By Andrew Griffiths, serial entrepreneur and author @AGauthor
First published on www.inc.com
It might feel counter-intuitive, but it’s true.
I’ve worked with a lot of business owners and entrepreneurs over the years who take great pride in the fact that they win every job they go for. While I love the fact that they are winning work, to me this is the perfect sign that they simply aren’t charging enough and they are in fact losing a pile of money.
I recommend working on a ratio of fifty percent – which means if you are winning about fifty percent of the projects you bid for, you are probably about right when it comes to prices. Now I know that this is a generalization, but I’ve certainly found it to be true over many years.
For a lot of businesses their entire business strategy is to win every project, no matter what, and they tend to win the work by being the cheapest. This often leads to what is known as profitless volume – a lot of turnover but no real profit, and businesses need profit not just turnover.
The real challenge though is moving from a pricing structure that is too cheap to one where your business actually maximizes the leads and opportunities that come its way, and then charging a reasonable amount with a good profit margin.
There is plenty of information available around this concept, most start with the point that you need to know how much everything actually costs you so you can apply a decent profit margin. Surprisingly very few businesses could actually tell you the cost of a product of service, when everything is taken into consideration. Let alone how much it costs to run a business. Figure this out and you are way ahead.
Business success or failure is often the result of the less obvious things. I’ve seen plenty of very busy businesses go broke simply because of the profitless volume concept. And I’ve seen plenty of businesses that don’t look that busy, make a fantastic profit, simply because they charge an appropriate fee and find the right customers who are prepared to pay.ADVERTISING
The bottom line is that if you are winning every job you bid for you could have some issues. Take some time out to look long and hard at your numbers and at your customers and see what needs work. If you think winning every job is a good thing, imagine what it would be like if you were actually making far more for few jobs.