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Healthy Business Healthy Profits podcast is on a break for the summer.

In the meantime, Lisa is lining up a lot of new guests and information to help you lead, run and grow a healthy business.

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Check out some of our most popular episodes below.

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We take a deeper dive into pricing in this episode and talk about the questions you need to answer when pricing services in your business.

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Show Notes

In this episode we dive deeper into the concept of pricing your offerings in a service type business.  While there is not one right answer, we’ll talk through the types of things you need to consider and understand when pricing services.

Key Points

*Pricing services is a little bit science and little bit art with also some psychology thrown in the mix.

*There are some essential questions entrepreneurs need to answer in considering their pricing strategy and what they are trying to accomplish.

*Cost, profit, understanding your market, value and perception of value all play a role in pricing services.

*Lisa talks about what she sees as the bottom line in pricing decisions and creating the means to create a model that enables you to achieve what you are trying to achieve in your business.

*Various pricing models are covered including cost plus, value based, competitive, volume, feature based, and the razor blade model.

*The issue of freemiums is discussed and how they fit into your business and pricing models.

*The objectives that you are trying to achieve are covered along with the competing factors that need to be considered with those pricing objectives.

*Other factors are discussed surrounding your target market, quality vs. price and the future trends in your market for pricing.

*Tips are also discussed about managing pricing going forward after you have set your pricing strategy.

*Lisa offers some tips on taking your research further on pricing and shares some informational links below in the resource section.

Resources and Links

To contact Lisa Roberts to get objective advice or talk through your own business and pricing decisions you can get in touch with her here to set up a Quick Care Consulting session.

From the Help Scout Blog Pricing Psychology: 10 Timeless Strategies to Increase Sales

From the Kissmetrics Blog 5 Psychological Studies on Pricing That You Absolutely MUST Read

Here is another episode related to pricing that you may want to listen to- “Costs and Pricing What You Need to Know”

Note: Links in this post may be affiliate links.  Lisa Roberts is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to amazon.com.

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Get all the updates and information Lisa shares from Business Rx and the Healthy Business Healthy Profits show! You’ll get information, tips and strategies on growing a healthy successful business. Don’t worry, I won’t bombard you with emails.  At most, you’ll get something from me every few weeks. You can sign up  Here

Lisa Roberts is a business operations consultant who advises growth company entrepreneurs in successfully managing growth and the challenges they face along the way. She has over 25 years of experience in operations, finance and administration and spent several years in executive roles at a high growth company. She recognizes that there is a fine line between success and failure in a growing business and that entrepreneurs need to focus on managing finances, creating a sound operation and employ good business practices to stay on track.   You can find out more about her here

Properly pricing your products and services involves knowing your market and competition.  But, in order to be profitable you also need to know your costs.

To listen to the episode hit the play button.

To download the episode, right click on this link  and choose Save Target As.  Go to the folder where you want to save the recording on your device and click Save or Enter.

Make it easier to get upcoming episodes by subscribing to the show on iTunes . Subscribing to the show will automatically download the episodes on your preferred listening device so you can listen to them when and where you want. And hey, if you like what you hear, please leave the show a great rating and review while you are there on iTunes.

Show Notes

Pricing decisions involve much more than charging what the competition is charging.  In order to properly price your products and services to achieve a reasonable profit ,  you need to know your costs.  In this episode we will talk about understanding your costs, breakeven and pricing and how costs play an integral role in your pricing and managing your business and your profitability.

Key Points

*Costs in your business are either direct or indirect and we describe them and which costs are considered direct or indirect.

*Costs can also be viewed as either fixed or variable and describe the difference between each.

*Overhead costs further help define how various costs are viewed in a company and applied to areas of the business.

*We discuss important reasons why entrepreneurs need to understand these costs and why it’s important for pricing decisions in your business.

*The concept of breakeven is described to show how it can be used to understand your costs structure and pricing.  The formula for break even point for units is Fixed Costs divided by (Sales per unit – Variable Cost per Unit).
The example in the show is as follows Sale Price $100, Variable cost per unit $50 Fixed costs $100,000.  The math is $100,000 divided by $50 ($100-$50) for a total breakeven 2,000 units.

