Hi! I’m Sarah Grace and in this video we’re going to talk about changing your focus. When things go wrong and maybe when things go right. Over 65 percent of American small businesses won’t make it to their 10th anniversary and in my book that is just wrong. And here at Mackey we want to change that and we believe there are five fundamental shifts that need to happen in order to change that statistic drastically. Bring your heart to work, use data as a convener, change your focus, stop being a fulcrum, and build a better toolbox. That’s all you have to do, it’s not hard right? Anyway, in this video we’re going to explore how to change your focus.
To have a thriving business, you have to change your focus. And more specifically, you have to change your focus from sales to net income. And I’m going to share with you a very unpopular truth right now and you may skip to the next video with this but here’s the unpopular truth. At the end of the day, your top line sales don’t actually matter all that much. It’s your bottom line, your net income that provides all the opportunity and all the freedom and all the possibility. That’s what’s important.
More specifically, you should focus on your net income as a percentage of sales and we’re going to talk a little bit about that. In an NYU study, they found that the average net income percentage for a US business is .7 percent. So, what that really means is that for every hundred dollars of business generates in top line sales they get to keep seven dollars and seventy cents.
So, to put that in perspective, if you invested in the S&P 500 you’d get an average return of about 10 percent over the long long term. So, maybe not the most good feeling at the end of the day, right? And I will tell you that when you change your focus from sales to net income it will be painful. You will look at this and you’ll say “I worked this hard for this, like this? Like I worked this hard, I cried and I drank and I missed my friends, I miss my family, I miss all these things for this?” It will be painful and so what I want you to do is throw yourself a pity party. Wallow a little bit like really feel it because if we don’t feel it we’re not going to move past it but once you do feel it once you’ve thrown the best pity party ever.
I’m gonna teach you how to look at things differently. Once you’re ready to look at things differently and really increase your net income you’re gonna look at the 4 Ps. On the 4 Ps are price, product, process, and people, and it is in that order. So, we’re gonna start with price. Price is your single greatest tool to transform the net income of your business because every cent, every cent that you increase your price on the top line falls directly to your bottom line. So, this is the first place that we do a deep dive and the reason we do this is because you need to ask yourself, “Am I putting my oxygen mask on first?” Because equitable pricing is a radical act of self-care. I’m going to say that again equitable pricing is a radical act of self-care because you are who define your value in the marketplace. And I know that’s really scary, it’s really scary to plant your flag and say I am valuable. Like I get that, so it doesn’t have to be all or nothing. I’m not saying go out there and change your pricing by 50 percent. That’s probably insane but there are lots and lots of ways that you can do this you can AB test, right? Maybe you price one person at 12 dollars and another person at 10 or maybe you up charge on a small thing maybe your shipping goes from 4.99 to 5.25. And you could be saying, “I love my customers. My customers will leave me if I increase my pricing”. That’s not actually true. Studies have shown but I feel your fear, I understand your fear.
So, institute legacy pricing so for all of your current clients they’re on one type of pricing plan but now that you know your worth you set out on a new path for everybody else is going to come through your door. And i get it it’s scary but this is a value conversation, this is a self-care conversation and you must have it and you must have it routinely, okay? Because you just doing this new pricing that’s really exciting but if you don’t look at it every year, 18 months, two years, you’re gonna go back to the same place you were in where your net income is dragging and you’re getting more stressed out and you don’t know how you’re going to keep your doors open at the end of the day some days. So, pricing is the first place you look when you’re unhappy with your net income.
Second, we’re going to look at products and services specifically your mix because that is really, really important. So, what are your customers buying? What are they actually buying from you? And how much are they buying from you? Are your products and services actually profitable? There are lots of times where people have done this work and they realize that they are losing money on some of the things that they are selling or it could even be that they’re not as profitable as you modeled or planned for. So, that’s very very important and it leads me to the next P so if you are not having really profitable products and services, the next thing to do is look at your processes or to be fair your lack of processes, okay?
