April 10, 2025 • 22 mins
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Profit isn’t a reward, it’s a system. In this episode of Boosting Your Financial IQ, Steve breaks down the essential strategies behind building a truly profitable business.
Whether you lead a growing company or are stuck wondering where the profit went, this episode will give you a clear playbook to turn things around.
Disclaimer:
BYFIQ, LLC is a wholly owned entity of Coltivar Group, LLC. The views expressed here are those of the individual Coltivar Group, LLC (“Coltivar”) personnel quoted and are not the views of Coltivar or its affiliates. Certain information contained in here has been obtained from third-party sources. While taken from sources believed to be reliable, Coltivar has not independently verified such information and makes no representations about the enduring accuracy of the information or its appropriateness for a given situation.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
Profit doesn't appear by accident.
It's built by design.
If you want to increase profit,you don't need a new product or
a massive rebrand.
You need better insights,better systems and better
alignment.
This is Boosting your FinancialIQ, where I help business
professionals with financialresponsibility to elevate their
careers and run profitablecompanies.
My hope is that you'll applythese lessons to achieve your
(00:20):
greatest ambitions, cheers andenjoy.
If you want to increase profitin your business, there are four
levers.
First, there is pricing.
That just involves increasingyour prices.
But you have to make sure thatthe perceived value that you're
delivering to your customersexceeds pricing.
Otherwise you're just going toincrease your pricing and lose
customers.
All right, so that's levernumber one.
(00:42):
Lever number two is increasevolume.
So just go out there and growyour business.
Do more sales.
Number three is reduce yourcost of goods sold, which
involves just reducing the costsrequired to deliver your
product or service.
That's making your materialpurchases more efficient, making
your labor more efficient.
Maybe use subcontractors andyou're buying out more expensive
(01:05):
subcontractors.
You can reduce that, but it'sjust reducing the cost of
delivery.
That's cost of goods sold.
And then the last lever is OpEx.
That's just reducing youroverhead.
You're selling general andadministrative expenses, your
fixed costs, et cetera all thecosts associated with running
your business.
Those are the four levers right.
So if anybody ever asks you howcan you increase the profit
running your business, those arethe four levers right.
So if anybody ever asks you howcan you increase the profit in
(01:27):
your business, that's the shortanswer.
But in this episode I want to gobeyond those four levers and I
want to talk about provenstrategies to increase profit in
your business, no matter whatindustry you're in.
So in this episode I'm going tocover a few things.
Here are the takeaways.
Number one revenue is only halfthe equation.
Profit is the true driver oflong-term success.
(01:49):
Next, margins matter overvolume.
Optimize what you already sellbefore chasing new business.
The next takeaway efficiencyunlocks cashflow.
Improve operations, not justoutput.
Another takeaway is strategicpricing changes everything Price
based on outcomes, not justoutput.
Another takeaway is strategicpricing changes everything Price
based on outcomes, not justinputs.
(02:09):
And then the last takeaway thatI want to leave you with is
profit follows clarity.
When you use KPIs, keyperformance indicators,
forecasts and financialdiscipline, you're going to be
able to steer your businesstowards growth and better
financial results.
All right, so that's just ahigh level summary of what I'm
going to leave you with.
But let's jump into the detailsand the nuances, and I'm going
(02:32):
to give you a step-by-stepplaybook in this episode of how
you can improve profit in yourbusiness.
All right, so let's talk aboutthis first.
Profit is not the engine, it'sthe outcome.
So for many business owners,profit feels like whatever's
left over after payroll billsand taxes.
But here's the deal.
Most successful founders knowthat profit isn't what's left,
(02:57):
it's what's planned.
It's not a passive result ofgrowth, it's a strategic
objective that gets built intoyour operations, your pricing,
your team and your forecasting.
So at Coltivar, we helpcompanies move from chaotic
growth to intentional valuecreation, and that's what I'm
going to share with you today ismy experience as a CEO, as a
(03:20):
CFO of multiple companies, as aninvestor, as a specialist.
I'm going to share with you thestrategies that shift the
understanding of one simpletruth that more sales don't
automatically lead to moreprofit.
I've seen this over and overagain.
Companies are out there andthey're like we just need to do
more sales, we need to just growourselves to profitability.
(03:42):
But here's the fact without theright systems, more sales can
actually create more complexity,more overhead and even more
risks, and it could bankruptyour business, in fact.
So let's talk about how do youactually increase profit?
And the answer is you stopchasing every dollar and you
start designing a business thatkeeps more of what it earns.
(04:05):
So let's get into that.
There are seven steps that Iwant to share with you.
Number one is understand whatdrives profitability All right
before you can increase profit.
So if you know your companyisn't performing as well as it
should be, what you need to dofirst is to understand what's
really moving the numbers behindthe scenes.
This involves doing a financialassessment.
