Are You Failing to Put Profits First?

Did you ever notice how we in business talk about profits? They’re the “bottom line.” The equation is ‘Sales-expenses=Profit.’ Our sales funnel starts with leads and ends at the sale; it doesn’t even recognize profits!

It’s no surprise, then, that profits are hard to come by. What if we flipped this language and put profits first?

Profits = Revenue-expenses. Profits are the top line. Sales funnels begin with the outcome—profit-s-and end with the leads required to get there.

Case in Point: Putting Profits Last

A company presented a free 45 minute ‘lunch ‘n learn’ for members of a local Chamber. Then they offered a 3-hour workshop to help business owners increase leads. They advertised the workshop for $79. And both at the lunch ‘n learn and in every promotional piece, they featured an Early Bird price of $29. I saw this promotion dozens of times. There were 15 attendees for the 3-hour workshop.

The workshop is chock-full of good ideas that make people think. The owner is an excellent workshop presenter. Near the end of the morning, he asks us to consider continuing to work with the company via a bootcamp that will help us double our sales. The bootcamp includes: 8 videos, interactive assessments and homework assignments, and short weekly coaching calls to help reinforce and implement the content.

He told the audience that the cost of this Bootcamp is $1500, all inclusive, and for a limited time only, those of us in attendance can enroll for only $497. The offer expires at 4:00 PM the same day.

What Do We Learn from This Story?

As I experienced this story unfold, from the first free lunch ‘n learn to the final email minutes before the 4:00 PM deadline, I analyzed the lessons to be learned.

Here’s what I learned about this company:
1) They focus on quantity of purchases, not on magnitude of profits.
2) They focus on cash, not on magnitude of profits.
3) They believe that buyers are motivated by discounts.

What Can You Apply to Your Company?

Let’s address each of these one at a time.

1) They focus on quantity of purchases not on magnitude of profits. Too many owners, and far too many advisers of different stripes (sales, marketing, social media, content marketing, CPAs and business coaches) start with the number of sales. How many sales do you have? How can we increase them? Let’s invest heavily in methods that will bring in more leads. We’ll teach you how to convert those leads into buyers. And repeat, repeat, repeat. These efforts tend to increase leads. You measure your leads, clicks or other indicators of interest and think, “Ah, look how successful we are!”

If you follow these leads to the profit figure, you realize your success is not what it seems. The profit line is low or empty.

This is what happens when you pour yourself into increasing leads and absolute number of sales rather than starting with “How are we going to increase our profits?”

2) They focus on cash, not on magnitude of profits. When your company has cash coming in, you can feel at ease. The ‘ka-ching’ of the virtual cash register is exciting, and it makes you feel that your efforts are paying off. You feel validated: “Look at how many people like –and paying for–what we’re offering!”

Unfortunately, if the cash isn’t substantial enough, once you look below the top line on your financial statement, the story is quite different. Maybe there’s enough cash to cover all your expenses, and maybe there is not. When a company focuses heavily on cash coming in, rather than on profits, which is the cash that’s left over, that profit line is also likely to be low or zero.

My ‘back of the envelop’ calculation of the cash flow in and the likely profit for the three-hour workshop and the 6-week Bootcamp tells me that the profit line for this company is quite small.

3) They believe that buyers are motivated by discounts. I know that buyers are motivated by discounts in certain situations. The key here is to remember “in certain situations.” Not all buyers are motivated by discounts in every situation. It is critical to understand what motivates your company’s most likely buyers.

In this story, there is a huge disconnect between what this company is offering and their own pricing tactics. They position themselves as experts on content development and the implementation of marketing campaigns. Their point is that when done well, your content and campaigns will generate leads. There is no mention of discounts as part of that approach.

Yet, they are primarily using discounts to attract leads (the free lunch ‘n learn), convert leads (the discount for the 3-hour workshop) and to turn leads into repeat buyers (the discount on the 6-week Bootcamp).

The message I take from this is that they do not believe their own approach works! If the right content, delivered in powerful and effective marketing campaigns, actually works, they would not need to discount.

What Will You do Next?

If you want to put profits first do the following:

  • Identify, in real dollars, your profit goals. Profits as a percentage may vary by product or service, but every single sale must generate the target profit. If you can’t make a profit on a sale, stop making that sale.
  • Never use discounts to attract buyers. Buyers who are attracted by discounts will only remain your buyer as long as there are discounts. As soon as the discounts stop, they move on. These buyers are not worth your effort.
  • Increase value to increase profits. Profits are the difference between your actual costs (both variable and fixed) and the value the buyer perceives for the money they spend. This is hard to do with commodities, and very easy to do when your revenue is derived from intellectual property.

When you put profits first, you expand the value and the profits, of everything.

What are you thinking after reading this story? I would love to hear if you’re recognizing some of these behaviors in your own company. What will you do to put profits first?

If you’re worried that you may be choosing some of these profit-reducing tactics, I would love to hear from you. Email or give me a call 703-801-0345.

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