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Every week here at Ramsey, we get our whole team of over 1000 people in the same room to share updates and celebrate wins. And once a month our CFO gives a report. And every time he reminds our team of a simple yet profound truth. Profit is created when revenues go up and expenses go down. And that's exactly why so many businesses see a lot of money come in. You don't wind up keeping very much of it. Today, John Falcons from Entree Leadership is going to walk you through exactly what each of these profit leaks are and most importantly, how to stop the bleeding.
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All right, let's dive right in and start with profit leak number one, Pricing and Discounting Discounting can feel like an easy win. You knock a few bucks off the price and suddenly people are lining up to buy. But here's the reality. Discounting might increase your sales, but it's actually the laziest way to do it. If your entire strategy for selling something is slapping a 20% discount on it, then all you've really done is trained your customers to never pay full price. Because your customers will notice if your whole MO is to mark down prices anytime your numbers need a boost. And if that's the case, then why would they ever buy something when you're at full price? This is exactly what happens with big box stores that constantly run sales. Their customers are just waiting for the next discount. You don't want to do that. Instead, aim to be like Chick Fil A. They never really offer discounts. Yet you're still sitting in that drive thru wrapped around the building waiting for that $5 chicken sandwich and to get to hear my pleasure. So what's the fix here? Stop going crazy with discounts. Offering sales for special occasions like Black Friday. That's one thing, but it shouldn't be a part of your normal rhythm. Instead, focus on communicating the value of what you sell at normal pricing. Moving on to profit leak 2. Payroll Payroll is probably the biggest expense in your business, and that's not going to change. That said, a lot of small businesses fall into a trap with payroll. They're trying to compete with the salary and benefits that the big guys offer. And hey, I get why that can be so tempting. You want to attract great people and it's easy to feel like money is the only way to do it. But it's not true. Instead of selling a paycheck, sell the fact that your business is an awesome place to work. Sell the fact that you offer strong leadership, healthy work, life boundaries, a team that genuinely cares for each other and that you do work that matters. In a world where 82% of American workers said they'd potentially quit their job because of a bad manager, all that can make a major difference in the recruiting process. The bottom line here is you don't join the race to the bottom. You need to focus on culture, not just compensation, as the way to get good people. We'll get right back to the episode, but first, do you remember when you only worked 40 hours a week? Now that you're in leadership, you do that by Wednesday afternoon. Look, you want to be a part of something meaningful. You want to make an impact and still have a life. But as your company grows you, your calendar fills up, meetings stack on top of each other and you're doing more work that doesn't require your expertise. You don't have time to lead anymore. That's where Belay comes in. Belay matches you with qualified US based executive assistants, marketing assistants, and accounting professionals. Real people who can help you protect your time. So you can delegate what doesn't require your leadership and focus on the work only you can do. Because growth doesn't come from doing more. It comes from doing what matters most. If you're ready to build a business that runs without running you into the ground, download Belay's free resource, the 40 Hour CEO Work Week Planning Guide by texting ENTRE to 55123. That's ENTRE to 55123. Now let's get back to the episode. Profit leak number three. It's your overhead. A lot of businesses don't fail from a lack of sales. They fail from spending too much to look like they're being successful. And the worst part, it usually feels harmless. It's one small thing after another until you look up and you realize you're just bleeding money. I'm talking about stuff like fancy office space you don't need, vendor contracts that you've signed three years ago and forgotten to renegotiate 10 different software subscriptions when two would do the job. Paying retail for things you could have bought used. It's death by a thousand paper cuts and it'll kill your ability to make the type of profit you should be making. So how do you solve this problem? Well, start with a spending audit. You go through your P and L line by line, and for every expense, ask three questions. Is this something we really need? Does this actually drive profit? Is there a less expensive alternative? I remember one time we needed office furniture and Dave found a bunch of good furniture that was used. It wasn't quite as exciting as getting brand new stuff, but it did the job and it saved us a ton of money. You can do that too. Then when you're moving forward, ask yourself those three questions before adding anything to your P and L. So let's recap. Is this something we really need? Does this actually drive profit and is there a less expensive alternative? Finally, profit leak number four is inefficient marketing. Good marketing is obviously a huge factor for any business to succeed, but it's supposed to make you money. When your message or the delivery method is off, you're just lighting dollar bills on fire. If your ads are attracting the wrong people or your message doesn't match your product, you're not marketing. You're gambling. I'm embarrassed to tell you a story about us. Back in the day, we were spending money on marketing and we didn't know where it was going. We came to find out that it was actually all being spent on a website called ChristianMingle.com it wasn't helping our business and it was embarrassing, so we had to shut that down quickly. So what's the fix? You and your marketing team need to get crystal clear on who you're serving and make sure every dollar is spent bringing in the right customer. Because? Because when your messaging doesn't match the product and isn't getting sent to the right customers, you're wasting money and time.
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Now the best place to find clear direction on making sure you actually get to keep the money your business brings in is our free Entree Leader's Guide to Business Finances. It's packed with information that will help you figure out where your money's going and get on a plan to increase your profits moving forward. Just click the link in the show notes to check it out. That's it for today. Be sure to subscribe to the channel if you haven't already. Thanks for watching. See you next time.