Quit Focusing So Much on Sales, (or Things You Won’t Hear Often from Me)
“Drive ahead, don’t spare the steam, make all the noise possible, and by all means, keep down expenses.” — P. T. Barnum
You won’t hear too many people in the world tell you to stop focusing so much of your energy on sales, but here it is:
Stop focusing too much of your energy on sales.
If you read anything in business these days, you know it’s crowded with marketing and sales books. Everyone seems to have a new message on how to market or sell. Even I have some things to say on it, because it IS an important part of every business. Maybe it’s because the U.S. education system still kicks out so many marketers into the world every spring after graduation? Maybe it’s because everyone with two thumbs and a phone is an expert these days? Don’t get me wrong, it’s an important part of doing business and there are a lot of great books and blogs to read about sales and marketing. (I just bought one that I’m so excited to read I can’t stand it.)
Today, though, I want to spend a bit more time on the expense side of the balance sheet. Ugh, you say to yourself, this is boring. You’re right. There’s nothing sexy about your role as a small-business owner when it comes to drilling into your expenses. But trust me, it could save your business — or get you on the path to creating real wealth (time off from your business so you can do the things you love). Even if you don’t like to, you need to spend a goodly portion of your time digging in and working through how you’re spending your money and making more work for yourself in the long run.
Most small-business owners did not start their company to get rich. Usually, it falls into one of three reasons. One, you had a great idea and wanted to share it with the world directly, rather than have someone else screw it up as they told other people about it or attempted to do it themselves. Two, you didn’t want to have to work like all the rest of the world on a 9–5pm job sitting in a cubicle following some supervisor’s direction. Or, three, free time was more important to you than making a bunch of money and so you found a way to work less, even if it meant not making as much money.
If you land in the last category of wanting more free time to pursue the things you love, then you are only working as much as you need to meet your simple financial needs. In other words, your expenses are driving how much you work. So, if you cut your expenses, you’ll need to work even less. That sounds pretty good, right?
Unless clients are falling out of the sky, it’s probably easier for you to find a way to save money than make a new sale. Here’s why: You start with your take-home (profit) as the goal, and then work up the P & L statement to arrive at your revenue goals. If your expenses are less, you have to make less to meet your profit amount. This is especially important if you have cost of goods sold as an expense, which all product-based business and some service-based models have, because your gross profit is determining how much you need to sell and your COGS are making the sales number even harder to achieve.
Let’s dig into a quick example, real quick, to show you what I mean. Say you are fortunate to make a 20% return on your revenue. That’s pretty good if you’ve got your own operation going and you’re bringing in that kind of profit. Let’s say you want to make $50,000 in profit this year. You have to sell $250,000 in goods and services, and you’re spending $200,000 to make that happen. Let’s say in this example that you want to make an extra $10,000 next year (for example, you want to go on a two-week trip to Costa Rica to blow off some steam). Well, depending on what your COGS are, you may need to make as much as $50,000 in extra sales to get the $10,000 in profit. Another way to do it is to look at reducing your expenses by $10,000. It gets you the same profit increase but requires way less work. The necesary percentage increase in sales could be up to 20% ($50,000 on $250,000 (and really hard to do)), while the percentage decrease in sales is only 5% ($10,000 on $200,000 (not really hard to do)). What percent increase/decrease seems easier to achieve?
I could go on, but you get the picture. So, before you decide to refocus your energy on marketing or branding or taking out a bigger print advertisement, maybe you should take a look at your books with your accountant or a business consultant to see what you can do to reduce your expenses.
It’s almost always easier to save a buck than it is to make five.