SUPER MOVE #28 from the business coach– Focus on profitably creating value for your ideal and likely customers in a profitable way
When I built my DJ business, I actually used to feel guilty if I wasn’t DJing weddings on Saturday nights. I used to feel bad when I didn’t get a chance to personally do sales presentations because I felt like I was worthless. However, once I discovered that I was never going to achieve my financial freedom or my time freedom goals by spending my days and nights DJing and doing sales presentations, I became 100% committed to building duplicable and scalable systems that have the capacity to deliver value to my customers and profits to me and my team.
You must not lose focus of this concept, though it is easy to do so because people celebrate hard working small business owners as if they are the only true non-capitalist pigs in the world and they vilify large businesses as though the owners of these companies wake up each morning wanting to steal ice cream cones from little kids and punch unsuspecting sweet old ladies. It should be your goal to make enough money to achieve financial and time freedom. As a business coach, I have realized that is not a bad thing.
“Great companies first build a culture of discipline . . . and create a business model that fits squarely in the intersection of three circles: what they can be best in the world at, a deep understanding of their economic engine, and the core values they hold with deep passion.”
(The founder of Four Seasons resorts)
To learn more about this, visit: www.Thrive15.com/focus-on-profitably-creating-value-for-your-ideal-and-likely-buyers-in-a-profitable-way
SUPER MOVE #29 – You must pay yourself well or nobody is going to want to buy your business or want your job
It is OK and even wise to reward yourself from the fruits of your business after sacrificing for years to build a great product, service, team and company. As a business coach, I have learned that as you begin to pay yourself well, eventually people within your company will want to earn as much as you are earning. If they truly show initiative, you can promote them and grow the business so that you can make even more money by adding even more value to even more customers.
When your business really begins to grow, you will attract the attention of outside investors who will want to either invest in your business, buy your business, or merge your business with their business. However, when the prospective buyer asks how much money the owner is currently paying himself and discovers that the owner is not personally making any money, the buyer might begin to worry that your company might not be a smart investment.
“By loving yourself, you’re going to be a happy person. A lot of people don’t like themselves for whatever reason.”
-John Paul DeJoria
(The billionaire co-founder of Paul Mitchell and The Patron Spirits Company)
To learn more about determining how much you should pay yourself, visit: www.Thrive15.com/discovering-how-much-to-pay-yourself-as-the-owner-of-a-business
SUPER MOVE #30 – Don’t Marginalize Your Margins
As a business owner, you must know about two different kinds of margins (in addition to the margins of this book in which I hope you are writing). The first type of margin that you want to focus on is your operating margin. This is calculated by basically taking every dollar of sales and figuring how much of each sale ends up as an operating profit (pretax) for your organization.
For example, if you brought in $2,000,000 of sales and ended up with a pretax profit of $500,000, then your total operating profit margin would be 25% and you would be happy and the government will tax the crap out of you. If you wanted to earn an extra $100,000 this year without creating any new revenue sources, you would need to find a way to cut your expenses by 5%.
$2,000,000 x .05 (5%) = $100,000
I hope you are tracking with me. If not, it’s because I’m a poor teacher, not because you are a poor learner. To help you learn with greater ease, we have recorded a more in-depth video training about this subject available at: www.Thrive15.com/determining-your-operating-margin.
As a business coach, I know that the other type of margin that you need to fully grasp is known as the gross profit margin. This number represents how much money you have left after an individual sale after you take out what it really costs to create, make, put together, deliver, bake, or otherwise produce the product or service you just sold. Knowing this will make you really popular in bars and will help you grow your business faster, as much as it pains me to discuss and you to learn.
Gross margin is the difference between revenue and cost of goods sold (or COGS), divided by revenue, expressed as a percentage. Generally, it is calculated as the selling price of an item, less the cost of goods sold (production or acquisition costs, essentially. (from Investopedia.com)
You determine this by taking your total gross sales and subtracting the total cost of goods sold (for the actual product or service that you just sold) from this amount. To help hammer home this idea, let’s go back to the example above about owning a business that produces $2,000,000 of gross sales per year. If you had a total cost of goods sold of $500,000, that would mean that your gross profit was $1,500,000. When you explain or describe the gross profit as a percentage, you get your profit margin of 75% and people think you are really smart and your wallet magically gets bigger.
$2,000,000 – $500,000 = $1,500,000
$1,500,000 ÷ $2,000,000 = .75 (75%)
Once you know your total gross profit margin, you are then able to make more intelligent budgeting decisions. Once you know what your total gross profit margin is, you then know how much money you’re going to have left to spend on fixed overhead, sales, flat screen TVs for your customers to enjoy, and swag items such as small koala-themed stuffed animals that you can give to your customers to let them know that they are koalified for a loan (see www.GetKoalified.com). You laugh, but I, as a business coach, actually worked with a mortgage provider to help him brand his mortgage lending business and we chose koalas to be our official mascot, but before doing so, we had to discuss how much each koala would cost. The owner then had to make his decision based upon his belief in the “stickability” of the idea in the heads of his potential ideal and likely buyers and his knowledge of his gross profit margin.
When you really know this number, you can really look into your pricing to discover which customers are the most profitable and which customers are almost not worth attracting or keeping.