t really do anything to operationally achieve those goals.  Each month they say our target was $10K but our sales were $500 so they get disappointed and frustrated.  Maybe $10K is what they need to be profitable or to pay the bills, which is great to have a goal.  What they don’t understand is that there is a lot more to getting to that goal beyond just having the goal.  They need to understand the ways they can increase sales and the staff they will need to hire so they can satisfy customer demands.

Most businesses struggle with one of 2 things –

  1. Get more customers (there is what most brand-new business struggle with)
  2. Operations to satisfy customer orders (this is what businesses struggle with once they figure out how to get customers)

This is a part 2 of how to increase profits.  This article will go into more detail on some of the operational things to drive and improve the finance metrics.  As a reminder Part 1 went over the finance metrics to help drive profits. 

  1. Increase Margin, which is typically done by raising prices or decreasing Cost of Good Sold
  2. Increase Scale,means sell more at the current margin to be able to cover your fixed costs like rent and any overhead salary
  3. Decrease overhead and fixed costs– look for ways to reduce costs and possibly improve processes and efficiency

Get More customers

It is impossible to have a successful business without customers.  I have seen companies start with no actual service or product and try to sell it and if a customer buys it then they figure out how to make it.  If no customers buy what they are selling then they pivot and try something else.  I love this lean approach to figuring out what customers want before you invest in building out.  You don’t waste money building an app or getting patents and a team together until you actually have customers.

I have also seen the painful opposite of companies that spend years and millions of dollars developing a product without any real sense of if there are customers that actually want their product.  They think secrecy and being in incognito mode will protect them from other people stealing their ideas but are missing the point that all business pivot and iterate some and the sooner they get that feedback the less costly it will be to develop their product.  In the worst case they may develop a product that no one wants.  I love the stories of how the companies that got to market first often failed – think facebook overtaking myspace, google launching after yahoo and crushing them, netflix and blockbuster, which highlights the importance of pivoting and change.

These are lots of ways companies get customers (in fact there are 41 in this article.)

Here are some of the ways I see newer companies get customers –

  • Family, Friends and Referrals – Tell everyone you know about your company and see if you can get anyone to buy. I remember when I first launched Finance Pals I got 3 customers without much effort just by updating my linked in.  I thought hey I am on to something and then later realized that I was getting the low hanging fruit.  It was a start but it was much harder to figure out how to get customers that I did not already know.  So be encouraged but make sure you can get customers from some other channels.
  • Paid marketing. It can be ads in magazine or on platforms like facebook , google, yelp, nextdoor, etc.  You can pay a few hundred dollars and see if there is any interest.  On facebook you can get customers emails for when you launch.
  • Networking. This is usually at events like a farmers market, Denver startup week or there may be networking groups you can find on meetup or Eventbrite. It could even be something specific to your industry such as the wedding expo that I was asked very nicely to leave after trying to solicit customers for a startup when I was not a preferred vendor 😊  Either way you spend time and effort to go out and tell people about your business.
  • Kickstarter – This can be good for product type launches. I know of established companies that sometimes try a kickstarter for a new product line to see if there is any interest.

There are 2 main keys for me –

  1. Can you get customers from some of these channels? IF not then I would probably pivot and try something different.
  2. If you can get customers then you have found your driver that you can use to work towards your target. If you go to a 5 networking events and get 1 customer then you can assume that if you go to 10 events then you might get 2 customers.  Ultimately you can find the cost to acquire customers in different channels and spend more money and effort on the ones are either cheapest or that yield you more of your ideal customer.

Improve your Operations to Scale and Increase Profits

Now that you hopefully have a way to get customers you need to do a good job for those customers.  If they ordered a shirt then you need to deliver the correct shirt to them in a timely manner, that hopefully doesn’t fall apart after they wash it once.  If they agreed for you to bookkeeping then you need to do a good job so that they feel like they got a good value for the money they paid.  If you do a good job then you start to build customer loyalty and the next time they need a shirt of bookkeeping then they will buy your services again.

But what if you have 100 customers that all want shirts and you have only made 30?  Or what if someone wants you to do some bookkeeping tomorrow and a client has already booked that time?  You have to figure out how to solve these operational problems and that is where the fun comes in.

Here are three main operations levers people use to satisfy customer orders.  We will cover each in detail next but wanted to mention that this is just a piece of the whole picture.  There are many more drivers including Vision / Mission, Differentiation, Brand, Satisfaction, HR, Product, Technology and Legal to name a few.  I think initially it is best to start with the ones that will have the most impact.  There are lots of systems that people follow like EOS or Scaling Up, which have a lot of overlap with these keys areas.

