01 Sep Keeping a Growing Business Profitable
If you run your own business, you’ll hopefully reach a stage when it’s well established enough for you to start expanding it. Why should you expand? Because you don’t want to stagnate and become uninspired with what you’re doing, which is a quick way to reduce your business performance. But you also want to stay competitive in the market or industry you’re in, and of course you want to keep increasing your profits! These are some of the reasons that we’ve experienced at Black Mountain, over the five years that we’ve been running.
Once we started to scale up though, we had to carefully consider our profitability. More clients inevitably means we need more resources in order to service them, which means more money flowing OUT of our business. In order to ensure that what comes in is still more than what goes out, here are six things we took into consideration:
1. Building up our profiles as thought leaders
Becoming known for being the best at what we do is a good way to keep our deal pipeline flowing, which helps us to budget better. So how do you build up your own profile? You could hire a publicist to place opinion pieces of yours in select media, or ramp up your social media presence, or attend as many industry events as you can. After all, it’s personalities that people remember, because people buy things from people.
2. Evaluating financing options
Think about the entire amount of capital you’d need to grow your business to where you want it to be in five years. Now take that amount and break it up into stages, thinking about what you’d need to spend when. Also think about WHAT you need that capital for. Is it for hiring talent you don’t currently have in the business, or expanding to bigger premises? Then look at what options you have for investment, whether this is a loan from the bank or pitching to a venture capitalist.
3. Track your budget closely
It’s surprising how quickly expenses can increase month on month if you don’t keep track of them (each little expense sounds minimal but it all adds up!). Even if you get a bunch of new clients and hire more employees to service them, this doesn’t automatically mean you’ll be profitable – because your expenses will be higher. We’ve had to bear this in mind with some recent new retainer clients of ours.
Make sure you record every single expense from monthly software requirements to rent, and then monitor these each month. Also ensure that you’re working out your gross margin on each client/account, to determine if it’s at the level you want it to be. If expenses are starting to rise higher than you like, look at ways of cutting them, such as by renegotiating with freelancers or suppliers, switching providers or seeing what you can do without.
4. Think about the value you’re delivering – not the hours you’re putting in
So many businesses struggle to grow and stay profitable because they only charge by the hour and their time is limited (trust us, we all know ALL about this!). If we’re not working, we’re typically not earning. When you’re charging clients for projects, think about charging a set fee for a certain outcome, rather than billing per hour of work you’re putting in. Think what that outcome is worth to their business and then cost that work accordingly.
5. Automate processes
As far as possible, automate processes that are taking up your valuable time. Maybe it’s invoicing, time tracking or lead generation? Whatever it is, try and use whatever technology you can so that your human talent is freed up to help grow the business.
6. Look at the 80/20 rule
Typically, 80% of your output (revenue) comes from 20% of your input (customers). Examine your revenue closely and you may see that it’s coming from only a handful of your clients. Work hard at growing business with those specific customers, whether it’s nurturing the relationship, upselling other solutions to them, or ensuring you go above and beyond with what you deliver.
You’ve worked hard to get this baby of yours off the ground and the next step may be slightly daunting! But with a proper plan in place, you’ll be able to scale your business with confidence, while staying profitable along the way.