Small Business Saturday Blog

Is your business leaking money?

Tuesday, April 17 at 18:20

The Leaky Bucket theory is a handy analogy and one that I use a lot with my clients.
Think of your finances in this way: The money you earn flows into your bucket. The money you spend inevitably leaks out and you are left with either a profit or a loss.
But there can be holes that, no matter how small, allow money from other areas to trickle out. Most of the time these leaks are unnecessary and completely avoidable, yet difficult to find or seemingly too insignificant for a busy Business Owner to notice.
My goal as a coach is to use this 'leaky bucket' theory to offer an outside, experienced perspective and patch your leaky bucket as best as we can. If you’re frustrated that your business seems to be doing well but your profits aren’t matching your expectations, you might be leaking money.
The obvious way to fill up your 'financial bucket' is through increased sales and a drive to increase profits. Patching your leaky bucket isn't just about savings or driving more sales, though. Taking a look at how you manage your expenses and your finances can pinpoint unnecessary spending that is hurting your bottom line. However, it is just as important to take a closer look at any potential losses resulting from factors such as utilities, team performance, business procedures to purchasing decisions and even credit-card processing.
I place great importance on reviewing the P&L on a monthly basis, looking in every nook and cranny for hidden savings. Many expense leaks are the result of seemingly minor choices that add up to a lot of lost cash. Even if you think you have all your expenses under control, its worthwhile to do a quick check for any cash drips.
Think Before You Discount
It's a tempting idea isn't it? To offer a reduced price on your product or service in hopes that it will drive sales and gain you lots of new custom. Yes, this is exactly what discounting does. However, the spike in sales is only short-term, and the customers gained more than likely won'tbe returning for repeat custom. Discounting will not win you long-term success and may do more damage than good. Let's explore why discounting may be doing more damage than you think...
As business owners, we are often tempted to discount our product or service, thinking it will win us customers and drive growth. Where the real problem lies isn't with generating the new customers and sales, it's what that discount in price represents:
1. Lower Perceived Value
Most people value a product/service based on its price. Lowering the price effectively demonstrates to your prospect that what you're offering won't truly add value to their life. Whilst a customer may still might buy from you, they won't place as much value on your brand as they most likely would have before.
2. Bad Precedent
When you offer a discount, either on the first engagement or the seventh customer engagement, there’s no going back. As soon as you lower your price, your customer will expect the same price next time.
3. Lack of Confidence
Cutting your prices tells the customer that you don’t believe in what you’re selling enough to warrant selling it for the standard price. As soon as you offer a discount, your prospect immediately loses confidence in you and assumes that you don’t have faith in what you’re trying to sell to them.
4. Price Focused
The last thing you want in a sales conversation is to be focused on price, and that’s just what happens when you offer a discount. When the conversation is focused on price, it leaves no room to talk about the value, the story or the qualities of your product/service. In the long run, it’s hard to sell something based on it’s price than on it’s value.
Question: Is price your only competitive advantage?
When you offer a discount, you take the focus away from the value you provide and basing it directly on the price. To maintain higher prices and steady business growth, you have to offer value. Discounts hinder your ability to do that as a reduction in price damages your price integrity and makes re-focusing on value difficult in the future.
If you would like to learn more about how to stop the leaking, do get in touch here 
About the Author:
Jonathan Keable is a Business Coach and Consultant based in the South West, providing business development, help, advice, coaching, consultation and mentoring services.

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