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Julia Bickerstaff: How to manage your business for profit Tons of effort, not much profit; it’s the same story for many small businesses but it needn’t be. In this session, Julia will guide you through how to design your business for profitability. You will take home a selection of simple do-able actions to immediately improve your profitability by taking a close look at key areas of your business. Areas covered include: Revenue model – how to price for maximum profit Gross margin model – boosting margins and productivity Operating model – minimise overhead costs to leave more for you Cash model – how to streamline cash flow Julia Bickerstaff is an expert in the art and science of designing and growing profitable businesses and pricing for profit. She is the founder of The Business Bakery and Butterfly Coaching, the author of How to Bake a Business, a sought after speaker, the finance expert on Channel 7's Kochie’s Business Builders and author of SmartCompany's profitable growth column. A chartered accountant and economist, Julia has been a partner at Deloitte where she chaired the firm’s Innovation Council, led the Deloitte Technology Fast 50 and championed the firm’s small and medium enterprise strategy. Find out more at www.thebusinessbakery.com.au
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How to manage your business for profit
Most businesses never
achieve their owner’s profit expecta:ons
julia@thebusinessbakery.com.au
What is profit?
julia@thebusinessbakery.com.au
Your Business Model = Your Business Recipe
julia@thebusinessbakery.com.au
julia@thebusinessbakery.com.au
If you want to pocket more profit
you have to change
the recipe julia@thebusinessbakery.com.au
julia@thebusinessbakery.com.au
Lots of :ps but aim to leave with…
3 ways to change your business recipe
julia@thebusinessbakery.com.au
julia@thebusinessbakery.com.au
julia@thebusinessbakery.com.au
At the start life looked good
Work 40 hours a week, 48 weeks per year = 1920 hours Charge $150 per hour Earn 1920*$150 = $288,000
julia@thebusinessbakery.com.au
But 3 years later….
Work 50 hrs a week for 50 weeks= 2,500 hours Earn $100,000 That’s an average $40 per hour Compared to plan, work an extra 580 hours to earn $188,000 less
julia@thebusinessbakery.com.au
julia@thebusinessbakery.com.au
I guess I just need more work, groan
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“You don’t need more work, you need to fix
your business”
julia@thebusinessbakery.com.au
Eh?
julia@thebusinessbakery.com.au
You spent 70% of your :me on client work but only invoiced 32% . You lost $143,750 of revenue through your pricing decisions You lost $37,500 of gross margin because you were ineffec:ve and made mistakes It cost you $93,750 of billable :me to operate your business
julia@thebusinessbakery.com.au
Working harder is not the answer Hours Dollars
Total hours 2,500 375,000
Less:
Revenue mistakes -‐ unprofitable pricing
(650) (143,750)
Gross margin mistakes (300) (37,500)
Opera:ng costs (750) (93,750)
Total unbilled hours and revenue
1,700 275,000
Billed hours and revenue 800 100,000
julia@thebusinessbakery.com.au
Hours % of total hours Dollars
Hours billed to clients
800 32% 100,000
Hours and cost of revenue mistakes
650 26% 143,750
Hours and cost of gross margin mistakes
300 12% 37,500
Hours and cost of opera:ons
750 30% 93,750
Total hours 2,500 @$150 per hour 375,000
julia@thebusinessbakery.com.au
1. Revenue mistakes 2. Gross margin mistakes 3. Opera:ng cost
julia@thebusinessbakery.com.au
Charlie’s revenue mistakes Cost of discounted hourly rate
Hours As a % of total client hours (1450)
Dollars @$125/hour
2500 hours @$150-‐$125 62,500
Hours you didn’t charge because:
You wanted to be “cheap” 300 20% 37,500
You did stuff the client didn’t want done
100 7% 12,500
You did extra stuff the client wanted but you were too cowardly to charge for it
250 17% 31,250
Total revenue lost 650 44% 143,750 julia@thebusinessbakery.com.au
Pricing for maximum profit
How to ‘set and get’ your prices
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Tips: How to set your prices
Star:ng point: the price calculator:
Hourly rate X Number of hours
julia@thebusinessbakery.com.au
How to set your hourly rate
“Start with what you want to earn out of the business and then design the business around that”
julia@thebusinessbakery.com.au
Selng your hourly rate What does profitable look like to you?
1. How much would you like to earn a year?
2. How many hours would you like to work a year?
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Selng your hourly rate Es:mate the number of client hours you intend to invoice for the year
Tip – You can assume 50% of the hours you work will not be billed to a client!
Tip – You are beoer off
aiming for a higher hourly rate and fewer hours than vice versa
julia@thebusinessbakery.com.au
Selng your hourly rate Do an hourly rate calcula:on
Earnings for the year (+ cash costs) 50% of hours
Earn $200,000, Work 2000 hours,
(assume bill 1,000) Hourly rate needs to be 200,000/1,000 =
$200
julia@thebusinessbakery.com.au
Selng your hourly rate Revisit aqer looking at the margin model and opera:ng profit model
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Tips for es:ma:ng the number of hours for a project
1. Keep a :mesheet (properly!) 2. Add a buffer 3. Do a budget for each job 4. Keep a record of “extra”
work 5. Check in with clients – are
you doing addi:onal stuff that they don’t value?
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You’ve set the price….now how do you get the price?
