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Two Guys Walk into a Bar

Posted on by russ

One of the most challenging concepts for non-business entrepreneurs to understand is the difference between markup and margin.

Two guys walk into a bar...

So many tales and jokes over the years have begun with those words.  The implication is that two strangers wander into some sort of establishment and a conversation strikes up between the two of them, debating some long-discussed topic.  Let’s try it:

Two businessmen walk into the local pub for a celebratory, after-work beverage.  While enjoying their respective libations, they decide to share their various successes. 

“Cheers to 2021,” says Tom. “I had my best year ever, and I walked away with a Gross Margin in excess of 40%!!”

The other gentleman, Doug, nodded in congratulations, but was secretly wondering what the fuss was all about.  He knew that his numbers looked far more attractive. 

Not to be outdone, Doug said, “Good on you, old chap, but I must admit that my year was even better than that.  If I look back over the past 12 months, I can tell you that I was able to Markup my services by 60%!”

 

Margin vs. Markup

Which would you rather have – Tom’s Margin of 40%, or Doug’s Markup of 60%?

The fact that I’m even asking the question should tell you that there is something more at play here.  Look at Doug’s numbers.  Let’s say his average product is $100, and with his Markup, he has a Selling Price of $160 (forgo discussion of taxes for now).   His transaction would therefore look like this:

markup calculation

However, do not be fooled into thinking that this 60% Markup has given Doug a 60% Margin.  Recall that the Margin percentage is calculated by dividing the Margin into the Selling Price.

 

how to calculate margin percentage

 

Margin % = Margin $ / Selling Price $ = 60/160 = 37.5%!

It seems that Doug did well, but not nearly as well as he originally thought, and less than our friend Tom.  Be careful when you review your numbers to ensure that you are getting the performance that you originally intended.  It’s easy to mix up apples and oranges.

One other note here

Many businesses operate with overhead or fixed costs that can be in excess of 40% of Gross Revenues.  Business owners think that charging 50, 60, or even 70% markups will result in plenty of profit.  If you run the calculations, you will see that these entrepreneurs may be digging a grave for their business.  Know your numbers, and manage your business accordingly!

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  • Are you a Jack of All Trades?
  • or are you a Master of None?
  • or a Master of… One?
  • What does your business require, and are you meeting its needs?
  • Running a small business is chaos. Your work goes beyond any single role.
  • You are a marketer and a financier.  A salesperson and head of operations.
  • You concern yourself with long-term strategy, but can’t see past the upcoming payroll.

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You Don’t Have a Lack of Sales

Posted on by russ


If I waved a magic wand and granted you double your current sales, could you handle it?

You Don’t Have a Lack of Sales

This is something I hear from clients and prospects daily:  “If only I had more sales, I could…”

For many companies, I don’t buy it.  Most small businesses couldn’t handle more sales if they were served on a silver platter.  In some cases, a jump in sales would put such a strain on resources that the business would come to a halt. 

Take, for example, a client of mine who provides a consumer product at a rate of roughly 1000-2000 unit sales per year.  While sitting in the airport waiting to go out on vacation, the owner tossed a short video on TikTok of his product production process.  He used a trendy song in the background to spice up the imagery and hoped to get the 5-10k views that he usually averaged per post.

When he arrived at his destination, his phone was blown up by texts from friends and colleagues regarding the attention his post had received.  In the first 24 hours, he received more than 19MM views, including more than 1MM Likes! If he had thought to attach a call-to-action (CTA) to his post, imagine the orders he might have received.  Let’s assume that he received an order from one-half of one percent of those that merely Liked the post.  The result would have filled his capacity for the next 3 years!!

You get the point.  In this case, it would have turned from a Sales issue to a Capacity issue.  Speaking of which… 

 

Let’s explore a few other areas to address before you wish for massive Sales:

  1. Capacity – We just discussed it.  If you cannot fulfill the orders, you need to be careful with the number of sales that you look to bring in.  An inability to meet demand can create a highly negative situation where your Reviews, Reputation and Customer Goodwill can be destroyed.
  2. Finances – Even if you have a plan and resources in place to meet demand, if you have a product that requires upfront investment or COGS, you need to be prepared to meet spikes in Sales. Any financial contingency plan should include funding for temporary resources, storage, and/or manufacturing space.
  3. Processes – Are your processes scalable at higher levels of delivery, or will things break down and become burdensome when demand reaches a certain level? Many organizational processes will work well at an early-stage small company, but when those organizations grow by 5, 10, or 100 times their original size, new approaches are necessary.  Manual processes may be fine when you are small, but realize that if you double in sales, you will naturally need to double your personnel. 
  4. Software – Your applications should scale with your business, and most software is not interchangeable.  I am a big fan of QuickBooks Online as a solution for small business, but its simplicity is not designed for a $20MM manufacturing enterprise.

At the end of the day, it comes down to proactivity.  As you build your business, you should be thinking a few sizes above where you are today.  Build a bigger house and grow into it, not the other way around.

Until then, be careful what you wish for – you might just get it!

