When I set out on my own as an independent consultant in 2000, one message was writ largely in all that I did. Profitability is the name of the game.
Let me explain for the benefit of budding consultants. There is no point in having a high top line of revenue if your actual income falls sharply because of the weight of expenses required to conduct business. I would prefer, as an independent consultant, to have a lower top line but with higher profitability.
I would like to share 7 Steps to Improve Profitability:
- Never Spend More Than You Earn: This one is guaranteed to send you down the slope. Keep an eye on expenses. I have found that expenses are always there but revenues are not necessarily upto expected volumes due to factors like over commitment by clients, changes in plans, postponement of initiatives etc.
- Positioning: Which segment of the industry do you address? What can you offer that other competitors generally cannot? What distinguishes you from the crowd? Answers to these questions help you in your positioning. This prevents you from accepting anything and everything that comes your way at any price.
- Go for Quality: It is tempting to increase margins by compromising on quality, of the equipment you have, of the products you make for your clients, of the services you deliver. Never, ever do this. Invest in the best. Invest in yourself. It pays to go in for high quality. This will be reflected in your output and your clients will be happy to pay you appropriately.
- Balance Risks & Returns : A golden rule. Greater the risks, greater the rewards. Entrepreneurial return does not come without attendant risks. Given your overall context, determine your appetite for risks. Focus on those offering which give you the best returns after factoring for risks.
- Managing your Clients : Choose your clients with care. Work with those who appreciate your capabilities. Your success depends to a large extent on the volumes of work provided by clients. It is better to have a few satisfied clients than have too many clients. This can bring down your effectiveness and profitability by spreading your resources too thin.
- Product Mix: Not all “products” are equally profitable. Understand the profitability of each offering in your product stream. Devise the optimum mix by which you can increase both your revenues and your profits.
- Believe in Yourself: Last but not the least, believe in yourself and your expertise. Stay abreast of the latest. Constantly reinvent yourself so that you are equipped to meet the current and future needs of your clients. Ultimately, your work, more than anything else determines the economics of your business.
These points are skewed towards the independent consultant but are, I am sure, applicable for other business models as well.
Ignore “numbers” at your own peril. Keep an eye on your “numbers”, manage them sensibly and watch your business thrive.
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This is the 122 nd of the “A Step A Day” series : To provide perspective and provoke thought to facilitate self-development across a wide spectrum of issues- big and small- crucial for executive success