(04:28):
So when we bring on a client,the first thing we do is we get
their historical financials andwe organize it in a way where we
can understand the trueeconomics of a company.
Too often, especially withsmall businesses, they have
expenses that should be up incost of goods sold down in
operating expenses.
Their balance sheet's a messand we have to clean all that up
(04:48):
and normalize it so we canunderstand the true economics of
what's going on in the business.
Because if not, how do you knowwhere to start?
Once you understand the numbersand the story behind the numbers
, it's not about just sellingmore and spending less.
Instead, profit is driven bythe relationship between three
(05:09):
core efficiencies, and I'vetalked about this before, but
I'm just going to reiterate thisover and over again until it
like sinks in, because thesethree efficiencies are what
ultimately drives value in abusiness.
Number one is sales efficiency.
Are you acquiring the rightcustomers at the right cost?
You measure this through yourLTGP to CAC, your lifetime gross
(05:32):
profit to customer acquisitioncost ratio.
Right, it has to be at leastthree to one, right, that's the
starting point.
The next efficiency is youroperational efficiency.
Are your people, processes andtools delivering results without
waste?
You measure this through returnon labor.
And then the last efficiency isvalue creation, or just value
(05:53):
efficiency.
And this considers are youreinvesting profits into high
return initiatives that fuelgrowth?
This is measured through yourreturn on invested capital.
And to compute your return oninvested capital, you just take
NOPAT net operating profit aftertax and you divide that by your
invested capital and invested.
Take NOPAT net operating profitafter tax and you divide that
by your invested capital, andinvested capital is made up of
(06:13):
working capital and your netproperty, plant and equipment.
When you see your businessthrough this lens, profit
becomes a performance metric,not just an accounting result,
but you have to be trackingsales efficiency, operational
efficiency and value creationefficiency.
Otherwise you're going to haveno clue what really drives
(06:35):
profitability in your business.
And, like I said, it's not assimple as selling more and
lowering your cost.
You have to understand theseefficiencies because they act as
flywheels in your business andif you get them spinning, that's
when you're going to scale, andyou're going to scale really
profitably, all right.
Step two is raise your priceswithout losing customers.
(06:58):
So one of the fastest ways toincrease profit is also the most
underused raising your prices.
Many business owners and maybethis is you, and this is okay,
I've been there before theyunderpriced their services out
of fear fear of losing deals,fear of upsetting loyal
customers or fear of pricingthemselves out of the market.
(07:20):
Back in the day when I had mylandscape company here, I was a
teenager and I was going tothese homes of my clients and
they were really nice.
They had way more money than Idid and I didn't have the
confidence.
So when I'd present my bid tothem, I'm like hey, here's a bid
for your landscape.
And I'd be like I know it'skind of expensive this patio.
Maybe we could save money hereand there.
(07:40):
And I just I wasn't confident.
I didn't come across like Iknew my numbers.
I was confident with my numbersand it showed through and it
probably made my customersreally like sketched out with me
.
But when I changed my salesapproach because I had
experience and I started tounderstand my numbers better, I
could go in and sell not withbetter tactics but with more
confidence, because I'd say, hey, here's this water feature it's
(08:04):
$30,000.
In this fire pit, it's 20,000.
And it's going to transformyour backyard and make it into
this beautiful place.
And if they say to me, wow, youknow that seems really
expensive.
Then I joke back with them.
I say you think that'sexpensive?
Imagine hiring the wrongcontractor.
And they laugh, ha ha, ha.
Right, we would go on.
But like I had to know mynumbers and I had to be
(08:27):
confident that we weredelivering that value.
So that's the big thing.
I was just doing a workshop withanother company teaching them
sales and marketing principlesand that was a big anchor point
in my presentation is justselling with more confidence,
like you have to own it, youhave to know your numbers, you
have to believe that you'redelivering value, that you're
actually changing their lives.
You're solving a problem.
(08:47):
And when you could do this, youdon't have to have fear of
losing deals, upsettingcustomers or pricing yourself
out of the market.
You could go in there and youcan act confidently.
But here's the deal.
The truth is this If you'redelivering real value, your
customers, they're often willingto pay more.
What they need is a clearunderstanding of the outcome you
(09:09):
help them to achieve.
So when you anchor your pricingto results time saved, revenue
generated, risk that's avoidedyou stop selling a commodity and
start selling a solution, andthat's what I'm talking about
here.
So start by identifying yourmost profitable services or your
products, package them, enhancethem, improve your offer, make
(09:31):
sure your offer is really clearand it's so good that they'd
feel dumb saying no and thenraise the price.
Even a five to 10% increase, ifdone right, can significantly
improve your bottom line withoutincreasing volume.
Pricing is the greatest leverof improving the bottom line.
Just remember that All right.
Step three improve your grossmargin.
(09:52):
Gross margin is the oxygen ofyour business.