5 strategies
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1. Posi:on yourself -‐ Aim high
$9.66 /L $3.65 / L $3.00 / L $1.15/ L
Super premium Premium Everyday Economy julia@thebusinessbakery.com.au
2. Three talk-‐about-‐able differences
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3. Be the expert
Be the expert: Act as if
4. Great experience
5. Let your price tell the story
Price helps your customer buy
Three :ps to make pricing more palatable
julia@thebusinessbakery.com.au
1. Anchoring
2. Power of three
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Small, medium, large
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Good, beoer, best
$8.70/ 100g $4.98/100g $10.63/100g
3. Certainty
Aaagghhh! My hourly rate just won’t work
Final thought
If you think your pricing is too high, ask:
1. -‐ are they going to a compe:tor or simply not taking the service?
2. -‐ what is the compe:tor doing that you are not (bet it’s not all about price)
3. What can you cut out (they aren’t valuing all that you do)?
1. Revenue mistakes 2. Gross margin mistakes 3. Opera:ng cost
julia@thebusinessbakery.com.au
Charlie’s Gross Margin model
Hours Dollars
Total hours 2,500 375,000
Less:
Revenue mistakes -‐ unprofitable pricing
(650) (143,750)
Gross margin mistakes (300) (37,500)
Opera:ng costs (750) (93,750)
Total unbilled hours and revenue
1,700 275,000
Billed hours and revenue 800 100,000
julia@thebusinessbakery.com.au
Charlie’s gross margin model
Hours As a % of total client hours (1450)
Dollars @$125/hour
Hours you couldn’t charge because:
You were reworking mistakes
100 7% 12,500
You were inefficient 200 14% 25,000
Total 300 21% 37,500
julia@thebusinessbakery.com.au
What are gross margin mistakes?
“Unsellable stuff” The hours you spend on client work which are unbillable because you have been ineffec:ve or inefficient
julia@thebusinessbakery.com.au
Gross Margin Recipe Tips for Boos:ng Margins and
produc:vity
julia@thebusinessbakery.com.au
Tip 1: Produc:ze 1. Frameworks 2. Clear, consistent deliverables
3. No reinven:ng the wheel
4. Easier to price 5. Quicker to sell 6. Creates valuable IP in your business
julia@thebusinessbakery.com.au
Tip2: Process
1. Turn everything you do into a repeatable process
2. Keep your eye out for ways of elimina:ng the unnecessary
3. Perfec:on is over rated
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Tip3. Get on with it
1. Internet off, phone off 2. Keep a ‘no-‐cheat-‐ :me sheet’ 3. Be organised, cluoer free, process driven 4. Stop clock – work in bursts 5. Cap your :me
julia@thebusinessbakery.com.au
Retail Tip -‐ gross margin model
1.Cura:ng your collec:on is your skill
2. Fail fast 3. Balance your “porxolio” of risky things
4. Risky stock must have a margin that makes it worth while
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1. Revenue mistakes 2. Gross margin mistakes 3. Opera:ng cost
julia@thebusinessbakery.com.au
Charlie’s Opera:ng Cost Model Hours Dollars
Total hours 2,500 375,000
Less:
Revenue mistakes -‐ unprofitable pricing
(650) (143,750)
Gross margin mistakes (300) (37,500)
Opera:ng costs (750) (93,750)
Total unbilled hours and revenue
1,700 275,000
Billed hours and revenue 800 100,000
julia@thebusinessbakery.com.au
Charlie’s opera:ng costs model/recipe
Hours As a % of total hours (2500)
Dollars @$125/hour
Hours you spent:
Selling 250 10% 12,500
Marke:ng 250 10% 12,500
Admin 250 10% 12,500
Total 37,500
julia@thebusinessbakery.com.au
No marke:ng miracles
“Marke:ng is the price you pay for lousy
products”
OUCH! julia@thebusinessbakery.com.au
Tip1: Get the basics right Top 3 reasons why you are
spending too much :me marke:ng:
1. You are a ‘me-‐too’
business 2. You’re not marke:ng
at all – you’re just having fun
3. You’re “marke:ng” to the wrong people
julia@thebusinessbakery.com.au
Tip 2: Referrals are your marke:ng engine
julia@thebusinessbakery.com.au
The Ul:mate Ques:on
“How likely is it that you would recommend this company to a friend or colleague?”
julia@thebusinessbakery.com.au
Selling
Cost of acquiring a customer is the #1 underes:mated and unbudgeted cost julia@thebusinessbakery.com.au
Tip 1: Easy ways to keep selling costs down
1. Keep a record (on your :me sheet) of all ‘selling :me’ so you can…
2. Budget for ‘selling :me’ and price it in
3. Develop a selling process (mee:ng agendas, proposals etc) don’t reinvent the wheel!
4. Find a quick way to uncover tyre kickers
julia@thebusinessbakery.com.au
Tip 2: Repeat purchases
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Admin
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Cash model
You are not a success un:l you turn your profit into cash
You lend your :me not your money
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Tip 1. The race to invoice
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Tip 1. The race to invoice Gold medal: Invoice before performing the
work Silver medal: Invoice while performing the
work, frequently and regularly Bronze medal: Invoice as soon as work
completed Middle of the pack: All invoicing once a month Wooden spoon: invoice when you have :me
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Tip 2. Unambiguous fee structure
Invoicing is a process not a pricing decision
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Tip 3. Chase your cash
1. Set aside a regular :me to call your debtors 2. Keep notes of conversa:ons 3. Make friends with Accounts Payable clerk 4. Be the squeaky wheel
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Julia Bickerstaff
Julia @ thebusinessbakery.com.au www.thebusinessbakery.com.au
julia@thebusinessbakery.com.au
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