Few entrepreneurs get into business because they have a wonderful idea for growing profitability. A far greater number (40% according to a new TSheets survey) strike out on their own because it’s their dream.
Perhaps that’s why when TSheets recently asked over 1,000 U.S. small business owners about their profitability over the last year, 15% said they were in the red, while another 22% said their business only broke even.* Fortunately, the remainder made a profit, though the majority made no more than $50,000 in the last year.
It’s easy to think, therefore, that the business itself lacks the potential to be profitable, even if it’s cash flow positive. Or that the person running it isn’t working hard enough to be successful. But chances are good neither is true.
For most, it’s a culmination of easy errors. Many small business owners are so focused on their product or service and getting the business off the ground, they fail to look at the cost of doing business. Prices aren’t as high as they need to be to offset the cost of supplies. Time isn’t managed right, so business owners wind up exhausted and overcommitted, with barely enough money in the bank to cover their investment, let alone to grow their business or pay themselves for their efforts. And on top of it all, the market might be saturated with competitors, or taxes might be overly complicated.
So what’s a small business owner who’s looking to build up their profitability to do?
1. Get over the idea that charging more makes you a bad person
Just because you’re not Martha Stewart doesn’t mean your handmade products aren’t worth their weight in dollar bills. And while it’s fine to want people of all financial means to be able to buy your products, you can’t feel guilty about charging more than a friend can afford. Plus, psychologically, people associate high prices with high quality. It’s possible that by undercharging for your products, you’re underselling your worth.
2. Identify your target market
Once you start getting customers, make a note about who they are. Focus your efforts on attracting the kind of customers who are a pleasure to serve: folks who are easy to work with, who can pay on time, and who don’t balk at your prices. And remember to follow up with those customers you love to work with. Chances are they can refer your services to peers who will treat you similarly.
3. Adopt technology that can do the work for you
Sure, you could try to track each project’s cost of materials, the time you put in, how much the taxes will be, when the bill is paid, etc.—all on a handy-dandy spreadsheet. But wouldn’t it be nice to plug all that stuff into just one or two tools and get all the insights you need to make better decisions in the future?
4. Let your small business status work for you
It’s hard for big companies to move quickly, whether that’s adjusting prices or trading out one product for another. But for small businesses like yours, who’s going to stop you from pivoting twice in one day? Don’t be afraid to try something new, and if it doesn’t work, try something else. With any luck, you won’t always be so nimble, so enjoy this ability to adapt quickly while you can.
*Methodology: TSheets by QuickBooks commissioned Pollfish to survey 1,067 U.S. adult business owners with or without employees. The poll was conducted in April 2019 with a margin of error of ±5 percentage points. The margin of error is larger for subgroups.