If it's tight, everythingdownstream becomes harder Hiring
, investing, innovating, etcetera.
That's why increasing profitoften starts by tightening your
cost of goods sold.
I'm not talking about being amiser right and beating up your
vendors to save a buck here orthere.
I'm not talking about being amiser right and beating up your
vendors to save a buck here orthere.
(10:12):
I'm talking about making yourlabor more efficient, being more
productive, increasing yourthroughput.
So look at your direct expensesand labor is going to be the
biggest one of them all.
Now, sure, you may have someimprovements with materials.
Maybe you don't know how to dotakeoffs when you're bidding and
you're under bidding yourprojects, or you have a lot of
waste in the system, or you'reprocuring materials and you
(10:35):
could find them a lot cheapersomewhere else.
Sure, you know.
But oftentimes the improvementis in labor and production costs
.
Right, so are thereinefficiencies in your supply
chain?
Are you overpaying vendors?
Maybe, but can you implementtechnology, upskill your
employees, reduce complicationto maximize the return on your
(10:56):
labor?
That's going to be like whereit is really so small
improvements in margin, evenjust like 1% to 2%, can compound
very fast.
And here's the best part.
Unlike sales, growth margingains require no new marketing
spend.
That's the beautiful part.
Unlike sales, growth margingains require no new marketing
spend.
That's the beautiful part of it.
And at the end of this episodeI'm going to share with you the
four levers again and then I'mgoing to tell you, based on a 1%
(11:19):
improvement on each of them,what that impact will have on
the bottom line for just theaverage company.
I did some research.
I'm going to share that withyou here in just a minute, all
right.
Step four audit and streamlineoverhead.
So as your company scales,expenses often grow unchecked.
So software subscriptions checkthat.
Underutilized tools, bloatedteams, legacy systems all these
(11:41):
things can eat into your profit.
What I like to do is conduct azero-based budget review.
So don't just ask, like, whatyou spent last year and then
roll that over to the next year.
Instead, do this, and this makespeople uncomfortable.
Just imagine you fire everybodyin your company.
Don't go fire people, all right, but imagine you fire people
(12:02):
and then you take your overheaddollars right, that you spent
last year and you rebuild thebusiness.
How would you do that?
That's zero based budgeting,basically.
So what a lot of companies dois they just take their overhead
from last year and they justroll it forward.
But what you could do insteadis say, okay, we spent $500,000
last year in overhead, I'm goingto fire everybody.
Don't really fire everybody.
(12:22):
Just imagine this and then I'mgoing to take that $500,000 and
I'm going to rebuild a company.
How would I do it?
That's how you should audit andstreamline your overhead.
So just cut what's notessential, automate what's
repeatable and focus yourresources on what improves your
return on investment or yourreturn on invested capital, roic
.
But, like I said, this isn'tabout just slashing expenses for
(12:46):
the sake of saving money.
It's about realigning spendwith strategic impact.
The goal is to fund growth, notcarry weight.
The goal is to fund growth, notcarry weight.
Step five increase your customerlifetime value or, better yet,
your customer LTGP, yourcustomer lifetime gross profit.
Most businesses they work toohard to bring in customers and
(13:11):
not hard enough to keep them,and that's a problem, obviously.
So increasing profit doesn'talways require new sales.
Often it comes from gettingmore out of your existing
customer base.
So here's some ways to do that.
Number one, upsell and crosssell with value added services.
Next, improve onboarding andretention.
Third, create recurring revenueor loyalty programs.
(13:34):
And fourth, systematizecustomer success and follow-up.
So when you do this, the mathis simple the longer your
customers stay, the more moneythey're going to spend and the
higher your profit will be peracquisition and hence your LTGP,
your lifetime gross profit ofyour customer, will increase.
Right?
So that's step five.
Step six align your team withprofit goals.
(13:58):
Every single person on your teamshould be able to answer this
question how does my role impactprofitability?
Too often employees aredisconnected from financial
results.
They don't even look atfinancials.
Right, and I'm not saying youhave to show your financials
every single thing in thefinancials, the income statement
, balance sheet statement, cashflows to every employee.
But employees should have sometype of visibility into at least
(14:20):
the KPIs of your company, yourkey performance indicators, your
employees.
They work hard, but not alwayson the things that matter the
most.
That's the problem.
So if you tie every member'sresponsibilities to a measurable
outcome cost savings, revenuegrowth, margin improvement or
customer retention then you'regoing to get everybody aligned
(14:41):
on driving value.
At Coltivar, we use IARs.
This is a framework I came upwith years ago.
I wrote about it in my secondbook called Outsizing.
It's called Initiatives,actions and Results IARs, and it
helps leaders to turn big goalsinto everyday execution.
So think about it.
A goal is broken up into threeparts an initiative, it has
(15:03):
action and it has a result tiedto it.
So that's just a goal brokendown into its component parts
IARs.
