4 M’s of Profit
Every business I speak with wants to increase sales in their business. Who wouldn’t? But increased sales is not necessary the goal. We don’t really want more sales, what we really want is more profit, right? Well not necessarily, because you can’t really do anything with profit. Profit is just a theory. The question is how we turn profits into cash.
To help us understand how to increase our profits and cash flow we must first understand the 4 M’s; Management, Money, Marketing, & Merchandise.
Management: Properly run companies can sustain profitability over the long run because they are organized and cut wasteful spending. When business is good the average company doesn’t seem to care where the wastes are in the business because there is enough cash to cover up the waste. Properly run companies understand that investing in properly trained teams will lead to increased profits and cash flow. A team who is aligned to company goals and that understands how their specific role and task leads into the company’s “big picture”, will be more effective and efficient. Since they are aligned to the company’s goals they will be able to recommend ways for the company to be more effective and efficient.
Money: Money management is a key to all successful business. That’s both money coming in and out. The two biggest bottle necks that prevent profits from turning into cash are inventory and accounts receivables. Properly run companies are always managing their vendors, looking for better ways to order more efficiently and ways they can negotiate better terms. Most AR problems arise because issues aren’t addressed until they turn into problems. Make sure your clients understand and are clear on your payment terms. Don’t be afraid to ask for your money. If you don’t, someone will be getting paid before you.
Marketing: Even in a tough economy people are spending money on your product or service. The purpose of your marketing is to help you get your “unfair” share of the dollars being spent. To do this you have to be very clear on what your clients want and how your product or service can help them achieve that. Marketing is not just advertising, it’s all about understanding your whole sales process, which turns a lead into a customer that comes back again and again. By understanding each step of the sales process from lead generation to repeat customer, you can quickly identify the bottlenecks and implement strategies to move them to the next step.
Merchandise: If sales are down, you need to see if people are using your product in the same way as before. In the past people might have been using your product or service out of ego, price, or having a particular item, that might not be the case now. Maybe now your product or service could be used in a different way that your customer hasn’t even thought of. Successful companies are always asking themselves why people are buying their product or service. Additionally, make sure your team understands which products are your most profitable. Just by adding some extra attention to your most profitable items can easily increase your overall profit margins.
Until we meet up again, make it a profitable day…
Steve Goranson, MBA Certified ActionCOACH Jacksonville FL