*Lisa describes how breakeven helps entrepreneurs analyze cost structure as well as pricing decisions using various examples.

*Many factors go into price and pricing models that businesses use. No matter which model is used, companies need to consider their cost structure as a part of pricing and cost decisions.

*Lisa explains with a simple example to illustrate how service businesses must also understand their cost structure to manage their pricing and understand breakeven.

*To get help understanding this in your own business can involve research, advice from your accountant, bookkeeper or other advisor and also taking steps to get a firm understanding of the costs in your own business.

Resources and Links

If you would like to contact Lisa Roberts to set up a Quick Care consulting session follow this link

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Lisa Roberts is a business operations consultant who advises growth company entrepreneurs in successfully managing growth and the challenges they face along the way. She has over 25 years of experience in operations, finance and administration and spent several years in executive roles at a high growth company. She recognizes that there is a fine line between success and failure in a growing business and that entrepreneurs need to focus on managing finances, creating a sound operation and employ good business practices to stay on track.   You can find out more about her here

The phrase scaling a business is one of the latest catch phrases that describe growing a business in a profitable way. In Part 2 of this 2-part series, we cover the process and profit factors important for growing your business.

To listen to the episode hit the play button.

To download the episode, right click on this link  and choose Save Target As.  Go to the folder where you want to save the recording on your device and click Save or Enter.

Make it easier to get upcoming episodes by subscribing to the show on iTunes . Subscribing to the show will automatically download the episodes on your preferred listening device so you can listen to them when and where you want. And hey, if you like what you hear, please leave the show a great rating and review while you are there on iTunes.

Show Notes

The phrase scaling a business is one of the latest catch phrases that describe growing a business in a profitable way.  Planning and managing growth involves many important factors.  In Part 1 of a 2 part episode, Lisa talked about some of the people factors related to scaling your business successfully.   In Part 2, Lisa covers the process and profit factors that are important for scaling and growing your business.

Key Points

*When scaling your business, spending will be greater than sales as you invest in the growth of your business.

*Investments in infrastructure like information technology, accounting systems, CRM and other things will be needed to support more people and production.

*Spending, cash and financing need to be planned and managed effectively to avoid cash crunches.

*Processes that worked when you were a smaller business may not be as effective in a larger more complex business.

*Process that is not well-defined and systematized with break under the added pressure of more employees, more customers and more volume.

*Entrepreneurs need to carefully estimate the impact of increases in their business and how he affect the amount of time, equipment and people needed to support the additional business and how profits may be affected.

*Weak functions and processes will magnify problems in your growing business.

*Having a plan and budget to help manage your spending and cash during your growth will help avoid the common problems companies experience when trying to scale.

*Entrepreneurs also need to plan cash and financing so that the funds are available to finance their plan for growth.

*Be prepared to slow down or throttle your growth if things are not going according to plan.

*If outside financing is needed to support your growth, determine potential sources for that cash.

*Lisa touches on the impacts of getting financing through debt or equity types of financing.

*Identify those key processes in your business that will need to be improved to a larger scaled business.

*Businesses also need to estimate the impact on the business systems and include that in their plan to scale and grow.

Resources and Links

Questions to Answer before Scaling Your Business – Tip Sheet   Sign up to my list and get the tip sheet here

Download Link to How to Scale Your Business Part 1 of this 2-part series

Link to article and related video about the company Lisa mentioned in the episode – “Meatball Shop’s Daniel Holzman: ‘It Was Moving Faster Than We Could Keep Up With'” – check that out here

Would you like to work with Lisa to get advice about your plan to scale your business?  You can sign up for a Quick Care Session. Find out about that here

Sign Up to Get Updates

Get all the updates and information Lisa shares from Business Rx and the Healthy Business Healthy Profits show! You’ll get information, tips and strategies on growing a healthy successful business. Don’t worry, I won’t bombard you with emails.  At most, you’ll get something from me every few weeks. You can sign up  Here