So when your team sees howtheir work moves the needle,
they're going to take ownershipwhen they can see a KPI and they
see a graph.
That's why at Coltivar, we havethis dashboard and it's like
you open up return on investedcapital.
You could see the last threeyears like graphically, like on
(15:26):
this graph, right, and you'relike, okay, it's been down,
ticking down for the last threemonths.
Then you'll know, okay, I needto take action.
That's where ownership comes in.
But when you don't havevisibility and you're not even
measuring these things, how theheck can you expect your
employees to be focused ondriving value, increasing
profits, right, you can't.
So when everybody rose in thesame direction, profit becomes a
(15:48):
shared result, not a soloburden of just like the CFO or
controller or the CEO, right,that's ridiculous.
All right.
Step number seven forecast andmonitor profit in real time.
So if you're only reviewingfinancials once a month or once
a quarter, you're makingdecisions too late.
Growing your profit requiresforward-looking visibility in
(16:10):
where your business is headed.
This is where KPIs come in.
All right, and building arolling 12-month forecast that
maps your revenue, expenses,gross margin and net profit.
But better yet, you mustforecast free cash flow as well,
then update it regularly, basedon performance.
So use this forecast to testscenarios, plan hiring, evaluate
(16:33):
investments and then setrealistic growth targets.
So you meet with your team,right.
You look at your financials,you have KPIs that you're
tracking ongoing in real timeand then you make adjustments to
your strategy, right and theforecast like the future and
when you have the rightforecasting tools.
The beauty of all this is youcan spot issues before they hit
(16:53):
your P&L, and then you can seizeopportunities right when they
arise, not later on, right.
So this is you could spotissues before they hit your P&L,
and then you could seizeopportunities right when they
arise, not later on.
So this is what I want to leaveyou with.
Profit is a process, it's not aperk.
Here's what most people getwrong.
They treat profit like a reward, something that just shows up
after hard work, growth and time.
That was me in the past.
Don't make that same mistake.
(17:14):
Profit doesn't appear byaccident.
It's built by design.
If you want to increase profit,you don't need a new product or
a massive rebrand.
You need better insights,better systems and better
alignment.
You need a shift from reactivedecision-making to intentional
execution where every move istied to a measurable financial
(17:34):
result.
When you get everybody alignedlike this, beautiful things
happen and your profit willincrease.
All right.
So that's how you increaseprofit in a business and, like I
told you, I'm gonna leave youwith the four levers of profit
and their impact.
I did a study and this is justfor the average company, across
industries.
So just take these numbers forwhat they are.
(17:54):
They're just generic.
You can figure out these samefour levers of profit in your
business by going to coltivar.
com.
Go into resources.
You'll see tools and I'm goingto post this little model that I
built.
Feel free to download it, useit, enter a few data points and
bam, you're going to get theexact impact of profitability in
(18:14):
your business.
I'm just going to give it toyou generically so you can
understand what I'm talkingabout here.
But download the tool, like Isaid at coltivar.
com, plug in your own numbersfrom your financials and then
you'll have exact numbers inyour company.
It's like super powerful.
Just to recap, of the fourlevers we talked about pricing,
volume, cost of goods sold andoperating expenses which one of
(18:38):
those four do you think has thebiggest impact.
I kind of told you already, soyou should know.
Well, it's pricing.
So if that's what you'rethinking okay, you're right, and
obviously you listened to meearly on Let me share with you
what a 1% impact in any of theseareas will result in in the
bottom line.
So, in other words, a 1%increase in pricing, a 1%
(18:58):
increase in volume, a 1%decrease in cost of goods sold
and a 1% decrease in OPEX.
All right, so here we go.
Pricing a 1% increase inpricing on average for the
average company will have a12.5% impact on the bottom line.
Volume will have a 4.8% impact.
Cost of goods sold.
So reducing cost of goods soldby 1% will have a 7.7% impact on
(19:21):
the bottom line.
And OpEx reducing your overheadwill have a 3.8% impact on the
bottom line.
Like I said, this is for theaverage company.
Download the tool at cultivarcom.
Figure out your own numbers,then communicate this with
precision to your team.
Figure out your own numbers,then communicate this with
precision to your team.
So here's how it works.
So pricing is the best lever.
It's 12.5% impact, right?
(19:42):
So maybe if you're a company,it's 19.
So then you could go to yourteam and say, look, if we
discount our products by 1%, itwill have a 19% negative impact
on our bottom line.
Or if we increase our pricingby 1%, I'll have a 19% positive
impact on the bottom line.
Or hey, if we increase ourpricing by one percent, I'll
have a 19 positive impact on thebottom line.
Or hey, if we can improve ourcost to get sold by one percent
(20:02):
by making our labor moreefficient, we will have a 7.7
impact on our bottom line.
That's pretty big.
