Thrive, Survive or Dive - Kevin


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Essential tools that every business owner must know and use to forge a profitable business.

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Thrive, Survive or Dive - Kevin

  1. 1. Kevin Nott , M.A. Business Strategy Coach [email_address] (801) 850-1716
  2. 2. Thrive, Survive or Dive Keys to Building a Profitable Business
  3. 3. Recommended Reading
  4. 4. What is a Business Worth? <ul><li>Net Present Value of all projected future cash flows </li></ul><ul><ul><li>Approximately five times your current annual net profit </li></ul></ul><ul><li>IF </li></ul><ul><ul><li>Your business can run in your absence </li></ul></ul><ul><li>Otherwise </li></ul><ul><ul><li>Your business has little value </li></ul></ul>
  5. 5. Build a Business of Value <ul><li>Profitability </li></ul><ul><ul><li>Consistent </li></ul></ul><ul><ul><li>Maximized </li></ul></ul><ul><li>Systems </li></ul><ul><ul><li>That drive the business </li></ul></ul><ul><ul><li>That can be managed by others </li></ul></ul>
  6. 6. Would you expect someone without the proper tools and adequate training to build a house?
  7. 7. Is it reasonable to expect someone to build and manage a successful business without the right tools and knowledge?
  8. 8. <ul><li>Lack of business knowledge and skills is the primary reason most businesses fail and others rarely achieve their potential </li></ul>
  9. 9. Key Questions to Ask <ul><li>What is the current value of my business? </li></ul><ul><li>What would I like it to be worth? </li></ul><ul><li>How do I get from here to there? </li></ul>
  10. 10. Thrive, Survive or Dive? <ul><li>Diving companies </li></ul><ul><ul><li>Losing money </li></ul></ul><ul><ul><li>Sales are dropping </li></ul></ul>
  11. 11. Thrive, Survive or Dive? <ul><li>Surviving companies </li></ul><ul><ul><li>Covering costs with revenues </li></ul></ul><ul><ul><li>Sales are unstable </li></ul></ul>
  12. 12. Thrive, Survive or Dive? <ul><li>Thriving companies </li></ul><ul><ul><li>Making strong profits </li></ul></ul><ul><ul><li>Growing Sales </li></ul></ul>
  13. 13. What Makes the Difference? <ul><li>Thriving companies understand the concept of Profit Point </li></ul><ul><li>They manage their business around the key driving principles. </li></ul>
  14. 14. What is Profit Point? <ul><li>The point where revenue is sufficient to cover all costs to that point and the company starts to make a profit </li></ul><ul><li>Gross profit equals fixed costs </li></ul><ul><li>Can be measured in sales dollars or units </li></ul><ul><li>Can be utilized to measure performance of separate business units or revenue types </li></ul>
  15. 15. Profit Point
  16. 16. Key Profit Point Factors <ul><li>Revenue: </li></ul><ul><ul><li>Amount billed to customer </li></ul></ul><ul><li>Direct Costs: </li></ul><ul><ul><li>Costs directly associated with a specific sale </li></ul></ul><ul><li>Gross Profit: </li></ul><ul><ul><li>Revenue less all Direct Costs </li></ul></ul><ul><li>Gross Margin: </li></ul><ul><ul><li>Gross Profit expressed as a percent of revenue </li></ul></ul><ul><li>Fixed Costs (Overhead): </li></ul><ul><ul><li>Costs that do not directly fluctuate with sales volume </li></ul></ul>
  17. 17. Profit Point Question <ul><li>If profit does not occur until the profit point, what does it take to reach the profit point? </li></ul>
  18. 18. Profit Point Revenue Formula Fixed Cost $ ---------------------- Gross Margin %
  19. 19. Profit Point Example $10,000 (Fixed Costs) ----------------------------- 50% (Gross Margin) = $20,000
  20. 20. Profit Point Unit Formula Profit Point Revenue ---------------------- Price per Unit
  21. 21. Profit Point Example $20,000 (Profit Point $) ----------------------------- $1000 (Unit Price) = 20 Units
  22. 22. Test Yourself <ul><li>Unit Selling Price: $200 </li></ul><ul><li>Unit Costs: $100 </li></ul><ul><li>What is the Gross Profit per Unit? </li></ul><ul><li>What is Gross Margin Percentage? </li></ul><ul><li>Fixed Costs: $8,000 </li></ul><ul><li>What is the Profit Point in Dollars? </li></ul><ul><li>What is the Profit Point in Units? </li></ul>
  23. 23. How Did You Do?