Lisa Roberts is a business operations consultant who advises growth company entrepreneurs in successfully managing growth and the challenges they face along the way. She has over 25 years of experience in operations, finance and administration and spent several years in executive roles at a high growth company. She recognizes that there is a fine line between success and failure in a growing business and that entrepreneurs need to focus on managing finances, creating a sound operation and employ good business practices to stay on track.   You can find out more about her here

It’s the age -old question business owners ask – “how can I make more money?” Some ways are obvious and some not so obvious.  Some will say, “just sell more”.  Oh sure, you may have to sell more but at the end of it all, the real money owners make is really more about profit than about sales.

Check out some of the ways you might be able to make more money in your business.

100 bill, money

    1. Sell More Stuff – Obvious right.   Find more customers, find new markets, sell more to existing customers, sell supplementary products and services are all ways to sell more stuff. In addition, don’t forget about recurring revenue streams like maintenance, warranties, subscriptions and multi-year contracts.
    2. Sell More PROFITABLE Stuff – Not as obvious. # 1 could get you more money, but it could cause you to earn less if you’re not selling profitable stuff.   Selling more stuff is great if you only want to concentrate on the Top Line (sales), but selling profitable stuff will focus you on the Bottom Line (profit) and get you more money in the long-run.
    3. Know Your Costs – Obvious now from #2. Understanding your costs, especially your direct costs will help you recognize your most profitable sales. Higher gross margins on sales contribute to covering your other costs, like selling, general and administrative costs and help contribute more money (profit).
    4. Understand Cost Drivers – This one can be a little more difficult but necessary in order to avoid being caught flat-footed. Recognizing that a cost is rising, sooner rather than later, gives you the chance to do something about it before it costs you too much money. Understanding the impacts gives you a chance to combat it whether you need to raise prices, find substitutes, change offerings or find savings elsewhere in your business. Taking action earlier will help you save money.
    5. Minimize Hidden or Risk Costs – These costs are those things that could catch you by surprise.   Costs that rise because of something no one foresaw like a drought or natural disaster; expense of a lawsuit against your business; or uninsured losses – are all things that can catch you by surprise and cost you money.
    6. Avoid Wasted Time – This may not be as obvious to a business that “has always done it this way”. Most businesses can say, “Time is money”. The way you operate, the better your processes and procedures, can translate into saving time and therefore, money.
    7. Don’t Waste Money – Sure, it’s obvious not to just throw away cash in your business, but what about not so obvious waste. Employee turnover, lost customers, not maintaining equipment, and even bad internal communications can all cost you.
    8. Find More Efficiency – Efficiencies might be obvious and not so obvious. Shortening the delivery cycle, collecting money faster, automating functions, and improving processes can all be things that bring money in faster or save your business money.
    9. Budget and Monitor Spending – People don’t like to budget but if you’re running a business or even your personal finances it is still one of the best ways to manage your money effectively. It’s not enough to set a budget and forget it; to make more money you’ll have to monitor it and adjust it to maximize the money you make.
    10. Look For Savings – Obvious, right? It will not be, if you’re not monitoring your business results and your budget. Regular monitoring gives you a shot at controlling costs. The faster you deal with out of control costs, the more you save and the more you’ll make. Also, don’t forget about your recurring costs. Just as we mentioned earlier about recurring revenues, recurring expenses can cost you money. Look at recurring costs to see if they are still necessary, maybe you can reduce them. This will have a multiple savings effect because they are recurring.
    11. Ask For Savings – Your suppliers may be a great source to make more money. Agreeing to a price break, quantity discounts, longer payments terms, payment discounts and even taking on one of your own costs such as storage, delivery or just in time inventory management are all ways they can help your business save money.
    12. Outsourcing – Farming out part of your business operation can make a lot of sense in certain cases. There are obvious examples like payroll and benefits and not so obvious ones like shipping. Always remember that what you outsource should save you money and be something that can be done easily and accurately. However, remember, outsourcing something that is core to your operation, your brand or what makes you different, is something you should avoid.
    13. Recognize “Outsiders” Input – The pros, like accountants, lawyers, insurance specialists and other advisors, that your business relies on can be a source of good ideas for making more money. If they understand your business, they can recognize savings, advise on tax strategies to save, prevent lawsuits and provide valuable insights into better ways to do business more efficiently, effectively and with less risk.
    14. Manage Your Cash – one of the worst things a business can do is spend money just because it’s there. Let’s face it, cash is the lifeblood of most businesses. If you don’t manage it, maximize it and spend it wisely and strategically, you’ll have problems.
    15. Be Legal – Lawsuits, not following regulations, not paying your taxes, mistreating employees and so on are all ways that can cost your business money. So make sure that you understand and follow the laws and regulations that affect your business.
    16. Be Fair – Whether it’s your customers, employees or vendors, honesty, integrity and fair treatment will always win the race. Maintaining a reputation of being a good honest business that treats people fairly will make you more money in the long run.
    17. Hire Well – Taking time to hire the right people will help you avoid additional costs like lost productivity, low morale, recruiting and training. One survey noted that 41% of the companies said a bad hire cost them at least $25,000. http://www.fastcompany.com/3028628/work-smart/infographic-how-much-a-bad-hire-will-actually-cost-you#1.
    18. Serve Your Customers Well – Unless you’re the only game in town, your customers are the heart of your business. Serve them well and they will stick with you, make referrals for you and help you make more money.
    19. Save and Invest – Too many of us, individuals and businesses alike, spend what we make and don’t save or invest in the future. Business is uncertain. Having a nest egg for tough times and saving for future investments in your business is a sound strategy for its long-term health. Having an emergency fund will also lessen the impact of those unexpected surprises.
    20. Pay YourselfIf you are not making enough to pay yourself, ask yourself why. If you have been paying employees and not yourself for more than a few months, maybe you need to start doing more of the work yourself. If you started your own business, one reason was to make a living- that is you need to make a living.

