5 Mistakes That Limit Your Profitability
Experience shows that many businesses, especially SMEs make similar mistakes that lead to them putting limits on the profits they could make.
Having worked with companies to raise finance for them, I often get to dig deeper and see why they are borrowing and what is really going on.
Here are 5 of my top mistakes I have seen SMEs make over the last 12 months.
1 – Wrong Pricing
How do you price your services? For many professional services companies there is no ‘market average’ for the price of any service, it is all about perceived value. Often in the pursuit of sales SMEs take the retail approach and compete on price. The mistake is that cheap is often associated with nasty, not everyone wants a budget service and it is rarely all about price.
2 – Lack of Strategy
This comes down to core values and core principles. Does your business reflect these core values? More to the point, have you actually written down your core values anywhere? Does anyone else in your company know what they are?
If you lack a strategy underpinned by core values then how will you ever identify what your ideal client looks like? If you cannot identify them then how will you win their business?
Even the smallest of SMEs need to have a strategy in place.
3 – Average
Average, possible the most pointless word ever when it comes to anything. If I was to lay down with my head in an oven and feet in a freezer then I would ‘on average’ be at a comfortable temperature, the reality would be somewhat different.
Businesses never aim for average but often achieve it. Average pricing, average service, average expectations.
Ditch average and aim for exceptional, if only in one part of your business, but be exceptional at something and differentiate yourself.
4 – Measuring Wrong Things
Too many SMEs look at their P&L or worse still, look at their bank account as a measure of how well they are doing. There is a saying I like (especially from past corporate days) that ‘weighing a pig won’t make it fat’. In other words measuring things doesn’t change them.
Look at your business and drive what impacts your KPIs (key performance indicators). An Estate Agent will know that X many viewings will bring X many offers, to get the viewings they need to contact X many potential buyers, so they drive the contact with buyers as it is that that will drive the other key factors.
Measure what really matters and take action when you need to.
5 – Standard Systems
Even small businesses should have some standard systems in place. This can be the scripts used to speak to clients, a standard factfind or research questionairre, set wording for thanking a client post sale. It could even be a set process for post sale follow up, whatever it is get some standard systems in place and get them written down.
What this does is engender a professionalism in your business, it also encourages staff to make comment and suggest improvements. The net effect is that best practice is encouraged and the best ideas are used by everyone.
It all starts with getting some standard systems in place.
By Dave Farmer
Dave Farmer is founder of the award winning business finance specialist Lime Consultancy. Based in Sussex, Lime Consultancy provide commercial lending guidance to SMEs across London the The South.
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