  24. 24. Profit Point
  25. 25. Furnaces, Inc. <ul><li>What is the Gross Profit? </li></ul><ul><li>What is the Gross Margin? </li></ul><ul><li>Fixed Costs = $20,000 </li></ul><ul><li>What is the profit point revenue in dollars? </li></ul><ul><li>How many furnaces do you need to sell to reach the profit point? </li></ul>
  26. 26. Profit Point Example $20,000 (Fixed Costs) ----------------------------------- 40% (Gross Margin) = $50,000 $50,000 (Sales) -------------------------- $2,500 (Unit Price) = 20 Furnaces
  27. 27. But I don't want to just break even! <ul><li>I want to make money!! </li></ul>
  28. 28. Profit Dollar Revenue Target Fixed Cost $ + Profit $ --------------------------- Gross Margin %
  29. 29. Furnaces, Inc. $20,000 + $5,000 (Profit) ----------------------------------- 40% = $62,500 $62,500 -------------------------- $2,500 = 25 Furnaces
  30. 30. Profit Percent Revenue Target Fixed Cost $ ---------------------------- Gross Margin % - Profit %
  31. 31. Furnaces, Inc. $20,000 ----------------------------------- 40% - 10% (Profit) = $66,667 $66,667 -------------------------- $2,500 = 27 Furnaces
  32. 32. Managing the Profit Point <ul><li>Increase Number of Unit Sales (Volume) </li></ul><ul><ul><li>More sales opportunities </li></ul></ul><ul><ul><li>Increase the close rate on sales opportunities </li></ul></ul><ul><li>Increase the Gross Margin Percentage </li></ul><ul><ul><li>Increase and manage selling price </li></ul></ul><ul><ul><li>Reduce and manage direct costs </li></ul></ul><ul><li>Reduce fixed costs </li></ul>
  33. 33. Profit Point Calculator
  34. 34. Comparing Competing Products Fixed Costs = $20,000 Desired Profit = $5,000
  35. 35. Let's Take a Closer Look
  36. 36. Items that must be considered <ul><li>Capacity </li></ul><ul><li>Availability of leads </li></ul><ul><li>Cost per lead </li></ul><ul><li>Sales closing rate </li></ul>
  37. 37. It's About Profit <ul><li>Get there quickly </li></ul><ul><li>Maximize every opportunity </li></ul><ul><li>Every sale after the goal is gravy </li></ul>
  38. 38. Take a Break!
  39. 39. Key Driving Principles of Profit Point <ul><li>Know Your Numbers </li></ul><ul><li>Set Your Course </li></ul><ul><li>Create Opportunities </li></ul><ul><li>Sell for Profit </li></ul><ul><li>Manage the Work </li></ul>
  40. 40. Step 1: Know Your Numbers <ul><li>What you need </li></ul><ul><li>What they are </li></ul><ul><li>Where they come from </li></ul><ul><li>How to use them </li></ul>
  41. 41. Numbers You Need to Know <ul><li>Accounting </li></ul><ul><li>Marketing </li></ul><ul><li>Sales </li></ul><ul><li>Production </li></ul>
  42. 42. What you need to know about Accounting <ul><li>What goes where </li></ul><ul><li>How to read financial statements </li></ul><ul><li>Basic financial analysis </li></ul>
  43. 43. Marketing Numbers <ul><li>Market share </li></ul><ul><li>Advertising </li></ul><ul><ul><li>Cost of advertising by medium </li></ul></ul><ul><ul><li>Response rate by medium </li></ul></ul><ul><ul><li>Lead conversion rate by medium </li></ul></ul><ul><ul><li>Cost per response by medium </li></ul></ul><ul><ul><li>Sales close rate by medium </li></ul></ul><ul><ul><li>Cost per sale by medium </li></ul></ul><ul><li>Inbound call conversion rate </li></ul>
  44. 44. Sales Numbers <ul><li>Average ticket </li></ul><ul><li>Sales Closing rate </li></ul><ul><li>Financing rate </li></ul><ul><li>Referrals </li></ul>
  45. 45. Production Numbers <ul><li>On-time completions </li></ul><ul><li>Call backs </li></ul><ul><li>Labor efficiency rates </li></ul><ul><li>Material and equipment cost (usage) rates </li></ul><ul><li>Gross profit per man-day </li></ul>
  46. 46. Profit Point Exercise Estimating Revenue
  47. 47. Step 2: Set Your Course <ul><li>Identify where you are now </li></ul><ul><li>Decide where you want to go </li></ul><ul><li>Establish a plan to get there </li></ul>