 Remember, the top line – sales, only answers one part of the equation.  The real money you make will be more about the bottom line – profit. So, what ways could you explore in your business to not only bring in more money, but make sure the money you bring in is profitable and makes you money.

Business model is a fancy way to say how your business makes money. Sounds simple right? Well in some ways it isn’t so simple. Make sure that the people involved in your business know how you make money so they can help you.100 bill

Consider the various businesses that you know. Think about their business models and how they make money. Companies have created strategies to help them make more money by doing things a little differently.  Ford shook things up with the first assembly line; McDonalds did with the franchise model; and Amazon with their sales aggregation model and now their fast fulfillment and delivery model. For Ford it was about efficiency and cost, for McDonalds it’s about consistency and value and for Amazon it’s about volume, selection and speed. While they’re all concentrating on selling, managing costs and making a profit, each had their own special ingredient that made them more successful.

So Who Should Understand Your Business Model

Well, I would say you, your employees, and your advisors and even to some extent your customers. Why? They all are involved in your business and have a stake in making sure that it’s successful.

You as the Owner

It not enough to sell something, hire some employees and hope that customers buy what you have to offer. At some point you must understand what really makes your business money. It may be one thing or a number of things. It could be what you sell, the way you sell it, how you deliver it or even how you provide service. What makes your business special?

Is it your service? I’m sure you have special guidelines for your employees on what they should and shouldn’t do when servicing customers. Do you rely on fast and efficient delivery? I’m sure you’ve taken steps to ensure that your process allows you to do that. If you have a low margin business, you’ve probably taken steps to ensure that the costs are controlled and your accountant helps you monitor them.

Employees

Your employees should also have some idea, especially your management, on how you make money too. Decisions they make can affect how much money the business makes. It’s important for them to understand the key things that are important to your business model.

Running a restaurant that relies on good food with a chef who starts using frozen food instead of fresh will start to affect the quality of what you serve and cost you money. A contractor with a good reputation for quality and professionalism will be hurt by employees who do average work and leave the site a mess at the end of the day. A business that relies heavily on helping customers with problems won’t be successful if employees don’t call customers back in a reasonable time or are rude to them when they call for help.

