How To Maximize Profits In Your Business
It’s common for business owners to focus on getting bigger, instead of becoming more profitable. This type of thinking manifests in the form of more …
services
systems
employees
products
SKUS
waste
Focusing on growth for the sake of growth is a mistake.
There’s a better way.
If you are able to keep your ego in check, it’s possible for you to build something way cooler than a BIG business. You can build a PROFITABLE BUSINESS.
This week, I will break down the principles that will show you to to maximize your profits. This way you can make more by doing less.
You want more money AND more time.
LFG. `
The 80/20 Principle (A Quick Recap)
Last week, I wrote about The 80/20 Principle. For those who didn’t read last week’s issue, here’s a quick recap.
The 80/20 Principle (also called the Pareto principle) is a universal law of nature. The law states that 80% of the output (the results) in any system can be attributed to 20% of the input (the efforts). This law is everywhere. For instance …
20% of stars in the universe account for 80% of the matter
20% of trees in the rainforest consume 80% of the sunlight
20% of products in your business will account for 80% of the revenue
This law is found in nature, taxes, physics, relationships, leadership, business, and finance.
Once you understand this law and you start recognizing it’s ubiquity, you will see why the 80/20 principle is the key to maximizing profits.
How To Do Less But Make More
I know what you’re thinking.
What does this principle have to do with making money? and how can you use it to maximize profits in your business? It’s a simple 3 step process.
The first thing you have to do is audit your business. With only minimal effort, it won’t take long for you to discover which products, services, customers, clients, and departments make up the majority of your revenue.
You probably have one client that generates almost all your profits. Or you probably have one product that generates all of your sales. When you discover this pattern in your business, don’t think of it as a problem, rather I want you to recognize it as an opportunity. It’s a feature, not a bug.
Now that you have determined where your success is actually coming from, you can start to make some choices and decisions.
Next, start removing 80% of products and services that generate 20% of your revenue. The 80/20 Principle works inversely as well. The vast majority of what you spend time on will account for very little of the revenues and profits your business generates. You need to kill your darlings and start removing these products and services from your business.
Anyone who tells you to keep them either can’t add, or they are dependent on those services and products for their own careers.
I’m not suggesting that you get rid of all the bloat in your business at once. I actually advise you to start trimming the fat on your business methodically, over the course of a few months.
But the sooner the better.
Last, start doubling and tripling down on the products and services that generate all the profits. This will feel strange at first, because you will be actively shrinking your business. You will be reducing your revenues and potentially reducing your staff.
But, you will be increasing your time and your return on your time.
Stop doing what’s not working and start spending all your time on what is working.
It really is that simple.
Where The 80/20 Principle Shows Itself In My Business
Stodzy Internet Marketing is my first “real” business, meaning it’s the first company I started and grew to the point where I had to manage employees, payroll, and high dollar amounts.
When I first started the business, my only example to look up to was Gary Vaynerchuk. I saw Vaynerchuk doing a million things at once and so I (incorrectly) assumed that I should be doing a million things at once as well.
I didn’t know anything about running an agency, and I thought the more services I offered, the more money I would make.
So we took on as much work as possible. We would …
build websites
write content
manage social media
manage local search marketing
create brochures and collateral for treatment centers who needed it for conferences
manage PPC
anything that people would pay us to do
If I knew then what I know now, I would have only offered one service.
LOCAL SEARCH MARKETING.
As you know, Stodzy is an agency that specializes in generating leads for the behavioral health industry. The leads that behavioral healthcare centers want to generate are almost always local. People go to Google and they search “drug rehab center in *insert location here.*”
When a potential patient types in that search query, they will see a multitude of paid links and organic links. These links generate almost all the digital marketing leads and subsequent admissions for behavioral healthcare centers. The vast majority of the phone calls generated come from this one specific tactic.
Not surprisingly, the most profitable service we provide for our customers is local search marketing.
Look, I don’t have any regrets. Business is an evolution. You can only know what you know by learning and so I’m thrilled at how well we’ve done as a business. However, if I could do it all again, I would specialize in local search marketing and outsource EVERYTHING else.
If I would have known this from the beginning, my company would probably be 100% more profitable. What’s more is that we could have achieved those massive profits with at least half the effort.
How I’ve Applied The 80/20 Principle Going Forward
Copyblogger only sells one product.
The entire team has one focus, and that is to sell more memberships to The Copyblogger Academy. Here’s a basic breakdown of how it works.
Tim: I manage the finances and spend the money on ads and payroll to build our email list.
Megan: Writes the content, does the research, and manages the SEO to generate search traffic to grow our email list.
Charles: Converts membership sales from the email list and manages the community.
Shawn: Focuses all his time on making sure our community engagement is the best in the world.
There’s nothing else to think about. All we care about is selling memberships to The Copyblogger Academy. Nothing else matters.
As such, the business is high margin, low stress, and simple. What’s more is that although it’s the highest margin business I own, it’s also the one that I spend the least amount of time actively managing.
More money AND more time. Don’t fall into the trap of thinking that more money and less time is the goal. It’s not. Why would you want less time?
You’re going to die. When you’re on your deathbed, I highly doubt you’ll be happy you spent all your time working for an extra 5 points in margin.
Why Time Is More Valuable Than Money
When I explain this to entrepreneurs, the pushback I hear is that you want to make the most of your time. It may be the case that some of the additional services you’ve added to your business have a lower profit margin, but the total dollar amount of profits is higher.
Adding in new products or services might decrease your profit margins, but it will still increase your net profit. What’s wrong with that?
This is sometimes true. But this way of thinking has huge opportunity cost. All the time you spend working for peanuts is time you’re not spending on something else.
If you want to build wealth, you need to create leverage. In order to create leverage, you need to buy back your time. So in truth, the best way to create real wealth is to continuously cherry pick the highest margin activities available to you, and then use the extra time to increase those high margin activities.
This could mean selling more high margin products, or spending more money on marketing to generate high margin clients. This could even mean spending your extra time to scale and operationalize the business you are working on so that you can turn the business into a passive income stream, and then invest your money and time into a new income stream.
Find What Works And Outsource The Rest
When I go on podcasts, the questions I get asked most often is “how do you have time to manage everything?”
What people don’t understand is that I don’t spend a lot of time working in my companies. I only work ON my companies.
I spend almost all of my time on the activities that net me the most profit. This looks different for everyone, but for me, this means making deals. When you think about it, everything I do is solely focused on making deals.
I’m constantly networking through relationships, my newsletter, and my weekly YouTube videos. I’m always researching and finding new opportunities, and then I leverage my team to perform the work needed to build the businesses and do the work required to either build a business or hold up my end of a deal.
In short: All I do is build relationships and sell.
Everything else is outsourced to my team.
You Can Do It. It’s Not As Hard As It Sounds
The hard part is checking your ego.
As entrepreneurs, we want to be active, we want to be working hard, and we want to FEEL as though we are doing our best. But almost everything you do is a waste of time.
It takes emotional fortitude, discipline, and self control to be still in the moments of tension and dedicate yourself to working on what matters. When you feel uncomfortable, you will need to resist the urge to “start working on something” because that makes you feel like you are doing your best.
You’re much better off working and focusing on the few activities that generate you the most results.
This means thinking, planning, and then executing fast when the timing is right.
Your vision needs to be stronger than your anxiety.
Less is more. Complexity is the enemy of profits, and simplicity is the secret to success.
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