Pick up a copy of Inc. or Fast Company, and you will be amazed by how many entrepreneurs are bent on selling themselves straight into bankruptcy.
It costs a lot of money to grow sales, especially if you’re focused on the wrong things, like making Inc.’s list of the 5000 fastest growing businesses in the country. What is more important than sales to your business? Watch this short video to find out.
Action Steps:
- List all of your lines. List every category of product or service your business sells.
- Determine the profit per unit, or, if you’re selling a service, the profit per hour sold. Subtract your cost per unit sold from the price of each unit. The line with the most business profit is your Most Valuable Line (MVL).
- To avoid using your MVL to subsidize your Less Valuable Lines (LVL), eliminate your LVLs. Stop selling them. Drop them from your business and focus on selling your Most Valuable Line.
- Repeat the process on a regular basis–at least once, if not twice, a year.
Principles:
- A lot of businesses sell themselves into bankruptcy by not paying attention to business profit–specifically net profit per unit sold. Instead, they focus on growing sales and take their eye off of expenses completely.
- This happens when business owners fail to keep a close eye on the costs involved in selling a unit of product or an hour of service.
- Over diversified businesses often wind up robbing Peter to pay Paul, meaning that the profitable lines of their business end up subsidizing the unprofitable lines.
- Net profit is a far, far more important measure of success than sales growth.
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