Your Advisors

You have advisors for a reason, to give you good ideas, information and solutions about problems facing your business. If they don’t understand your business model and you haven’t helped them to learn more about your business, they won’t be able to give the best advice.

Your attorney  who is writing contracts for you to sell your products or services can help you more by understanding how you make money. If you get paid after you do x and y, and you are having trouble collecting fees because your contracts lack certain clauses, the attorney may be able to help you by inserting more definitive language in the contract. Do you have a business where there are a lot of upfront costs you incur before you get paid for the sale. Your banker, understanding this, may be able to help you with short term financing options. Finally, if your accountant understands the key cost factors that define success in your business, she will be able to provide information and reports that help you more effectively monitor and control those costs.

Your Customers

If you have customers who are loyal to you, they need to understand how you make money to some degree. They like you and want to keep coming back, so they need you to be successful too.

A business friend who owns a salon told me a great story about when his business had to raise prices on hair color. The cost was going up and after eating those additional costs for a time, it began hurting his business. After researching the reasons for the increase (which were not in his control) and careful consideration about the message that he needed to pass along to his customers, the price increase was put into effect. Once customers understood the clear reasons for the increase, they respected it and accepted it since he was clear and honest about it. Helping customers understand “the why” helped build greater trust and as a result, loyalty.

Help People Help You

You, your employees, your advisors and your customers all have an interest in your business being successful. Decisions they make, advice they give or loyalty they feel can help you more when they understand the key issues and factors that affect sales, costs and profit.

How Well Are You Managing Your Business Finances?

Sometimes business owners get so caught up in managing the day-to-day in their business that they forget some of the basic things they can do to effectively manage their finances in a healthy way.  When I have conversations with business owners, one of the things I try to find out is whether they are managing their finances and cash flow effectively.  Those conversations go a little like this:

Q. How is your profit?

A. Ok, my sales were up last month.

Q. Great! But I asked how your profit level was?

A. Oh, well I don’t know my books haven’t been updated in six months.

Q. Ok, well how is cash flow then?

A. Not great, I am having trouble paying my bills because my customers aren’t paying on time. It’s causing problems for me and my business but I don’t know what to do about it.

And so it goes, business owners living in the moment, managing day to day, and not taking steps to run a healthy business.  There are some common mistakes business owners make managing the financial aspects of their business.

Don’t Make These Mistakes Managing Your Business Finances

heart stethescope finances health

1. Not Using the Information Right in Front of You

The best information you have about your business is in your own books.  The books tell you how much you sold, how much you spent, what is left in profit, how much cash you have, how much cash you owe and how much cash is owed to you.   If you don’t keep up with this information, you only know part of your financial picture.  You are losing the valuable opportunities to analyze results, determine real profitability and manage cash flow. You’ll also have difficulty identifying problems in your business.

2. Ineffective Cash Flow Management

This is one of those critical areas that can make or break a business.  Cash flow becomes even more important for a growing business, since the investment in growth typically occurs before the rewards of that growth are realized.  Like the old adage says, “You have to spend money to make money.”  In many small businesses, cash flow is the lifeblood that keeps you in business. Most companies need to build cash reserves to finance future growth.  Larger businesses have credit more readily available.  A smaller business sometimes needs to finance its own growth, thus making cash flow management a very important factor in its ability to expand.

3. Ignoring Receivables

Getting paid, sounds easy, right?  Not always. Too many late paying or non-paying customers can choke your business.  While this discussion could fit in the cash flow section, it deserves additional emphasis. Collections, collection policies, timely follow-up with customers, steps to reduce exposure, and other techniques are important to ensure that you get paid on time and keep cash flowing into your business.

4. Using Credit Effectively

No one in their right mind would finance a house with a credit card; you would never pay it off with interest rates that high.    Using the right type of credit for your purchases is essential to good credit management. The type of credit a business uses for short term cash needs like inventory should not be the same as the credit facility it would use to purchase a new expensive piece of equipment or longer lived asset like a new building.  If you need to use credit to finance part of your business, work with your lender or advisor to make sure you are using the right credit for the situation.

