Latest / Second Act Business Owner / Profit is Not a Dirty Word | Embrace Your Business Potential
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- Ep11 === Profit Is Not Dirty --- [00:00:00] Lee Gray: Hi, everybody. Welcome back to the Second Act Business Podcast. And we are on episode 11. And I'm very excited today because we're gonna talk about something... Now, if there are small children in the room, you may want them to leave, 'cause I might be using a bad word in some people's minds. What's the bad word, you ask? Profit. [00:01:00] I'm kidding. Profit's not a dirty word. Profit is what allows you to stay in business, to serve people, to employ others, and to support your family, and to create freedom. That's what it's all about. You don't have a business if you're exhausted, and underpaid, and barely surviving. You've just created a successful hobby. And even nonprofits have to make a profit. They just reinvest it into the mission. The most profitable nonprofits help way more people than nonprofits that are not profitable. Purpose Of Business --- Lee Gray: So today, I want to talk about the purpose of business. The purpose of business is profit. Not greed, not ego, not being busy. Because profit creates stability, and better employees, and better customer experiences, better growth. You can create a greater impact, and then options for yourself, for your team, for your family, for your business. Without profit, [00:02:00] equipment breaks, and owners get burned out, and staff leave, service declines, stress increases. I mean, you've probably been to a restaurant when you know they're not making profit because there's not enough people. You think you s- the per- same person that's waiting on you is probably cooking in the back. You've felt that, right? A good, profitable restaurant establishment is going to have impeccable service, impeccable product, impeccable delivery, and all that happens when there's profit. A business without profit eventually becomes a burden to the owner. True Cost Breakdown --- Lee Gray: I want to talk to you today about the true cost of business. Most owners really have no idea how much it costs, their business costs, and it's not just in materials. But I want you to think about some things. And I know even if you're early in your second act, and this may seem like it's further along than it needs to be for you and your second act, don't worry, it'll, it'll come back to you at some point. So wherever you are in your second act or your second [00:03:00] second act, you're in good, good place. So your costs have to include labor and payroll taxes and software and rent and utilities and processing fees, ugh, software stuff, mistakes. Mistakes. We have to think about that in our business, and also your time as the owner. I'm gonna give you some examples. Well, and I'll ask you a question. If you had to hire someone to replace yourself tomorrow, would your prices support it? So we tell people in business that your salary, or to replace you, should be part of the business, and then profit is accounted for after that. Because your, your salary for the work you do is not profit. It is a salary for you for doing the work you do. 'Cause ideally, you're going to be replacing yourself. Discounting Vs Pricing --- Lee Gray: I'm going to talk to you today about the difference between raising prices versus discounting. You are not going to believe what I'm about to share with you. Discounting trade- trains customers to wait, and [00:04:00] increasing prices positions value. Discounting says, "Maybe this wasn't worth the price." Higher prices often create better clients, better service expectations, stronger margins, and healthier business. The cheapest customer is often, at the end of the day, the most expensive customer. Y- you've probably experienced that already in your second act, even if you're pretty early on. You might find someone who acts interested, takes all your time. You give them quote after quote after quote, only to find out they really weren't interested. They, they were a bad customer and cost you money. So I wanna talk about adding value as opposed to cutting costs. But before we do that, I want to give you an example of something I have here. Math Behind Discounts --- Lee Gray: So here's what happens when you discount prices. I'm gonna give you an example. If your present margin in your business is 35%, and, and, and that's just a m- margin number, a gross margin number for your business, it's 35%. Let's just say you [00:05:00] discount your price by 10%. 10%. You've heard that. K- I buy something for $100, I'll give you $10 off. Well, you didn't just give someone $10 off, you gave them 10% off of the, the, the full amount, but you gave them a larger percent of your profit, because that 10% comes right out of the profit. So if you give someone a 10% discount at a... And you're at a 35% margin, guess how much in business it takes to increase what you gave away? 40%. It takes a 40% increase in new sales to offset a 10% discount you gave someone else, if your margins are 35%. Raise Prices Confidently --- Lee Gray: Now, I'll have a lot of clients who say, "I, I can't raise my prices. Oh, my gosh." Well, first of all, you can raise your prices. Nobody knows what your prices are. I say this again and again and again. Who knows how much a, a gallon of milk costs? No