Posted in Planning

The single mistake that kills most businesses

They’re many points failure in business. But most more times than not the smaller points of failure are much more dramatic than the big ones. Because when something dramatic happens you notice it on the spot and take care of it. But when something small starts germinating in your business you don’t always notice it. At least not until it’s too late. The point of this post is to show you one of those small points of failure that destroy most businesses, and teaches you how to avoid it or at least correct it.

Business owners that have failed will tell you that the problem was cash flow. But cash flow is a broad term. It’s a specific part of the cash flow that killed those businesses. There was one thing specifically that they were doing wrong. If they just paid more attention to that point their business would have survived.

I’m talking about discounts, or to be more precise discounts that cross the profitability line. When you price your products you know exactly when you’re not profitable anymore.  You know how big of a discount you can give your client before you start losing money.  Understandably your Salesforce doesn’t know that, neither does your retention or customer service.  It’s your job to make sure that there are clear lines that cannot be crossed.

But we’re talking about smaller businesses,  businesses with only the owner and one maybe two employees.  Those business owners are trying to get clients by any means necessary and sadly more times than not the competition comes down to price.  Let me just make one thing clear, if the competition comes down to the price you’ve already lost.  You either lost a client because your competition is giving a lower price or you lost your profit margins because you priced too low either way you lose.

It sounds like something simple, something small but it’s not.  I have no known businesses that have failed after 12 to 20 years of service to their clients because of this little loss. This little leak has grown throughout the years to a point where it’s an unstoppable boulder crushing your business.

I’m not saying not to give any discounts what I am saying is pay more attention. If you do things right you can give those discounts and still be profitable.

How do you do that?

Calculate the bare minimum,  how much do you need to charge to Simply break even.  Add 30% to that as your minimum profit.  this is the bottom line This is as low as you can go.  add another 30 to 40% to that. This little modification provides you with two important tools.  One it will provide your starting point from which your client can Haggle you down from.  And two it provides a safety cushion just in case too many clients are asking for that discount the few that won’t and will pay full price will cushion your profits and make sure your business services.

As you’ve seen these discounts can increase your sales but they might also destroy your business. Marking up your prices will provide you with a needed cushion for the loss your mistakes will cause. Until you learn to distinguish between good clients and bad clients.


One thought on “The single mistake that kills most businesses

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s