5. Not Measuring Your KPI’s

I have talked to business owners who thought that they were doing well, only to show them that they could be doing much, much better.  If your books and financial statements are current, you will be able to calculate key ratios for your business.  KPI’s are key performance indicators and while there are some that are fundamental for all businesses, some may be more important than others for your own business.  Determining and measuring what makes your business successful through your own KPI’s will help you take action when needed. KPI’s like profitability, inventory turnover, average collection periods, gross margins, productivity ratios and host of others will help you target  inefficiencies in your operations. They can also highlight opportunities for improvement and cost savings as well as other ways to increase profitability.

 

Take some time to step out of the day-to-day chaos and look at the bigger financial picture.  Avoid these mistakes and you will be on the right track to managing, improving and taking control of the financial health of your business.

 

How’s Business?

I am always surprised when I hear small business owners tell me that they haven’t updated their bookkeeping in several months and they are not concerned about it.  How do you know whether you are profitable? How are you managing cash flow?  The response I get sometimes is “well, I know where my sales are and that’s enough”.

Sales are sales. Profit is profit. Cash is cash.   Increased sales do not always mean increased cash and increased sales do not always mean increased profit.   Let me illustrate with a few simple examples below.

Sales Don’t Always Equal Cash

If your sales are $5,000 and your cost is $2,500 to produce those sales, you would show a profit of $2,500 on your books.  Let’s say that you haven’t gotten paid for that sale, your cash flow is a negative $2,500 and will remain that way until you get paid. Sales don’t always equal cash.

More Sales Isn’t Always More Profit

In addition, sometimes increasing sales may not increase profits.  Let take the example above a step further and say your fixed expenses are $1,500.  Your net profit in the above example is $1,000.  Let’s assume further that you’re getting squeezed by the competition. As a result, you decide to lower your prices in order to achieve more sales and you sell twice as much product.  Sounds great right?  I doubled my sales!  Your new sales figure with the reduced price is $7,500, your costs are $5,000 and your gross profit is $2,500.  But your net profit is still only $1,000 after taking into account your fixed expenses of $1,500.   More sales don’t always equal to more profit. 

It’s More Than Sales

These examples are very simple and in real life business isn’t always that simple and may in fact be much more complex.  This is all the more reason to have a good handle on several aspects of your business, not just sales. Business owners cannot run a business by looking at sales alone or they won’t be in business very long. Yes, they may get lucky and survive and as the adage goes “better lucky than good”.  There is also another saying that goes something like “you make your own luck”.

Know Your Numbers

As a business owner you need to have a solid understanding of the key financial ratios in your business.  You must know where you stand financially and know your margins, variable costs and fixed costs. By understanding your gross margins and break even levels, you can make smarter pricing, sales and expenditure decisions.

Start by making sure your records are up to date.  Maybe you need to hire a bookkeeper or set aside time to record the data yourself.  Then, analyze the information in your financial reports so that you have a complete understanding of your gross margins, inventory turnover, expense ratios and profit margins or whatever other important ratios drive your business. This will provide important in identifying favorable or unfavorable trends that may arise and enable you to make good sound decisions in your business.

Manage Your Cash Flow

Now that you have a good handle on your financial results, another important tool business owners should also use is a cash management tool to monitor and control cash flow. A cash management tool will enable you to set out your monthly receipts, costs and expenses so that you can monitor your cash inflows and outflows.

Monitoring cash flow gives you the ability to see where cash may be tied up in your business.  You’ll be able to spot bottlenecks especially in your cash inflows such as identifying problems like slow paying customers. It can assist you in planning your expenditures and help you to make better decisions in managing expenses in your business. Further, it may help you lessen your dependence on loans or credit lines and save interest as you rely on better cash flow decisions to maximize cash and finance your business from operations instead of relying on debt.

For most small businesses, it is about profit and cash.  Make your own luck, take control of your business and make informed decisions by maintaining your books and managing your cash flow.