Profit. We chase it. Want it. Find it. Lose it. And chase it all over again. But often we over-complicate it.
But too often we lose site of the basics? New products, services, vendors and the media work to convince us that there is a secret formula, some secret product that's going to make profit appear in our business.
Jared Hecht's article on Consultants 500 brings us back to the basics of profit.
First, it's about remembering what profit really is.
Remember that “profitability” does not mean the same thing as “positive cash flow.” Moving more of your own money into your business’s bank account creates positive cash flow, but not profit. This is also true of taking out loans: That loan becomes part of your cash flow, but the boost to your account balance doesn’t mean you’ve profited.
When we talk about profitability, we mean the difference between what your business earns and what it spends. This figure, your gross profit, equals your total revenue minus your business costs. Revenue is anything you earn from selling your goods or services.
Costs refer to any expenses associated with selling those goods or services. The two cornerstones of reaching profitability faster are decreasing your costs and increasing your revenue.
It's not some secret formula. Revenue less costs. But how do we get it? Hecht's article talks us through five simple (but incredibly important) steps. We love the simplicity of number four.
1. Raise Your Prices
Provided you maintain your usual number of sales, raising your prices is the most direct way to increase your revenue. Raising prices isn’t as simple as slapping a new price tag on your products and services, however.
2. Diversify Your Offerings
Instead of (or perhaps in addition to) raising prices, consider diversifying your revenue streams adding a new product or service. Investigate which of your customers’ needs you aren’t yet meeting with your current offerings.
3. Identify What’s Driving Profit Already
Explore what’s generating the most profit for your business right now.
4. Change Your Credit Card Number
This strategy is so simple, it may feel like a “hack” for cutting small costs. Changing your business credit card number wipes out any recurring charges in one fell swoop, freeing you from the tedium of individually canceling those recurring payments your business has accumulated over the years. Update your card information with the businesses you know you use regularly, and let the rest fall away.
5. Stop Pinching Every Penny
As a thrifty entrepreneur, you may be hard-wired to equate “expenses” with “bad” and “profit” with “good.” Shake off this misconception, and understand that investing resources in your business is the only way it can grow.
Keep reading, and keep looking for your business' secret formula, but in the mean time, maybe it's time to pull out your scissors and give your credit cards a trim.