So if you're evaluating atraining program, for example,
you may say, yeah, we're goingto spend ten thousand dollars to
do this workshop, but it'sgoing to have a $50,000 impact
on our bottom line.
Of course, you do the workshop.
So when you know these leversand you know how they relate to
(20:24):
your business, it's superpowerful, trust me.
All right, that's what I wantto leave you with.
All the best until next episode.
Take care of yourself, cheers.
Profit doesn't appear by accident.
It's built by design.
If you want to increase profit,you don't need a new product or
a massive rebrand.
You need better insights,better systems and better
alignment.
This is Boosting your FinancialIQ, where I help business
professionals with financialresponsibility to elevate their
careers and run profitablecompanies.
My hope is that you'll applythese lessons to achieve your
(00:20):
greatest ambitions, cheers andenjoy.
If you want to increase profitin your business, there are four
levers.
First, there is pricing.
That just involves increasingyour prices.
But you have to make sure thatthe perceived value that you're
delivering to your customersexceeds pricing.
Otherwise you're just going toincrease your pricing and lose
customers.
All right, so that's levernumber one.
(00:42):
Lever number two is increasevolume.
So just go out there and growyour business.
Do more sales.
Number three is reduce yourcost of goods sold, which
involves just reducing the costsrequired to deliver your
product or service.
That's making your materialpurchases more efficient, making
your labor more efficient.
Maybe use subcontractors andyou're buying out more expensive
(01:05):
subcontractors.
You can reduce that, but it'sjust reducing the cost of
delivery.
That's cost of goods sold.
And then the last lever is OpEx.
That's just reducing youroverhead.
You're selling general andadministrative expenses, your
fixed costs, et cetera all thecosts associated with running
your business.
Those are the four levers right.
So if anybody ever asks you howcan you increase the profit
running your business, those arethe four levers right.
So if anybody ever asks you howcan you increase the profit in
(01:27):
your business, that's the shortanswer.
But in this episode I want to gobeyond those four levers and I
want to talk about provenstrategies to increase profit in
your business, no matter whatindustry you're in.
So in this episode I'm going tocover a few things.
Here are the takeaways.
Number one revenue is only halfthe equation.
Profit is the true driver oflong-term success.
(01:49):
Next, margins matter overvolume.
Optimize what you already sellbefore chasing new business.
The next takeaway efficiencyunlocks cashflow.
Improve operations, not justoutput.
Another takeaway is strategicpricing changes everything Price
based on outcomes, not justoutput.
Another takeaway is strategicpricing changes everything Price
based on outcomes, not justinputs.
(02:09):
And then the last takeaway thatI want to leave you with is
profit follows clarity.
When you use KPIs, keyperformance indicators,
forecasts and financialdiscipline, you're going to be
able to steer your businesstowards growth and better
financial results.
All right, so that's just ahigh level summary of what I'm
going to leave you with.
But let's jump into the detailsand the nuances, and I'm going
(02:32):
to give you a step-by-stepplaybook in this episode of how
you can improve profit in yourbusiness.
All right, so let's talk aboutthis first.
Profit is not the engine, it'sthe outcome.
So for many business owners,profit feels like whatever's
left over after payroll billsand taxes.
But here's the deal.
Most successful founders knowthat profit isn't what's left,
(02:57):
it's what's planned.
It's not a passive result ofgrowth, it's a strategic
objective that gets built intoyour operations, your pricing,
your team and your forecasting.
So at Coltivar, we helpcompanies move from chaotic
growth to intentional valuecreation, and that's what I'm
going to share with you today ismy experience as a CEO, as a
(03:20):
CFO of multiple companies, as aninvestor, as a specialist.
I'm going to share with you thestrategies that shift the
understanding of one simpletruth that more sales don't
automatically lead to moreprofit.
I've seen this over and overagain.
Companies are out there andthey're like we just need to do
more sales, we need to just growourselves to profitability.
(03:42):
But here's the fact without theright systems, more sales can
actually create more complexity,more overhead and even more
risks, and it could bankruptyour business, in fact.
So let's talk about how do youactually increase profit?
And the answer is you stopchasing every dollar and you
start designing a business thatkeeps more of what it earns.
(04:05):
So let's get into that.
There are seven steps that Iwant to share with you.
Number one is understand whatdrives profitability All right
before you can increase profit.
So if you know your companyisn't performing as well as it
should be, what you need to dofirst is to understand what's
really moving the numbers behindthe scenes.
This involves doing a financialassessment.
(04:28):
So when we bring on a client,the first thing we do is we get
their historical financials andwe organize it in a way where we
can understand the trueeconomics of a company.
Too often, especially withsmall businesses, they have
expenses that should be up incost of goods sold down in
operating expenses.
Their balance sheet's a messand we have to clean all that up
(04:48):
and normalize it so we canunderstand the true economics of
what's going on in the business.
Because if not, how do you knowwhere to start?