 

download the book

  • Are you a Jack of All Trades?
  • or are you a Master of None?
  • or a Master of… One?
  • What does your business require, and are you meeting its needs?
  • Running a small business is chaos. Your work goes beyond any single role.
  • You are a marketer and a financier.  A salesperson and head of operations.
  • You concern yourself with long-term strategy, but can’t see past the upcoming payroll.

You Are a Chameleon Leader!

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Find Your True Purpose

Posted on by russ
Finding Your Purpose

When running a small business, not every day is sunny. Your purpose will keep you moving in the right direction.

Why are we here?

It is an age-old question that has begged to be answered for centuries: Why are we here? The same adage holds true for your business venture. Every entrepreneur should have a solid understanding of why their business exists and what purpose it serves. With a nod to Simon Sinek, who has done a masterful job of helping millions find their individual ‘Why’, there is value in exploring this same question for your business.

Let’s start with a story. I explored this question with a former client that was struggling to reconcile between the work that she was doing to market her service-based business, and the close-knit, family feeling that she had with current customers. Her marketing efforts felt half-hearted and somewhat random at times, and I didn’t get the feeling that she really wanted to grow her business. So I asked what was probably a tough question for her.

Do you want this to be a business or a hobby?

There’s an important distinction here, as the answer will greatly influence the manner in which subsequent decisions are resolved. For instance, if there is no intent to grow a practice beyond a given number of customers, then there is no reason to spend significant time and money marketing. Those resources would be better spent improving the services, products and experiences of current customers.
This is why it is important to have a Vision for the organization that you are trying to establish. Spend a few minutes asking yourself some of the questions listed below, and see how it changes the decisions you have in front of you today:

  • Are you building a legacy, that would one day be handed down to your children?
  • Does your business exist simply to improve the lives of your customers?
  • Are you looking for an exit strategy within a few years, that includes selling the business? Is the sale of the business meant to fund your retirement?
  • Do the proceeds of the business fund a charitable cause?
  • Did you create this practice to put XYZ Corporation out of business?
  • Are you hoping to scale your organization to the point that you become publicly traded?

Your Purpose

The purpose of any organization should be its guiding principle. All actions should be taken to drive the business toward that purpose, and every employee should be able to articulate their role in serving it.
In the case above, the owner decided that she was perfectly happy treating her business as a hobby. It allowed her to focus her resources on improving the lives of her customers, and to take a personal interest in the success of each one of them. The internal struggle is gone, and she now knows that she is serving the purpose for which she was intended.

download the book

  • Are you a Jack of All Trades?
  • or are you a Master of None?
  • or a Master of… One?
  • What does your business require, and are you meeting its needs?
  • Running a small business is chaos. Your work goes beyond any single role.
  • You are a marketer and a financier.  A salesperson and head of operations.
  • You concern yourself with long-term strategy, but can’t see past the upcoming payroll.

You Are a Chameleon Leader!

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Resourcefulness

Posted on by russ
KEYS AND LIGHTBULB

Every Entrepreneur Needs Help. Here's Five Reasons Why (cont.)

A good coach can help you locate resources

We started this discussion stating that you don’t have to do everything on your own. That’s especially true when it comes to parts of the business where you may not be as comfortable. For instance, perhaps you are a terrific salesperson, but you have never been very good at accounting for expenses and doing taxes. You could really use a bookkeeper, but you don’t know any that have worked with small businesses.

4. RESOURCEFULNESS

That’s where an experienced mentor comes to the rescue once again. A good coach will have a large network of contacts across a variety of industries that are necessary to the success of a small business owner. By association, this greatly increases the reach of the entrepreneur and expands their existing capabilities. Based on your experience together, the coach can align you with the perfect resource to fulfill the needs of your business.

Finally, recognize that working with a mentor is the creation of a relationship. It provides you with a resource vested in your success and that of your venture. The best coaches are those that have the unique ability to read a situation, recognize the needs of the entrepreneur and apply their experience to ask the right questions.

Next time: That little extra… whatever it is that you need:

PREVIOUS: perspective

NEXT: that little extra

Download the book

  • Are you a Jack of All Trades?
  • or are you a Master of None?
  • or a Master of… One?
  • What does your business require, and are you meeting its needs?
  • Running a small business is chaos. Your work goes beyond any single role.
  • You are a marketer and a financier.  A salesperson and head of operations.
  • You concern yourself with long-term strategy, but can’t see past the upcoming payroll.

You Are a Chameleon Leader!

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That Little Extra

Posted on by russ

Every Entrepreneur Needs Help. Here's Five Reasons Why (cont.)

So far in this series on my top five reasons you need a coach, I’ve covered Clarity of Focus, Perspective, Accountability, and Resourcefulness. Number five is that little extra -whatever you need with which a coach can offer help.

5. WHATEVER YOU NEED

The most underrated capability of a business coach is asking powerful questions. Asking the right question can be more powerful than providing unilateral instruction or advice. Don’t get me wrong, there is some value to having a methodology and there are proven paths to success. However, blindly following those recipes without considering the needs of a given scenario can be a road to the wrong place.