one. Well, anywhere between 3 and $35 is how much it costs. So no one really knows your prices either, generally speaking. So if you were to increase your [00:06:00] prices, it probably wouldn't be the end of the world. Let me give you an example, like we did before, on increasing your prices. Let's say you're at a 35% margin, we're going to increase your prices by 10%. Your sales would have to decline by 22% to offset that price increase. So you can still lose sales if you have a price increase of 10% across the board. Now, we wouldn't want that, but that, that's how that works. So the difference between discounting and raising prices isn't just simple discount, simple raise prices. It's way more of an impact on... Remember that dirty word I said at the very beginning of the podcast? Profit. We're going to learn that profit is not a dirty word, it is a beautiful word. Say it with me, profit is a beautiful word. Yes, I like it. Value Add Ideas --- Lee Gray: So I want to give you some examples of how you can add value and, and not increase prices, or add value and not give a discount. Here's an example. [00:07:00] Med spas, for example. I work with a lot of med spas in my coaching business. You can give them a complimentary skincare guide. You can give them priority booking. If they're a really good client, they're an A client, which we're gonna talk about a little bit further in this, in this podcast. You know, you wanna set them up and give them free VIP consultations and VIP events and travel size products that you might get from a vendor as a nice gift, doesn't cost you anything, birthday bonus, skin analysis. Those are some things that... Think about it. All those things add a ton of value. If I give someone a discount when they walk into my med spa, they're not gonna walk out of there and go, "Wow, I got a 10% discount." They're either gonna love it or hate it. The price is forgotten the minute they step over the threshold of my door. Remember that. When they step out of the, your space, the price is forgotten. They're thinking about how they look, how they feel, how we made them feel. So here's an example for coaching. Sometimes my coaching program isn't for everyone, so I wanna be able to add value instead of cutting prices. I can give them a DISC assessment. I can give an extra accountability check-in, which is [00:08:00] hugely valuable. Someone in their second act really needs that accountability. It really is a good value. Almost can't put a price on it. Give them a workbook, a planning template. All of those things add value to their, to their business and to our relationship. And maybe even give them, like, a bonus workshop. Next month, we're going to ask all of our clients to bring a guest and let them experience one of our member days, which is something we do in my coaching business. It's a lot of fun. And they can bring someone with them and help them, and that makes them feel good. So for a salon, some of the upgrades that you could do without costing would be, like, a hot towel upgrade provide a beverage or a snack, a mini hand massage. That can be added to many services while, you know, a, a, a person's hair is processing or drying. Give them a loyalty punch. Give them that express add-on or, you know, give them early booking access. Those are all great value add things that don't, don't cost you anything. They just help the customer [00:09:00] experience. So service businesses, you can give faster turnaround. You know, follow up, see how things are doing with the client, check in. That's a value add. Those are all really great things that you can do without lowering your prices. People remember value so much longer than they do the price, and I... Yeah, it's so true. Doesn't matter how cheap it was, if it was the wrong thing or the wrong product or the wrong service, that's all you, all you remember. Upsell And Downsell --- Lee Gray: So let's talk a little bit about upselling and downselling. Most owners don't ever train their teams on this. So sometimes we don't even learn ourselves. But upselling, you know, if I'm in a, if I'm in a situation with a client and m- I know in my best interest they should have an upgraded service, I need to tell them that. It's not manipulation. It's helping them get the service they need and desire for what they hired us for. Also we need upsell scripts for those. I've got some med spas that have maybe 30, 40 different products that they can sell, so they're gonna need upselling scripts for things that they're not selling on a regular basis. And most [00:10:00] clients love to use the scripts because no one can remember everything. It's just, impossible. And here's a question you can ask, "Would you like for me to show you what will give you the most long-term value for your investment today?" Or, " would you like for me to give you some options that would be providing you with the best outcomes for your needs today?" I mean, you can ask something like, that's not threatening, and people want that, and it's our job to provide it to them, 'cause they don't know what they want when they come in to see us. The other thing you can say, "If you're already investing in this treatment, I would add one more step to it and that would give you quicker results," or whatever. A florist could say something like when someone calls in to buy their special loved one an