Once you understand the numbersand the story behind the numbers
, it's not about just sellingmore and spending less.
Instead, profit is driven bythe relationship between three
(05:09):
core efficiencies, and I'vetalked about this before, but
I'm just going to reiterate thisover and over again until it
like sinks in, because thesethree efficiencies are what
ultimately drives value in abusiness.
Number one is sales efficiency.
Are you acquiring the rightcustomers at the right cost?
You measure this through yourLTGP to CAC, your lifetime gross
(05:32):
profit to customer acquisitioncost ratio.
Right, it has to be at leastthree to one, right, that's the
starting point.
The next efficiency is youroperational efficiency.
Are your people, processes andtools delivering results without
waste?
You measure this through returnon labor.
And then the last efficiency isvalue creation, or just value
(05:53):
efficiency.
And this considers are youreinvesting profits into high
return initiatives that fuelgrowth?
This is measured through yourreturn on invested capital.
And to compute your return oninvested capital, you just take
NOPAT net operating profit aftertax and you divide that by your
invested capital and invested.
Take NOPAT net operating profitafter tax and you divide that
by your invested capital, andinvested capital is made up of
(06:13):
working capital and your netproperty, plant and equipment.
When you see your businessthrough this lens, profit
becomes a performance metric,not just an accounting result,
but you have to be trackingsales efficiency, operational
efficiency and value creationefficiency.
Otherwise you're going to haveno clue what really drives
(06:35):
profitability in your business.
And, like I said, it's not assimple as selling more and
lowering your cost.
You have to understand theseefficiencies because they act as
flywheels in your business andif you get them spinning, that's
when you're going to scale, andyou're going to scale really
profitably, all right.
Step two is raise your priceswithout losing customers.
(06:58):
So one of the fastest ways toincrease profit is also the most
underused raising your prices.
Many business owners and maybethis is you, and this is okay,
I've been there before theyunderpriced their services out
of fear fear of losing deals,fear of upsetting loyal
customers or fear of pricingthemselves out of the market.
(07:20):
Back in the day when I had mylandscape company here, I was a
teenager and I was going tothese homes of my clients and
they were really nice.
They had way more money than Idid and I didn't have the
confidence.
So when I'd present my bid tothem, I'm like hey, here's a bid
for your landscape.
And I'd be like I know it'skind of expensive this patio.
Maybe we could save money hereand there.
(07:40):
And I just I wasn't confident.
I didn't come across like Iknew my numbers.
I was confident with my numbersand it showed through and it
probably made my customersreally like sketched out with me
.
But when I changed my salesapproach because I had
experience and I started tounderstand my numbers better, I
could go in and sell not withbetter tactics but with more
confidence, because I'd say, hey, here's this water feature it's
(08:04):
$30,000.
In this fire pit, it's 20,000.
And it's going to transformyour backyard and make it into
this beautiful place.
And if they say to me, wow, youknow that seems really
expensive.
Then I joke back with them.
I say you think that'sexpensive?
Imagine hiring the wrongcontractor.
And they laugh, ha ha, ha.
Right, we would go on.
But like I had to know mynumbers and I had to be
(08:27):
confident that we weredelivering that value.
So that's the big thing.
I was just doing a workshop withanother company teaching them
sales and marketing principlesand that was a big anchor point
in my presentation is justselling with more confidence,
like you have to own it, youhave to know your numbers, you
have to believe that you'redelivering value, that you're
actually changing their lives.
You're solving a problem.
(08:47):
And when you could do this, youdon't have to have fear of
losing deals, upsettingcustomers or pricing yourself
out of the market.
You could go in there and youcan act confidently.
But here's the deal.
The truth is this If you'redelivering real value, your
customers, they're often willingto pay more.
What they need is a clearunderstanding of the outcome you
(09:09):
help them to achieve.
So when you anchor your pricingto results time saved, revenue
generated, risk that's avoidedyou stop selling a commodity and
start selling a solution, andthat's what I'm talking about
here.
So start by identifying yourmost profitable services or your
products, package them, enhancethem, improve your offer, make
(09:31):
sure your offer is really clearand it's so good that they'd
feel dumb saying no and thenraise the price.
Even a five to 10% increase, ifdone right, can significantly
improve your bottom line withoutincreasing volume.
Pricing is the greatest leverof improving the bottom line.
Just remember that All right.
Step three improve your grossmargin.
(09:52):
Gross margin is the oxygen ofyour business.
If it's tight, everythingdownstream becomes harder Hiring
, investing, innovating, etcetera.
That's why increasing profitoften starts by tightening your
cost of goods sold.
I'm not talking about being amiser right and beating up your
vendors to save a buck here orthere.
I'm not talking about being amiser right and beating up your
vendors to save a buck here orthere.
(10:12):
I'm talking about making yourlabor more efficient, being more
productive, increasing yourthroughput.