Establish a relationship with a coach that will take the time to understand you, the goals of your business, and the special circumstances of your situation. Allow that individual to see behind the curtain and to provide you the clarity, perspective, accountability, and resources to take your venture to new heights.

PREVIOUS: Resourcefulness

NEXT: find your true purpose

download the book

  • Are you a Jack of All Trades?
  • or are you a Master of None?
  • or a Master of… One?
  • What does your business require, and are you meeting its needs?
  • Running a small business is chaos. Your work goes beyond any single role.
  • You are a marketer and a financier.  A salesperson and head of operations.
  • You concern yourself with long-term strategy, but can’t see past the upcoming payroll.

You Are a Chameleon Leader!

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Perspective

Posted on by russ
Every Entrepreneur Needs Help. Here's Five Reasons Why (cont.)

A  coach can provide perspective, guidance, and accountability when you most need it. Here’s a deeper look into my top five reasons for acquiring the services of a mentor:

2. PERSPECTIVE

A business coach can talk you through all of the possible routes that are available to you and the consequences and benefits to each one. A simple discussion can remind you of the vision that you have set in place and help you compartmentalize and prioritize. 

There are times on this small business (SMB) journey in which you will just need a sounding board. An outside point of view that helps you to see factors that you were not previously considering. The mentor is a flexible chameleon, capable of taking on the role of your customers, partners, vendors, or your competition.

Experience provides perspective, and talking through a situation with someone who has been there can be both cathartic and educational. Whether you are working to resolve an  issue, or just need a sounding board, a coach can provide insight that exceeds what you will accomplish on your own. However, what you do with that advice is dependent on the actions that you take, and that’s where accountability comes.

3. ACCOUNTABILITY

Take a moment and think about your own situation – how often do you postpone doing something when noone is relying on you accomplishing that task? Now what happens when you know that you will be held accountable to doing so, or will be required to explain your reasoning for NOT doing it?

It is inherent in human nature to hold ourselves more accountable to other people than to our own expectations. We will falsely rationalize putting off an objective or contrive reasons for prioritizing one task over another. A good coach doesn’t accept flimsy excuses. A mentor worth their weight in salt will hold your feet to the fire and work you through the barriers and rationale that are holding you back. Simply the act of knowingthat you will need to discuss this with a coach is sometimes enough to force action.

However, there are times when your own talent and expertise isn’t quite enough. You may need the outside helpof someone who specializes in a specific field. That’s where a coach provides resourcefulness.

PREVIOUS: clarity

NEXT: Resourcefulness

download the book

  • Are you a Jack of All Trades?
  • or are you a Master of None?
  • or a Master of… One?
  • What does your business require, and are you meeting its needs?
  • Running a small business is chaos. Your work goes beyond any single role.
  • You are a marketer and a financier.  A salesperson and head of operations.
  • You concern yourself with long-term strategy, but can’t see past the upcoming payroll.

You Are a Chameleon Leader!

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Why You Need a Coach

Posted on by russ
Every Entrepreneur Needs Help. Here's Five Reasons Why:

You’re a small business owner. It’s easy to see that you are self-reliant and that nobody knows your business like you do. However, nowhere in the definition of an entrepreneur does it say that all the work must be done on an island.

In fact, the most successful business owners will tell you that they have found ways to multiply their own efforts through being resourceful. They recognize that they are not alone in their quest, and that includes acquiring the services of a business coach, or mentor, if you prefer.

It’s ok to ask for help. Just as a good friend can be there to talk you through a personal challenge, a mentor can present a sounding board through which you can discuss options, weigh resolutions, or simply vent about the competition. A coach can provide perspective, guidance, and accountability when you most need it. Here’s a deeper look into my top five reasons for acquiring the services of a mentor:

1. CLARITY

One of the most important skills to develop as a new business owner is the power of clarity. There are times when you feel that there is just so much to do that you dont know where to start. Should you be chasing down new clients? What about the invoices that need to go out to current clients? Did you kick out the website content this morning, as you promised yourself you would? Oh, and what about that neat new version of your product that hit you in the middle of the night – you want to take a few moments to research whether that is possible. It’s so easy to get overwhelmed and lose track of the goals and direction that you have set for your business.

A business coach can talk you through all of the possible routes that are available to you and the consequences and benefits to each one. A simple discussion can remind you of the vision that you have set in place and help you compartmentalize  and prioritize. Of course, you may be able to do this for yourself, but don’t forget that a coach can also provide outside…

Next: Perspective

download the book

  • Are you a Jack of All Trades?
  • or are you a Master of None?
  • or a Master of… One?
  • What does your business require, and are you meeting its needs?
  • Running a small business is chaos. Your work goes beyond any single role.
  • You are a marketer and a financier.  A salesperson and head of operations.
  • You concern yourself with long-term strategy, but can’t see past the upcoming payroll.

You Are a Chameleon Leader!

Recent Posts
Talk to a Coach

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