Are your clients in a ritual of refinement? I write sitting in a Cafe where the Italian business owner I’ve come to know very well. We talk a lot about other cafes, their strategy, success and failures. I really respect his engagement in a constant hunt and discovery for margin. As one example he freshly roasts his own beans, a great differentiation point that also has the coincidental benefit of increasing margins. This got me thinking about advisors.
Many advisors I’ve spoken to don’t have this ritual of margin refinement. Many love to benchmark themselves versus peers based on what the industry tell them is the best way to view their practice. Remember the industry is the competitor collective. So here’s five easy margin refining techniques you could consider:
If you find yourself comparing yourself constantly to industry benchmarks then you may have “Relative Deprivation” syndrome. Coined by Samuel Stouffer in the World War 2, it was shown after a study of the US army that it solves nothing at the individual level and instead creates fear. Winning gets short term happiness but that converts immediately into stress holding on to it. Invent benchmarks that relate to a market opportunity the rest have missed or that you can create. Harvard created the “Red Ocean” analogy to describe this problem. It’s a bunch of sharks fighting over the same market with the same benchmarks in the same way. “Blue Ocean” companies create new markets using variants on old products and services so as to differentiate themselves. They create a big fish in small pond effect. Differentiate your strategy to your peers, bleed less and increase your margins. You’ll be happier because you’re not comparing yourself to all the Smith & Co’s.
I’m mystified how some advisors will quote small businesses a fixed price for the year and they haven’t even looked at the business financials. Some books are very clean and orderly making the tax work significantly simpler and potentially more profitable. Others are so bad they are a throw away case. So there-in lies the flaw in not researching before pricing a client. Price the work, not the client. If you are going to quote fixed prices it is pure insanity not to check the books first.
Sharing the workload
Small businesses often have internal accountants, bookkeepers or a partner/wife/husband with bookkeeping skills. I really believe you can charge higher margins at the pointy end of knowledge work by encouraging your client to access these human resources to get everything clean and tidy, do the reconciliations. If the skill level isn’t there then don’t go down this road. Have a few bookkeepers or junior accountants you call on to review and clean up first for them. Don’t do the work yourself. Your bill will be smaller but more profitable. You can take on more clients at higher margins.
Drinking the Coolaid
It’s really tempting to believe software companies that their system will make you more efficient. In reality (and I’m talking against my own interest on this) systems are only one part of efficiency. A prime driver of increased efficiency is to address the bad habits built into the way systems are used. Most people don’t use systems efficiently or as fully as the software company who built them, designed them to be used. We know this in extreme detail. We design to guide people into efficiency, but there is always a lot of room for human improvement in learning and efficiency in system usage. I consider my MacBook Air to be one of the best user experiences I’ve had with a product. but have learned to use it much more efficiently by actually spending some time with the aim of just that in mind – getting better at using it.
Yield based decision making
As a professional financial markets principal trader most of my decisions were based on first converting the expected results of that decision into a Yield, ROC or ROI type number and then risk adjusting it into a realistic number. COGS and Expense decisions in your practice can be treated in the same way. If you’re spending money on some sales and marketing activity as an example, then you should be measuring it. You can at least create weak measures, if you don’t have good data to access. For example take your total sales and marketing spending and divide that by new customers for that period, to get an acquisition number. I know you know this already, you’re the super qualified when it comes to money matters, but do you do it? If you can’t do it, then get a system to help. They are inexpensive relative to the marketing spend and they will more than cover their cost in increased returns. Marketo, Hubspot, Mixpanel, Exact Target and Geckoboard are some examples.
I respect you already know much of this so I’m purely trying to remind and/or prompt some fresh thinking. I personally enjoy the search for margin. It should be a ritual and being in business should be fun, so I highly recommend getting the “Relative Deprivation” monkey of your back. Yes let him visit occasionally, that’s a good thing, but letting him own you isn’t.
© Marc Lehmann
CEO of Saasu.com
L1, 111 Elizabeth Street
SYDNEY NSW 2000
02 9233 6629