Episode 5: How to Increase Profitability in Your Business [Case Study]

Typically the first thing that comes to people’s minds when talking about growing their business is revenue. The thinking is, If you grow your revenue, you grow your business.

But is revenue the most important thing to grow in your business? Or is there something else you should be focusing on?

In this episode, I’m giving you a real life example of a business I’ve worked with for over a year to help them grow. 

Case Study: Increasing Profitability in Business

This is a business in the service industry that was doing about $25-30 million in annual top line revenue. They had been in business for only 6 years at that point.

When we met, they told me they wanted to get to 50 million within the next 3-5 years. We needed to start with their offerings, pricing, cost structure, and process. Some of the things we looked at were:

  • How much time did a fixed price engagement take to complete the work? 
  • How did profitability vary from client to client?
  • What about staff turnover they were experiencing?

But today we’re focusing on the work I did with them regarding revenue and more importantly, profit, growth.


Problem 1: Client Acquisition

The toughest part for this agency was obtaining new clients. They had a long sales process. We started in our work together looking at how to increase their profits in terms of their customer base. 

What I was able to show them is that they could actually increase their profits more quickly by focusing on their existing customer base.

“Revenue growth and profitability will come more from existing customers than from getting new customers.”

Your existing customer base is an asset in your business. And if your goal is revenue growth, then you should seek to leverage existing assets in your business.

Every business needs lead flow for new customers, but nurturing and serving existing customers is way less expensive and time consuming than trying to get new ones.

“Nurturing and serving existing customers is way less expensive and time consuming than trying to get new ones.”

In this example, the agency was doing good work and the customers were satisfied. But once the work was completed, it ended there. They did not have a plan in place to stay top of mind for these customers and they did not offer additional services and solutions.

Key point: Have a plan to nurture and serve your clients or customers and offer them additional solutions.

How to increase profits with your existing customers:

Ask yourself, “What can I be offering as a product or service to my existing clients and customers that I might not be offering them already?”

What problems can you naturally solve as part of your business or offering?

If you are not doing this, you may be leaving a revenue (and profit) on the table.

In our example today, the problem was being caused by a cultural issue related to compensation of senior employees of the company. Each subgroup was acting as a sub-group.

Key point: Be sure your customers or clients know what you offer and what problems you can solve for them.

This sometimes means really understanding your customer and what problems they are experiencing.

“At the end of the day, profits matter more than revenue.”


Problem 2: Profitability of Services

Next, we analyzed the profit margins for each of the services the firm was providing. The firm was shocked when they saw the actual numbers and recognized which services were profitable.

In fact, they had some services that were not making a profit at all. It’s okay for a business to have a “loss leader” – a product or service that is not necessarily profitable but they lead to other more profitable services.

But in this case, that was not happening. They were simply looking at their overall profit and expenses and seeing that they were profitable.

Together we mapped out the clients and services on a grid so that we could see where the gaps and opportunities were.

We also created a plan in 90-day intervals for the next year in order to increase profitability.

Two fundamental ways to make your existing customers more profitable:

  1. Sell them more of what you’re already offering 
  2. Sell them something else

These 2 things will increase the lifetime value of your customer.

This is a fundamental business strategy, but many businesses are not executing on it.

Instead of thinking about the latest marketing hack or ways to get more customers, spend some time focusing on how you can serve your existing clients better and at a deeper level.

I hope you found this episode helpful. If you’d like to set up a call with me, head over to my application page here

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