Did you know you can use your P&L to help you get new customers?

October 16, 2014

Every business owner is alGlasses-Financials-Calculatorways looking for more customers, but more customers is not always the answer to growing your business.  Doesn’t sound right does it?

You are in business to make profit.  Without profit, your business will not survive the test of time, no matter how great your service or products are.  When profit is low, the first thing most small business owners think is ‘I need to get more customers’, but sometimes this is not the solution to all of your problems because customers all come in different sizes, shapes and profit levels.

Before you start looking for new customers, firstly ask yourself, WHO is my ideal customer?  If you are going to bring in new customers, let’s bring in your favourite types of customers.  You may list the personality traits of your ideal customers, what they buy, how they buy it and perhaps even how they will continue to buy from you and refer you to people you know.  Marketing is all about attracting customers to your business.  When you know who you want to attract, then you can create the right marketing strategy to attract those sort of people.

Many business owners come up with marketing strategies and promotional ideas without first looking at their numbers.  Now I know that many business owners don’t love to look at their numbers in their business (I do!), but when thinking of marketing to generate new or more customers, it is important to make sure you are not only bringing in friendly, ideal customers, but also profitable ones.

Do you know the profit margin on all of your different products and services?

This is a great place to start because you could go out and market to bring in ten new customers on a product line that has just a 10% profit margin (that is you make only 10% on the sale – eg. $100 sale = $10 profit for you) or you could market a product line that has a 25% profit margin (that is for a $100 sale you make $25 profit).  In fact, let’s look at the numbers a little closer on this one.  Let’s use the $100 sale as the example.

If you brought in ten new customers at 10% profit margin (on a $100 sale each) that is $100 profit for this marketing campaign.

$100 x 10% x 10 customers = $100 profit

If you brought in ten new customers at a 25% profit margin (on $100 sale each) that is $250 profit for this marketing campaign.

$100 x 25% x 10 customers = $250 profit

In fact, for the second campaign, on the 25% profit margin on the product line, you would only need 4 new customers to make the same amount of profit as the 10% profit margin product line. That is 60% less customers you need to find!

I hope you are getting excited, because even though I love numbers and you may not, it is clear to see that for identical marketing campaigns, but simply marketing the higher profit margin product line, you have to find less new clients to make the same amount of profit. That means less effort for you!

So the question now is, do you know the profit margins on your products and services?  Do you know which products or services take you the most time and effort?  Which products or services are the easiest for you to deliver?  Which products or services have the lowest labour costs or product costs associated with them?

When you know which of your products or services are the most profitable for your business, then ask the question, WHO is my ideal client for that product or service?

Now armed with this information, you can start to think more strategically with your marketing so that you can make your business more profitable, perhaps with less effort and with better types of clients, than ever before.

If you are not sure on your profit margins and need help, contact us today!

Financial Management Small Business