  48. 48. Strategic Planning <ul><li>Situation analysis </li></ul><ul><ul><li>Customers </li></ul></ul><ul><ul><li>Vendors </li></ul></ul><ul><ul><li>Competitors </li></ul></ul><ul><ul><li>Economy </li></ul></ul><ul><ul><li>Regulatory issues </li></ul></ul><ul><ul><li>Competitive products </li></ul></ul><ul><ul><li>Barriers to entry </li></ul></ul><ul><li>Internal Analysis </li></ul><ul><ul><li>Market share </li></ul></ul><ul><ul><li>Image </li></ul></ul><ul><ul><li>Capabilities </li></ul></ul><ul><ul><li>Products </li></ul></ul><ul><ul><li>Culture </li></ul></ul><ul><ul><li>Goals </li></ul></ul>
  49. 49. Strategic Direction <ul><li>Grand Focus </li></ul><ul><ul><li>Customer </li></ul></ul><ul><ul><li>Product </li></ul></ul><ul><ul><li>Capacity </li></ul></ul><ul><li>Basis of Competition </li></ul><ul><ul><li>Low price </li></ul></ul><ul><ul><li>Quality </li></ul></ul><ul><ul><li>Speed </li></ul></ul><ul><ul><li>Service </li></ul></ul>
  50. 50. Strategy Selection Matrix Price Speed Quality Service Customer / Market Product Capacity
  51. 51. <ul><li>Customers </li></ul><ul><ul><li>Who is? </li></ul></ul><ul><ul><li>Who is not? </li></ul></ul><ul><li>Products </li></ul><ul><ul><li>What are? </li></ul></ul><ul><ul><li>What are not? </li></ul></ul>Define the Business
  52. 52. Identify Strategy Drivers <ul><li>Processes that are performed in the business that </li></ul><ul><li>Create distinctiveness </li></ul><ul><li>Critical to the success of the strategy </li></ul><ul><li>Must be a priority </li></ul><ul><li>Must be performed very well </li></ul>
  53. 53. Strategy Fit Matrix Meets Customer Wants / Needs High Low Internal Capabilities High Winner Temptation (Solution seeking a problem) Low Challenge Foolish
  54. 54. Aligning around the Strategy <ul><li>Structure </li></ul><ul><li>Systems </li></ul><ul><li>Staffing </li></ul><ul><li>Style </li></ul><ul><li>Skills </li></ul><ul><li>Shared Values </li></ul>
  55. 55. Step 3: Create Opportunities <ul><li>Increase the number of new customer opportunities </li></ul><ul><li>Increase the number of opportunities from existing customers </li></ul><ul><li>Increase perception of value </li></ul>
  56. 56. We Call it Marketing <ul><li>Creating, communicating, and delivering goods and services that satisfy customer needs </li></ul><ul><li>Developing an identity with customers </li></ul><ul><ul><li>Positive </li></ul></ul><ul><ul><li>Distinguishable </li></ul></ul><ul><ul><li>Memorable </li></ul></ul>
  57. 57. What You Need to Know <ul><li>The need you are planning to satisfy </li></ul><ul><li>Who your customer is </li></ul><ul><li>How your customer thinks </li></ul><ul><li>Your product features and benefits </li></ul><ul><li>How your product meets the needs of your customer </li></ul><ul><li>How to reach your customer </li></ul>
  58. 58. The Marketing Process <ul><li>Focus on the strategy </li></ul><ul><li>Create the product </li></ul><ul><li>Create a marketing plan </li></ul><ul><li>Communicate message to customer </li></ul>
  59. 59. Create the Product <ul><li>Image </li></ul><ul><li>Uniforms </li></ul><ul><li>How you answer the phones </li></ul><ul><li>Logo </li></ul><ul><li>Scripts </li></ul><ul><li>Vehicles </li></ul><ul><li>Product Lines </li></ul><ul><li>What you think of the customer </li></ul><ul><li>The work you will do </li></ul><ul><li>How you do the work </li></ul><ul><li>Literature </li></ul><ul><li>Policies and procedures </li></ul>
  60. 60. Marketing Plan <ul><li>Who will we market to? </li></ul><ul><li>How do we reach our customer? </li></ul><ul><li>When? </li></ul><ul><li>How much will we spend? </li></ul><ul><li>What will the message be? </li></ul><ul><li>How frequently will market? </li></ul>