  1. People
  2. Process
  3. Metrics

People

The first and easiest way to help with orders when you do not have enough time to do yourself is to hire people to help you.  You can build a team of  employees, contractors, advisors to help you get customers and fulfill customer orders.  You will have to hire people that are good at their job and will  do good work  and also not cost you too much.  Hiring people is probably the biggest challenge for most established businesses in 2022.  Due to the great resignation and other factors hiring people continues to be a challenge for many businesses.  Maybe we will cover some ideas around that in a future blog post 😊 There are recruiters, job boards, employee referral programs, etc.  You also need to hire people that will fit in culturally because if you hire someone that is mean or makes other people dislike working with them then some of your best resources may quit.

In an ideal world the amount of work and the amount of people you have to do the work would match, but it is impossible to always be in sync because both the amount of work and people are changing.  There is also the worry of having to pay too many people and having high costs when the amount of work may decrease suddenly.  I don’t have all of the answers on this one yet but for us supplementing with part time flexible work has helped increase work capacity in a flexible way and having certain tasks (like writing articles like this one) that can be delayed if customer work picks up allows us to adjust to current work demands.

Process

The next step is to think if there is a more efficient way for the people to do their job.  Do they have to enter the same data multiple times?  Is there software that can automate a step?  Do certain teams have to wait on information from other teams and waste time having to correct mistakes or ask clarifying questions?  What happens if a key resource is out sick or on vacation?   These are some of the issues that once solved can help your business continue to grow as you hire more people.  Imagine how much your profits can increase if you are able to eliminate unnecessary steps or have a software do manual tasks for you.

The first step is to identify the pain points of your team or customers.  You can have meetings where people bring up issues, talk to customers when something doesn’t go right, or systems to track issues and ideas.  After you have a list of areas to improve you can prioritize them and brainstorm solutions.  I like to have my team help me prioritize which they think is most important and then I like to talk with experts in that field to see what ideas they have.

When we had different team members work on new customers accounts they had to spend a lot of time learning what that client’s business did, what work had been completed, what systems the customer was using, what reports the customer needed, etc.  A lot of this info was in the head of the person doing the work for the client because they did the work each month, but when they were on vacation or busy with other customers and needed help it was not helpful for them to have to spend time explaining everything to a team member.

Our solution was to create a folder and guide for each customer.  Anyone on our team open the guide and learn quickly what work needs to be completed and how to do it.  We have checklists and process steps for tasks and even include recorded videos of people doing the work so that instead of having to spend time asking how to do something they can watch a video and fast forward to the part they need help with.  We use Loom to record the videos and google sheets and google drive to organize the guides.  Loom was an idea given to us by one of my networking contacts, so now whenever I have a lunch, coffee or zoom meeting with someone I think of the current issues our team is struggling with and ask experts how they would solve the problem.

Metrics

Metrics gets back a little to where we started with Revenue, Margin, Costs, but as we look at operations there may be some metrics that help drive those main metrics like new leads or customers,  unsatisfied customers, inventory stock outs or rush orders, appointments booked this week, next week and next month, time needed to get customer a product, amount of overtime worked, open jobs posted, etc.  You will notice some of these metrics are related to people, customer satisfaction and efficiency.

You can imagine calling a painter and asking when they can paint your house and they say that they are booked out for 4 months.  Waiting that long may not work for some customers and they will call other painters.  Having customers for the next 4 months is a good thing but if they want to grow and increase their scale then more than likely turning away additional customers because they do not have the people or processes in place to do more jobs will keep them from further growth.  And with that we are back up into the people driver so you can start to see how it is all connected.  The metrics help determine what areas of the business are doing well or poorly and then you can make changes to continue to improve your business.

Final Thoughts

Running a business is fun and hard.  You need to work to constantly improve your business and your profits.  You should have some tools and metrics in place to monitor how the business is doing and have a way to identify issues and come up with continous improvements.    There are many parts of a buisness and they are all related and connected.  It is kind of like us managing a household of 3 kids – sometimes the kids play nicely together and help each other and things go smoothly and other times they fight and make each other angry.  If you want your busiess to be sucessful you need to find the best way to get customers, hire the best people for your business that won’t fight with each other and will do a good job and you need processes and metrics to help them be as efficient as possible.  If you need any help or have questions then  please send us an email to paul@financepals.com.

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