So look at your direct expensesand labor is going to be the
biggest one of them all.
Now, sure, you may have someimprovements with materials.
Maybe you don't know how to dotakeoffs when you're bidding and
you're under bidding yourprojects, or you have a lot of
waste in the system, or you'reprocuring materials and you
(10:35):
could find them a lot cheapersomewhere else.
Sure, you know.
But oftentimes the improvementis in labor and production costs
.
Right, so are thereinefficiencies in your supply
chain?
Are you overpaying vendors?
Maybe, but can you implementtechnology, upskill your
employees, reduce complicationto maximize the return on your
(10:56):
labor?
That's going to be like whereit is really so small
improvements in margin, evenjust like 1% to 2%, can compound
very fast.
And here's the best part.
Unlike sales, growth margingains require no new marketing
spend.
That's the beautiful part.
Unlike sales, growth margingains require no new marketing
spend.
That's the beautiful part of it.
And at the end of this episodeI'm going to share with you the
four levers again and then I'mgoing to tell you, based on a 1%
(11:19):
improvement on each of them,what that impact will have on
the bottom line for just theaverage company.
I did some research.
I'm going to share that withyou here in just a minute, all
right.
Step four audit and streamlineoverhead.
So as your company scales,expenses often grow unchecked.
So software subscriptions checkthat.
Underutilized tools, bloatedteams, legacy systems all these
(11:41):
things can eat into your profit.
What I like to do is conduct azero-based budget review.
So don't just ask, like, whatyou spent last year and then
roll that over to the next year.
Instead, do this, and this makespeople uncomfortable.
Just imagine you fire everybodyin your company.
Don't go fire people, all right, but imagine you fire people
(12:02):
and then you take your overheaddollars right, that you spent
last year and you rebuild thebusiness.
How would you do that?
That's zero based budgeting,basically.
So what a lot of companies dois they just take their overhead
from last year and they justroll it forward.
But what you could do insteadis say, okay, we spent $500,000
last year in overhead, I'm goingto fire everybody.
Don't really fire everybody.
(12:22):
Just imagine this and then I'mgoing to take that $500,000 and
I'm going to rebuild a company.
How would I do it?
That's how you should audit andstreamline your overhead.
So just cut what's notessential, automate what's
repeatable and focus yourresources on what improves your
return on investment or yourreturn on invested capital, roic
.
But, like I said, this isn'tabout just slashing expenses for
(12:46):
the sake of saving money.
It's about realigning spendwith strategic impact.
The goal is to fund growth, notcarry weight.
The goal is to fund growth, notcarry weight.
Step five increase your customerlifetime value or, better yet,
your customer LTGP, yourcustomer lifetime gross profit.
Most businesses they work toohard to bring in customers and
(13:11):
not hard enough to keep them,and that's a problem, obviously.
So increasing profit doesn'talways require new sales.
Often it comes from gettingmore out of your existing
customer base.
So here's some ways to do that.
Number one, upsell and crosssell with value added services.
Next, improve onboarding andretention.
Third, create recurring revenueor loyalty programs.
(13:34):
And fourth, systematizecustomer success and follow-up.
So when you do this, the mathis simple the longer your
customers stay, the more moneythey're going to spend and the
higher your profit will be peracquisition and hence your LTGP,
your lifetime gross profit ofyour customer, will increase.
Right?
So that's step five.
Step six align your team withprofit goals.
(13:58):
Every single person on your teamshould be able to answer this
question how does my role impactprofitability?
Too often employees aredisconnected from financial
results.
They don't even look atfinancials.
Right, and I'm not saying youhave to show your financials
every single thing in thefinancials, the income statement
, balance sheet statement, cashflows to every employee.
But employees should have sometype of visibility into at least
(14:20):
the KPIs of your company, yourkey performance indicators, your
employees.
They work hard, but not alwayson the things that matter the
most.
That's the problem.
So if you tie every member'sresponsibilities to a measurable
outcome cost savings, revenuegrowth, margin improvement or
customer retention then you'regoing to get everybody aligned
(14:41):
on driving value.
At Coltivar, we use IARs.
This is a framework I came upwith years ago.
I wrote about it in my secondbook called Outsizing.
It's called Initiatives,actions and Results IARs, and it
helps leaders to turn big goalsinto everyday execution.
So think about it.
A goal is broken up into threeparts an initiative, it has
(15:03):
action and it has a result tiedto it.
So that's just a goal brokendown into its component parts
IARs.
So when your team sees howtheir work moves the needle,
they're going to take ownershipwhen they can see a KPI and they
see a graph.
That's why at Coltivar, we havethis dashboard and it's like
you open up return on investedcapital.
You could see the last threeyears like graphically, like on
(15:26):
this graph, right, and you'relike, okay, it's been down,
ticking down for the last threemonths.
