When I was a kid, the Dollarmites came to school. You grew up in the 80s in Australia if a Dollarmite bank account was your first foray into the adult world of money. An initiative from the Commonwealth Bank of Australia, it was, for many kids, their introduction to taking a role in money.
A few years later, my parents told me what a mortgage was. That was the first night I went to sleep fretting about money. The idea that my parents owed a lot of money was stressful, even at that young age.
There’s not nearly enough plain talk on money. And like all subjects that aren’t openly discussed, there’s much taboo and misinformation, especially for those of us trading our smarts for cash in our own business.
I first started talking about money in small group training sessions with yoga teachers, about seven years ago, and have done this every since as the business and marketing trainer for several different yoga teacher training programs.
Yoga teachers, being a sincere, generous-spirited lot who’ve inherited an ancient tradition from another culture where cash was not exchanged for services rendered, tend to earn under $30,000 a year.
So I instigate group discussions about money baggage – what are our beliefs and actions around money and where do these come from? The baggage we have about money comes from our socialisation. It’s extremely hard to extract yourself from your socialisation – even when we believe and act differently from your family, friends and culture, we are still a reaction to these.
So where do we go to learn about how to better manage money? How can we change our behaviours if you want to improve your skills with money? How can we demystify money so that we can earn more in our businesses? Here’s some plain talk on money in business, to improve your bottom line immediately.
When you’re stuck before starting
If you haven’t yet started your business, ask yourself, ‘what skills do I already have?’ And ‘what do people tell me I’m good at?’ Send a survey to your nearest and dearest asking them about your strengths. We don’t tend to recognise our natural strengths because we take them for granted. We tend to equate difficulty with value and ease with play, which makes it very tricky to see our innate brilliance.
If you’re already in business for yourself, ask ‘what are people paying me for?’ and ‘when clients compliment me, what do they remark on?’
When stuck, you can gain objectivity through other people, and these questions will help.
James Schramko from Super Fast Business shares this profit formula:
Prospects x conversions = Customers
Customer x $ amount x frequency x % margin = Profit
You find prospects through regular marketing. Even bare minimum marketing should yield a regular stream of prospects.
Your ability to follow up with prospects, as well as instill confidence in people, influences your conversion rate. For small businesses without big marketing budgets, improving your conversion rate is the smartest focus.
Improving your conversion rate is also about appreciating the people right in front of you, and getting better at understanding what they need. Empathy is a key skill to this, which will naturally improve your ability to sell.
Breaking down your profit margin
That profit formula again was:
Customer x $ amount x frequency x % margin = profit.
- You increase your customer numbers by increasing your marketing and improving your conversion rate.
- You increase your dollar amount by raising your prices.
- You increase the frequency of transactions by do a better job at retaining clients, selling memberships, or ensuring clients have more than one thing to purchase.
- You increase your profit margin by reducing your costs or getting more efficient at delivering your services.
You don’t need to do all of these things. You can choose one to concentrate on, and do this for a month or three, before moving to the next thing.
One crucial piece of the puzzle is measuring what you’re doing: it’s not uncommon for some clients I see to realise that they’re offering a service with too-low or no profit margin. In some cases, stopping a service has saved my client money, because they’re no longer losing money and can concentrate on other, more profitable offerings.
A simple concept, and one that’s frequently overlooked, is the idea of ‘profit first’, a phrase coined by author Mike Michalowicz.
Simply put, take your own pay (or profit) out of the business first, before you deduct expenses. If you don’t have any profit after expenses, you don’t have a business, you have a hobby.
I’m a huge fan of hobbies, especially to help business owners relax. But the premise of business is to make money.
Don’t overcomplicate things by trying to make money out of all your passions, skills and hobbies. Keep business and hobbies separate and you’ll likely enjoy all of these far more.
Leveraging your time and effort
A key concept to money making is leverage – otherwise known as “work smarter, not harder.”
To get better at leverage:
- Get organised! The better simple, repeatable, teachable systems you have, the less stress and effort and more time, quality, ease and cash you’ll have.
- Look to always do everything at least twice. That awesome presentation/workshop/program you ran once? You need to do it several times for it to make real money.
- What are you doing one-to-one that you could be doing one-to-many?
- What marketing are you creating that you could be recycling, reusing or reapplying elsewhere?
Excavating your money baggage
Your beliefs and attitudes about money have a massive impact on how much you earn. Opening our eyes to our money socialisation and how this has influenced our attitudes, beliefs and actions around money will have a very real impact on your business profits.
The first step to earning more money in your business is to acknowledge that you want to earn more money and lose any shame you may feel. The second step is to work the profit formula. And the third and forever step, is to keep excavating and examining your money baggage so that you can make clear-eyed decisions on how you earn, spend, and invest your dollars.
There’s no intrinsic value to money. What you earn in business has nothing to do with your self-worth or how awesome you are. But money buys holidays. And holidays bring happiness, yes?
The first module in our Hustle & Heart program is all about money. Check it out.