5 quick wins to improve your net profit margin

Last week we looked at how to calculate how much a client is worth to your business, also known as the Average Lifetime Value figure.

The key to excellent marketing is being able to outspend your competitors to win a new client, because you are focused on the revenue, gross profit, and net profit you can collect from that client over the next few years.

Of course, we’re not in business just to win clients. We need to make a good profit too.

I’ve run a high revenue but unprofitable business. And I’ve run the same business with high levels of profit. I know which I prefer! It’s the same amount of work in both scenarios, but significantly less stress when you make good money.

The trick is to make your business more efficient at extracting net profit – the figure at the bottom of the Profit & Loss sheet that’s yours to keep (and pay tax on).

Here are 5 quick wins to improve your net profitability.

If you reduced your prices by 10%, you’d need to sell 33% more just to make the same amount of profit.

Crazy.

That works the other way round. Put your prices up by 10% – and so long as your cost of delivery doesn’t change, you will make the same profit on less volume of work. Or if the volume of work stays the same, you will make more profit.

I’d advise you not to put up prices for existing clients… that needs to be done carefully so as not to affect retention. That subject is an article for another day.

But for new clients, you should be constantly nudging up your per user, or per device fee, until you discover the limit of what the market will buy.

Someone buys at £25 per user today, then tomorrow the price is £27 per user. That sells. So you nudge it up to £29. But that doesn’t sell… so you return back to £27 per user.

For a while anyway. Price testing should be a permanent exercise.

Price is only one component of your offering that potential clients consider. In fact they are persuaded to buy – or not buy – by the four Ps:

• Pricing
• Positioning
• Packaging
• Promotion

Pricing really is only part of the overall story.

Besides, those clients who buy on price alone are not the clients you really want…

Higher quality means they pay more, buy more, whinge less and respect you and your staff’s time.

The nirvana of clients!

So where can you find them?

I’ll tell you where NOT to look: The bottom of the market. This is where far too many IT support businesses hunt for clients.

People at the bottom are buying on price alone. And making distressed purchase decisions.

These are the people who will suck the profit out of your business… along with your spirit.

Look back at the list of the four Ps above. And ask yourself if your positioning, packaging and promotion is talking to the best possible potential clients at the top of your market?

Chances are it’s not. Like attracts like. Crap marketing attracts crap clients.

That’s the other reason you want better quality clients. Because it’s a lot cheaper to sell something else to an existing client, than it is to sell something to a new client.

Your existing clients all want or need something else from you. They just don’t know what it is yet.

It’s why I recommend you take your clients to lunch for a Strategic IT Review every 6 or 12 months.

The other benefit of the Strategic IT Review is its impact on retention. It’s how you can share out the most senior resource in the business (probably you) in a way that has the maximum impact on the greatest number of clients… without burdening you down with a greater workload.

Once you’ve worked out the Average Lifetime Value of a client, your goal should be to constantly grow that figure by a) systematically selling more to clients, and b) retaining them longer.

Retention isn’t just about doing a good job. In the highly competitive world of IT support that goes without saying.

The question to ask you and your staff is what else you can be doing that has minimum profit impact on the business, but offers greater value for your clients.

For example – with my core services the MSP Marketing Edge and the Profit Accelerator, I make myself personally available on email to my clients.

There are Facebook support groups for both of those services. Most people use the Facebook groups for support.

Yet some people just prefer a private chat on email. That’s absolutely fine with me, as my clients are very respectful of my time and don’t abuse the service.

Simple addition = value added.

What are the easy value adds in your business?

If it’s a commodity product, then someone will sell it to you for less.

A commodity is where the exact same product can be bought somewhere else for less.

This is why you’ve seen hardware sales go down over the last few years, as clients have learned they can buy their kit cheaper elsewhere.

Now apply that thinking to your business: Look for reductions in hardware. Software. Insurance. Utilities.

(my contact Sally Cattle at BCR Associates will review your business’s utility bills and switch you to a new tariff for free. She does all the work for you. Tell her I sent you)

Every penny that can be stripped from your overheads will be another penny of net profit, ultimately falling into your pocket.