By Bryan Orr
You are good at something. In fact, you’re probably good at quite a few things and if you own or manage a small business your business is likely built around those skills.
Think about what you do, and the effective hourly profit you generate doing these things; it’s easy math:
Number of hours you worked in a month divided by the net profit you generated in your business in the same month = Average profit per hour for that month.
Now think about other types of businesses and what they are able to generate in profit per owner/manager hour. How do you stack up? Do you want that number to be higher than it is? There are a few ways to make that happen without building a gigantic mega corp.
When you do a particular task but you have more experience doing it and can do it quicker, better and with less headaches than anyone else, you can make much more $ per hour. You make more because it will take you fewer hours and you can also charge more because the customer will have a faster and better result.
The reason most small businesses often don’t specialize is because early on they take whatever customers they can get to keep the business afloat. This is totally understandable and even necessary early on, but I would consider specializing as quickly as possible.
2. Do Difficult Things
In every type of business there are segments that everyone shies away from because they are either complex, convoluted, boring, dangerous or just plain hard. If you can bring process and sanity to a difficult task there are many people who will will pay a premium to have you do it for them. If you doubt it, just take a look at what hazardous waste removal companies, or brain surgeons are able to charge hourly.
One of the highest expenses in most businesses is customer acquisition and retention. If you can make more money out of an existing customer relationship then you reduce your need for new customer acquisition for growth. If you can package together products and services you can often increase revenue, profitability and customer perceived value all in one.
Don’t make assumptions about what other services or products your customers would want you to package in… ASK THEM. You might be pleasantly surprised.
4. Leverage Your Time
Every net profit dollar you can make when someone else is doing the work is dollar increase on your average. The trouble is that as you increase in number of employees, so does your stress, risk and overhead.
Even better is partnering with other businesses so you can make profit dollars when they work. This would be like the general contractor who hires a plumber to work on a project and then marks up the plumbers price before passing it on to the customer.
Obviously, partnerships have their own risks and challenges, but when they work well profit per hour can skyrocket.
5. Cater to Customers with Money to Spend
Don’t get me wrong, there is absolutely nothing wrong with creating a business that is designed to serve those who have little or no disposable income. It’s just that you probably aren’t going to have a very profitable business at the end of the day. It stands to reason that most highly profitable (per hour) businesses cater to individuals or organizations with money to spend.
It isn’t as simple as just waking up and deciding to cater to a more affluent customer base; it takes work to build relationships in those sectors and then systems or products to help serve them better than your competition.
More often than not, the largest customers are institutions or businesses, not individuals. Health care, universities, financial institutions and military are all segments with lots of money to spend and high expectations to go along with it.
If you want to take the next step to being more profitable it may not be as difficult as you think, unless you’re an underwater basket weaver…. That’s a tough business.