Yes, we’d all like to increase our revenue and build our businesses. But hold your horses — not all sales are good sales. Sounds counter-intuitive, doesn’t it? In order to build a successful business, you must recognize there are times when less is more.
Allow me to explain.
Many small businesses reduce their prices in order to bring more business in the door — particularly in today’s economy. However, in most cases the owner doesn’t stop to consider the profitability of the new business. While the company’s sales figures increase, its profitability often narrows to a point where cash flow issues occur. In the worst case scenario, the company lapses into a negative cash position.
All new business opportunities need to be carefully considered. As the business owner, you should understand exactly what it is going to cost to deliver the product or service, including all your business overhead. Is there enough profit to absorb changes or adjustments? Do you have the current staffing and resources to manage the project without jeopardizing other business?
I’ll share a real-life example without divulging the company’s name. ABC Company bid on a large government contract to deliver a particular service without a detailed and thorough analysis of the resources it would take to deliver. After winning the bid, the additional internal resources and development required to fulfill the contract turned what the owner thought would be a highly profitable project into one that barely broke even. Furthermore, because of the strain on the company’s resources, other, more profitable projects had to be delayed.
In today’s economy where cash is king, no business should jeopardize its financial health by selling too much for too little. While it’s hard to turn business away, you can be more successful by concentrating on the types of business opportunities that are most profitable. And it’s not always just about new business. Some companies are choosing to fire their low-margin customers or to discontinue less profitable product lines and as a result they are enjoying healthier bottom lines.
So remember, nothing happens until you sell something. Just make sure you sell it right.
image by Flickr user jakerome