Margins and Blood
Posted on January 13, 2016 by Guy Ardito, One of Thousands of Relationship Coaches on Noomii.
Give your business enough oxygen for it to succeed and you to keep your sanity.
If revenue is the life blood of business then margins are the oxygen. As the difference between how much something sells for and how much it costs to produce or provide margins let the business “breathe” are the canary in the coal mine for profits (and losses).
Small margins, even in the face of lots of revenue, are an indication that sustained profitability can be in danger. There are some businesses which survive with thin margins but they’re extremely vulnerable to market changes and deeper-pocketed competitors.
Large margins, even if sales and revenue are small, are an indication that great success is within reach. Apple is a fantastic example of a company which has done very well with above-industry margins by creating desireable products and fostering customer loyalty.
Too-small margins are the result of either:
- production/delivery costs that are too high
- pricing your product/service too low
A new business may lose money as it gets started and ramps up but if the product or service is desirable and customers are taken care of then revenue will ultimatley grow beyond costs and the business will thrive.
If you’re a coach or consultant then you don’t have manufacturing or inventory costs but your cost of client acquisition looms large. You must be very careful about the combination of the hard costs of client aquisition (e.g. advertising) and the soft costs of client acquisition (e.g. the time you spend giving presentations and sample sessions).
Hard costs are easy to track but many service providers fail to measure their soft costs and find themselves very busy but not making enough money.
You must decide on a dollar-value for each hour of your time and be ruthless about accounting for it in everything you do (such as office work) but especially client outreach, because presentations and sample sessions take up a lots of your time.
Many coaching and consulting practices fail to thrive because the owner charges a price which they think is “fair” for their services but which doesn’t take into account the cost of all proposals they give or the free sample sessions they provide.
The only way for your business to become profitable is by charging a price which reflects all of your costs along with a suitable profit on top.