  61. 61. Tools for Communicating with Customers <ul><li>Advertising </li></ul><ul><li>Public relations </li></ul><ul><li>Internet </li></ul><ul><li>Top-of-the-mind awareness </li></ul><ul><li>Referrals </li></ul><ul><li>Repeat customers </li></ul><ul><li>Cross selling </li></ul><ul><li>Educating </li></ul>
  62. 62. Profit Point Exercise <ul><li>Establishing a Marketing Culture </li></ul>
  63. 63. Step 4: Sell for Profit <ul><li>Increase the rate that opportunities are converted to sales (Close Rate) </li></ul><ul><li>Get more profit from every sales </li></ul><ul><li>Get more sales opportunities </li></ul>
  64. 64. Getting a customer to buy <ul><li>Purchase decision is made when price is less than or equal to perceived value </li></ul><ul><li>Value is established by the customer </li></ul><ul><li>Move customer to buying decision by </li></ul><ul><ul><li>Lowering price </li></ul></ul><ul><ul><li>Increasing perceived value </li></ul></ul>
  65. 65. What You Need to Know <ul><li>Why people buy </li></ul><ul><li>Your product's benefit </li></ul><ul><li>You and your company </li></ul><ul><li>How your product meets a customer's needs </li></ul><ul><li>How to logically and effectively present ideas </li></ul><ul><li>How to encourage a customer to make a decision </li></ul><ul><li>How to overcome objections </li></ul>
  66. 66. The Sales Process <ul><li>Establishing selling opportunity </li></ul><ul><li>Establish explicit needs </li></ul><ul><li>Demonstrate capability to meet need </li></ul><ul><li>Offer to satisfy need </li></ul><ul><li>Gain commitment </li></ul>
  67. 67. Formal Sales Presentation <ul><li>Introduction and warm up </li></ul><ul><li>Customer assessment </li></ul><ul><li>Company presentation </li></ul><ul><li>Needs resolution </li></ul><ul><li>Commitment </li></ul>
  68. 68. Profit Point Exercise Sales Process
  69. 69. Step 5: Manage the Work <ul><li>Maximize amount of work performed </li></ul><ul><li>Ensure quality of work meets or exceed standards </li></ul><ul><li>Minimize costs </li></ul><ul><ul><li>Labor </li></ul></ul><ul><ul><li>Materials </li></ul></ul><ul><ul><li>Other </li></ul></ul>
  70. 70. The Key is Labor Management <ul><li>Systems for </li></ul><ul><li>Attracting </li></ul><ul><li>Retaining </li></ul><ul><li>Motivating </li></ul><ul><li>the right people to do the right thing at the right time for the right price again and again </li></ul>
  71. 71. Labor Management and Profit Point <ul><li>Labor is a primary resource in every marketable product </li></ul><ul><li>Quantity of labor time (Capacity) </li></ul><ul><li>Quality of labor time (Productivity) </li></ul><ul><li>Cost of labor </li></ul>
  72. 72. What You Need to Know about Labor Management <ul><li>Motivation </li></ul><ul><li>Planning </li></ul><ul><li>Training </li></ul><ul><li>Hiring </li></ul><ul><li>Retention </li></ul><ul><li>Team building </li></ul><ul><li>Compensation </li></ul><ul><li>Employment laws and regulations </li></ul>
  73. 73. Employment Tools <ul><li>Management Systems </li></ul><ul><li>Clearly understood job expectations </li></ul><ul><li>Competitive compensation </li></ul><ul><li>Safe working environment </li></ul><ul><li>Management systems </li></ul><ul><li>Time sheets </li></ul><ul><li>Employee reviews </li></ul><ul><li>Commissions and bonuses </li></ul>
  74. 74. Key Driving Principles of Profit Point <ul><li>Know Your Numbers </li></ul><ul><li>Set Your Course </li></ul><ul><li>Create Opportunities </li></ul><ul><li>Sell for Profit </li></ul><ul><li>Manage the Work </li></ul>
  75. 75. Get to the Point! <ul><li>Find your profit point </li></ul><ul><li>Make changes needed to get there quicker </li></ul><ul><li>Track your performance daily </li></ul><ul><li>Make daily management decisions </li></ul>
  76. 76. Kevin Nott , M.A. Business Strategy Coach [email_address] (801) 850-1716