anniversary bouquet, which you all should be doing, the florist could say, "For $5 more, I can put a personalized card in for you, or for $10, I can add a stuffed animal with a little heart on it." I made all that up, but think about it. I quickly did that and, if one in 10 people does that, then you've increased that sale by $10 or 10... Yeah, [00:11:00] $10. If your average dollar sale's $100, that's a 10% increase in just one sale. Usually, when we upsell, three out of 10 times people buy it. Also, a downsell script. So not everybody wants your highest end product. Like for example, with coaching, I do one-to-one coaching. We do group coaching, CEO coaching, and company-wide coaching. Not everybody needs that, so we offer workshops for people who just wanna get some education, a one-time strategy session. I even have some online courses. Some revenue is better than no revenue if you have a good product that serves your clients' needs, and if it creates a future relationship. So be thinking about that as you're teaching yourself and your team upselling and downselling. Payment Terms Cashflow --- Lee Gray: I wanna talk to you about payment terms. It's, and it's a little thing. You think, "Oh, all I want is the money." But If you invoice and don't get paid, it's the same as not getting paid. For every minute you're waiting to be paid, it's costing you money. Looking for things like delayed payments, cash, 'cause [00:12:00] that impacts your cash flow. You might not be able to... If somebody owes you $10,000 and they take 30 days to pay it, and you need to buy a piece of equipment that's going to help you get a new customer, that's gonna take 30 more days to get that new customer. It can also impact payroll. I mean, let's face it, at the end of the day, most businesses' payroll is dependent on the money they get in the business. That's what it's about. So you can do things, even early on in your second act, begin thinking about this. 'Cause if you, like, have a website, for example, where you take money or, or you take payment, you can take deposits for things so that you're holding something in advance for a client. You can have auto pay, ACH, that's where it comes out of a checking account. That's really common and very easy and safe to do these days. You can take credit cards, payment plans, and collect up front whenever possible. I love collecting up front. Everybody's in the game 100% when you do that, and I like that. I would rather pay a small processing fee than to not be able to do something for a client, but I also think it's okay to tell them, "The [00:13:00] processing company... the credit card company charges me 3%. I don't make anything on it. I would like to have you just pay that because I don't make anything on it, you don't make anything on it." It's a good second act mindset to think about saving money and being profitable on all parts of your business. Grade Your Clients --- Lee Gray: Now let's talk a little, little bit about grading your clients. I've got grade A, grade B, grade C, grade D. You know what that means if you've ever been a student in the United States. A customers pay on time. They respect your process. They're profitable. They give you referrals. B customers are mostly good. Sometimes they have issues. C customers, they drain your energy. They're always trying to get you to give them more. They're negotiating things. They pay late, or they don't wanna do some of the payment options that we offer our better clients, such as ACH or prepay, and they're just high maintenance. So those are C customers, and D customers just need to be fired. If you need to have a conversation about how to get rid of your D customers, look [00:14:00] us up. We'll help you with that. 'Cause not every dollar is a good dollar. Think about this. Your best customers subsidize your worst customers, and you don't want that. You want all your customers to be A grade customers. Protect A clients, improve B clients, use caution with C clients, and dump D clients. Dump them. Love Profit Closing --- Lee Gray: So that's the A, B, C, and D. Now, it wasn't so bad talking about profit here, was it? It's not a bad word. I like it. I think it's a great word. In your second act, profit is not selfish. Profit gives you freedom and peace and opportunity and the ability to serve people at your highest level. That's why you got into it in the first place. Remember that passion when you got into your second act? That's what having profit in your business allows you to do. You deserve to make money from it. You take all the risk as a business owner. If today's episode made you realize your business may [00:15:00] not be as profitable as it should be, take the Second Act Readiness Quiz. It's a simple, practical quiz. Answer a few questions. You'll get customized responses back in your email. All you have to do is click in the link below, or we'll put it in the show notes here for the podcast, and we will get you signed up for that quiz. The quiz will give you some insight to where you may be lacking some clarity around profit in your business or in other areas. Thank you for joining us today on the Second Act Business Podcast. I've really enjoyed my time with you. What I feel like expressing is profit can make your business dreams come true, and it should. Learn to love profit. What do you feel like expressing? [00:16:00]