Then you'll know, okay, I needto take action.
That's where ownership comes in.
But when you don't havevisibility and you're not even
measuring these things, how theheck can you expect your
employees to be focused ondriving value, increasing
profits, right, you can't.
So when everybody rose in thesame direction, profit becomes a
(15:48):
shared result, not a soloburden of just like the CFO or
controller or the CEO, right,that's ridiculous.
All right.
Step number seven forecast andmonitor profit in real time.
So if you're only reviewingfinancials once a month or once
a quarter, you're makingdecisions too late.
Growing your profit requiresforward-looking visibility in
(16:10):
where your business is headed.
This is where KPIs come in.
All right, and building arolling 12-month forecast that
maps your revenue, expenses,gross margin and net profit.
But better yet, you mustforecast free cash flow as well,
then update it regularly, basedon performance.
So use this forecast to testscenarios, plan hiring, evaluate
(16:33):
investments and then setrealistic growth targets.
So you meet with your team,right.
You look at your financials,you have KPIs that you're
tracking ongoing in real timeand then you make adjustments to
your strategy, right and theforecast like the future and
when you have the rightforecasting tools.
The beauty of all this is youcan spot issues before they hit
(16:53):
your P&L, and then you can seizeopportunities right when they
arise, not later on, right.
So this is you could spotissues before they hit your P&L,
and then you could seizeopportunities right when they
arise, not later on.
So this is what I want to leaveyou with.
Profit is a process, it's not aperk.
Here's what most people getwrong.
They treat profit like a reward, something that just shows up
after hard work, growth and time.
That was me in the past.
Don't make that same mistake.
(17:14):
Profit doesn't appear byaccident.
It's built by design.
If you want to increase profit,you don't need a new product or
a massive rebrand.
You need better insights,better systems and better
alignment.
You need a shift from reactivedecision-making to intentional
execution where every move istied to a measurable financial
(17:34):
result.
When you get everybody alignedlike this, beautiful things
happen and your profit willincrease.
All right.
So that's how you increaseprofit in a business and, like I
told you, I'm gonna leave youwith the four levers of profit
and their impact.
I did a study and this is justfor the average company, across
industries.
So just take these numbers forwhat they are.
(17:54):
They're just generic.
You can figure out these samefour levers of profit in your
business by going to coltivar.
com.
Go into resources.
You'll see tools and I'm goingto post this little model that I
built.
Feel free to download it, useit, enter a few data points and
bam, you're going to get theexact impact of profitability in
(18:14):
your business.
I'm just going to give it toyou generically so you can
understand what I'm talkingabout here.
But download the tool, like Isaid at coltivar.
com, plug in your own numbersfrom your financials and then
you'll have exact numbers inyour company.
It's like super powerful.
Just to recap, of the fourlevers we talked about pricing,
volume, cost of goods sold andoperating expenses which one of
(18:38):
those four do you think has thebiggest impact.
I kind of told you already, soyou should know.
Well, it's pricing.
So if that's what you'rethinking okay, you're right, and
obviously you listened to meearly on Let me share with you
what a 1% impact in any of theseareas will result in in the
bottom line.
So, in other words, a 1%increase in pricing, a 1%
(18:58):
increase in volume, a 1%decrease in cost of goods sold
and a 1% decrease in OPEX.
All right, so here we go.
Pricing a 1% increase inpricing on average for the
average company will have a12.5% impact on the bottom line.
Volume will have a 4.8% impact.
Cost of goods sold.
So reducing cost of goods soldby 1% will have a 7.7% impact on
(19:21):
the bottom line.
And OpEx reducing your overheadwill have a 3.8% impact on the
bottom line.
Like I said, this is for theaverage company.
Download the tool at cultivarcom.
Figure out your own numbers,then communicate this with
precision to your team.
Figure out your own numbers,then communicate this with
precision to your team.
So here's how it works.
So pricing is the best lever.
It's 12.5% impact, right?
(19:42):
So maybe if you're a company,it's 19.
So then you could go to yourteam and say, look, if we
discount our products by 1%, itwill have a 19% negative impact
on our bottom line.
Or if we increase our pricingby 1%, I'll have a 19% positive
impact on the bottom line.
Or hey, if we increase ourpricing by one percent, I'll
have a 19 positive impact on thebottom line.
Or hey, if we can improve ourcost to get sold by one percent
(20:02):
by making our labor moreefficient, we will have a 7.7
impact on our bottom line.
That's pretty big.
So if you're evaluating atraining program, for example,
you may say, yeah, we're goingto spend ten thousand dollars to
do this workshop, but it'sgoing to have a $50,000 impact
on our bottom line.
Of course, you do the workshop.
So when you know these leversand you know how they relate to
(20:24):
your business, it's superpowerful, trust me.
All right, that's what I wantto leave you with.
All the best until next episode.
Take care of yourself, cheers.
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