So, processes are all about where you can improve and the way I like to describe this is with hams and friction. Go with me it sounds weird. The ham story, okay, the ham story is my best metaphor for how we get stuck within our processes. So, my mom is prepping the Easter ham, it’s gorgeous as always. My dad looks over and says “You know Mackey, I’ve always wondered why you cut the ham in half before you put it in the oven?” and she says “I don’t know. That’s how my mom taught me.” So, they call my nanny and I say, “Hey nanny, why do you cut your ham in half, like does it make it crispier, like what what does it do?” and she said “I don’t know. That, that’s just how I was taught by my mother.” So, they call my great-grandmother and they say, “Hey, we were just wondering like why do we cut the ham like what is this magic?” and she said “I just didn’t have a pan big enough”. So, two generations of women, two generations of women are cutting their hams needlessly and I don’t care if you’ve been in business six weeks or sixty years. You have hams. You have ways of being, habits of being in your business that no longer serve you. So, find those because if you find those you can decrease friction and we want to decrease friction.
Friction is what causes inefficiency and so a great example that would be something easy to implement are paperless contracts. Do you still send paper contracts? A lot of people do. I kind of think it’s bananas. Or maybe you send digital contracts but you don’t send them with an e-signature platform so people still have to print them off and resend them anyway – that’s friction. Get rid of it! Sign up for PandaDoc, for Christ’s sake like just do it, okay? So when you’re looking at your product look for the hams look, for the friction. And the best way to do this is to ask your team. Say, “Team, if I could solve one problem for you what would it be?” They’re probably gonna say something that is really manageable that you haven’t seen because it’s just how you’ve always done it. And your newest team members are going to be the best for these golden nuggets, okay?
So next and lastly, we look at people and we look at people last for a reason. So, first we do, when we say people we do mean clients because just like your promised products and services could be profitable or unprofitable. Your client mix could be profitable or unprofitable so you need to understand who you want to work for, who’s profitable and who’s not and make a plan to fix that. But we keep people at the bottom of this this 4 Ps structure for a reason because in small business. There’s typically only one or two people within any role so it’s very hard when something goes wrong or when something goes right but typically when something goes wrong
to untangle what’s the process and what’s the person. And the easiest thing to do, maybe not the healthiest but the easiest is to look at that team member and say “You did this wrong” and you shame them and you judge them and you ask them “Why?”, you write them up and and that really breaks down your culture instead we should be looking at the third P – The process. Was there a process or lack of process that failed them because we have willing workers we have people who show up and want to do a good job so we have to assume positive intent when it comes to people first and foremost.
But let’s get uncomfortable for a minute. Even if we can assume positive intent and we can make processes great and supportive there are going to be people that don’t fit and when there are people that don’t fit, you’re going to ask three questions of yourself and of them. One: Do they need more support? Do they need more education? More training? More, more systems that you’re not seeing? And if that’s a “no”, you go on to the next question. Two; Are they on the right seat? Are they where they need to be on my bus? Maybe that’s just a roll fit problem, maybe they are great with your culture, they’re great with your team, they just need to go to a different place within the bus. And if that’s a “no”, the next question is, “Are they on the right bus?”. I hate when I get to that question and as a leader we’ve all gotten to that question. What I’m gonna leave you with in these 4 Ps is that when you get to that question and it’s a “no”, they’re not on the right bus, the most loving thing you can do for that team member is to help them find the place where they are on the right bus and they are on the right seat. So, as hard as it’s going to be and as painful as it’s going to be, as much as you don’t want to do it, it is the most loving thing you can do.
And there you go those are your 4 Ps of increasing your net income and changing your focus, right? Price, product, process, and people. I hope you liked this video and if you did please like it, please share it and more importantly, tell me other topics you’d like me to ramble on about because I love talking to a camera especially about this stuff thanks for watching.