All too often I see the turnover of a business climb only to find the profits remain stagnant or worse dwindle. Consequently, the owners and staff are working harder for little or no gain.
So what are they doing wrong? There could be a number of reasons, but generally it boils down to one, or a combination, of the following:
Prices are too low
The product or service actively promoted is not profitable
Take, for example, an IT company, which sells computer hardware, undertakes computer repairs and services business computer systems and networks. The owner of the business is always busy attending to computer repairs and selling upgrades predominantly for home users. Despite the constant flow of work, the business is struggling to make ends meet and the owner is forced to review the mix of products and services provided.
Upon review the owner realises that the margins generated on hardware sales, and the fees earned from the computer repairs are insufficient to return desired profits. Home users are not prepared to pay a fee comparable to the value of time and effort contributed to the repair of their PC.
Consequently, the owner changed the focus of the business and began to actively promote their business services, implementing a monthly maintenance contract. Within six months the profits had dramatically increased and the owner was able to turn away home user repairs and sales.