How to make our business more profitable in less time and how to double profitability.
The primary objective of an entrepreneur would be to get our business to make profits in the shortest time possible and with the least possible effort, and if anyone knows that no doubt that person is Tim Ferris, author of ” The 4-hour work week “Which has been successful in its business by simplifying as much as possible and making a business work in record time. And best of all, with the minimal intervention of the entrepreneur, getting to outsource virtually all work.
In his days we published some ideas of Ferris to find a profitable product to sell. On this occasion,
Ferris does not talk about getting more customers, or more income, or hiring more employees or opening more offices. Through these tips, you just want the business profitability to increase.
Ferris speaks of an entrepreneur whom they stopped during a party on a yacht in which he had contracted the services of a company that supplied dwarfs, something that was very frequent in the celebrations of this entrepreneur. In the press appeared the testimony of the owner of the company that provided the dwarfs: “There are people who like to have fun with dwarfs.”
Specialization is the future of companies, and by specializing, does not think you lose the opportunity to sell massively. Ferris puts the Apple iPod as an example. In the ads do not sound songs from the 50s or 60s. They sound the songs of the moment because it focuses on people in their twenties or thirties. But even the people of 40, 50 and 60 buy an iPod because they want to feel young.
- Measure what you can measure.
Everything that can be measured can be managed. Because they want to feel young. That is the people to whom you run your advertising is not the only population that will buy your product. But Ferris advises not to dilute the message to try to reach the world because if you do, you will not reach anyone.
To improve the profitability of a business, we must measure compulsively all the numbers we can measure. It is not just about receiving orders and delivering them. For example, for those who decide to sell through the web, we could measure the CPP (cost per order). How much does it really cost to send an order to a customer including all the processes since the purchase order is given? The cost of advertising, canceled orders, canceled payments, the maximum amount of investment in advertising, results of investment-return advertising. Knowing and correctly managing these numbers will help us to work on the margins of our product.
- Set prices before producing.
Plan the distribution first. In this case, Ferris wants to avoid focusing on the short term and thinking about long-term problems. Many companies sell directly to the consumer out of necessity at first, but once they grow up, they realize that their margins cannot be adapted to suppliers and distributors. If you have a profit margin of 40% and a distributor needs a 70% discount to sell wholesale, you will be condemned to always sell to the final consumer, unless you then choose to increase prices. That is why it is advisable to plan the distribution before fixing the price, or else, you could have an initial success but no possibility of growth. Would you have to make very large discounts for very large orders, Pay to appear on a shelf or prominent place, pay for corporate advertising? Ferris comments on the case of a manager of a big brand that had to sell his company to one of the most important soft drink manufacturers before he could access the main shelf of retail stores. Therefore, value all possible assumptions and do the homework.
- Less is more.
Limit distribution to increase performance. For Ferris, a better distribution does not mean that everything will work better, as an uncontrolled distribution can cause all kinds of headaches and loss of profits. For example, supplier a lowers price to compete with online supplier B and the price war continues until none of them manages to make a profit, so in the end, they stop making orders to you not to obtain profitability by selling your product. So avoid this situation by choosing a few key distributors and exclusive resorts to negotiate on your behalf with discounts, prepaid, preferred location, advertising support, etc … The big brands have become great because they controlled distribution. Anyone can not sell your product. Remember that it is not to get more customers, but to achieve more benefits.
- Create demand vs. offer terms at the beginning.
Many businesses fall at the beginning because of the payment deadlines. Although everyone is charging 30 days, you do not have to. Create demand on the clients so that you can be the one that establishes the terms in this matter. For this, Ferris advises resorting to the argument of difficulty in the beginning, and the always useful “business policy.” Do not make exceptions, since a single good customer in orders with a payment deadline too wide can lead to bankruptcy. That is why Ferris insists on creating demand on the final customer because if your product is used, suppliers and distributors will have to buy it and accept your conditions. And is that the beginning of a business is like a game, and at the beginning, the essential part of the game, is not to run out of “chips”, if possible to sell in prepaid and to the extent possible, pay 30 Or 60 days. Thus, this current asset becomes a financial cushion. 6. Sacrifice the margins for the sake of security. When you hire a factory, it is clear that the more units you manufacture, the greater discounts you will get in manufacturing. Ferris advises not to manufacture a product in large quantities to increase profit margins unless your product and marketing strategy have been tested and are ready to run unchanged. If a prototype costs $ 10 a unit and sells for 11, it’s fine for the trial period. It is okay if we sacrifice the profit margins during the trial period.
- Use the Pareto law.
Pareto law says that 80% of the results are obtained with 20% of our activities. That is, it is not the same to be always busy than to be productive. On occasion, 20% of our customers produce 80% of our profits, so we must focus our energy there. The same happens with many activities that consume much of our time and are the least productive. For this, Ferris is a magician in the outsourcing of this type of tasks. In his book, he talked about how he had a personal assistant in India who saved him much of his time for a small price. So invest in doubling your performance in the hot spots, instead of devoting your efforts to weaker areas. If something can be outsourced so that we can focus on what really matters, we will do it without thinking. And this brings us to the next point.
- Dismiss some customers.
The client is not always right, so Ferris advises to apply the Pareto law with them. Which customers consume most of the time, which is the most problematic, the most demanding even though they do not bring us just benefits? Identify those customers and fire them. For this, Ferris advises to put them on autopilot, and then send them a letter with the new company policies that require some changes that may be new standards with standardized orders. Often a customer “touches eggs” will enter the ring despite not being able to touch them, Others will see it as an offense and they alone will stop making new orders, but one way or another, We ended up with the headaches that this client gave us and that prevented us from spending time with other more profitable clients for our business.
- Prioritize delivery times, not details.
A perfect product delivered out of time is able to end your business more than a correct product delivered on time. No matter what product you sell. If this is delivered after the stipulated deadline, the customer will remember the negative purchase experience, and most likely will not buy again. Today, a fast delivery time is synonymous with success and an advantage over the competition ahead of price.