By Jerry Rudick
Minneapolis Business Mentors
Over the years I have had the opportunity to mentor several small businesses. From my experience, what I see is they create problems for themselves when they focus just on Sales instead of Net Profit. One of the main goals of a for-profit business is to make as much Profit as possible. What is Net Profit? It’s Sales less all Costs.
Years ago, I had a friend that owned a Carpet Cleaning Van. He had a contract with Sears to clean carpets. He and his crew would drive 1 hour south to start cleaning carpet and then head 1 hour north for home. He was losing money. He decided to buy another van with additional crew. The effect of adding this cleaning capacity was to double sales and double his loss. Unfortunately, shortly after that he went out of business. His focus was on increasing Sales and not improving his Profitabilty.
Another company, a contractor specializing in insurance repair work, that I mentored shared his his financials with me. The prior year their volume was $1 million. The current year they had increased that volume to $4 million! Sounds great but they had decided to base their salespeople’s commissions on just Sales rather than sales and profits. Unfortunately, it was too late for me to help them. Shortly after our meeting they went out of business. Their salespeople were motivated to sell the job with no motivation, or incentive to make a profit on the job.
My Grandfather started a Construction Company in 1913, which I purchased in 1990. We specialized in Insurance Restoration work. For many years we used a Plaster Sub Contractor whenever we needed plaster repair work done. He and his helper were the only employees of the company. There was plenty of work but he made a decision not to grow but to be profitable. He retired financially well off.
There were many times, when I had my company, I turned down work I felt would be unprofitable. The Insurance Adjusters might not allow enough for us to make a profit, Additonally, Or the owners were very difficult to deal with. I decided I would rather let my competitors take the job and lose money. Sometimes, the best thing you can do when given the opportunity to increase sales is to say NO.
The takeaway is to concentrate on increasing Profitable Sales not just Sales.
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