Do You Know What Business You Are In?
Earlier this week, I had an interesting discussion with a small business client. It is a business that provides professional services and also supplies products as a direct result of those services. The business requires professional skills, so it would be logical to believe that the business profits are directly related to the amount of services that are provided.
Based on that information, the best way to make more money is to sell more services or to charge more for the services you provide…or ideally..sell more at higher prices. The industry is price-sensitive, so raising prices is difficult. My client’s services are not perceived as vastly superior to the competition, so it is difficult for them to charge more.
After some analysis, we determined that most of the potential profit was in the supply of the products. Because the products were easily available from many sources, they were basically commodity items. When I arrived at that conclusion, we worked out how to supply the products at a much lower cost. The business will now make 30% more profit from the same level of revenues. Now that’s good business. A little bit of planning, a new business model, and much more profit.