(0:00) You have to make your offer so compelling, so irresistible, that prospects will say yes, (0:06) because if they don't say yes, they're going to feel like an idiot, because the offer is that good.

(0:11) Welcome to Business Strategy, where we talk about how to craft winning strategies, (0:14) how to implement them, and build highly profitable and iconic companies along the way. (0:19) I hope you enjoy and subscribe.

(0:23) If your business isn't hitting the profit levels you would like, in other words, (0:27) you're out there and you're busting your butt, but at the end of the day, (0:31) you're not walking away with the money you feel like you deserve, well guess what? (0:34) You're not alone.

(0:36) Many businesses generate solid revenue, sales, (0:38) but fall short when it comes to turning those dollars into real profit. (0:44) Here's the good news though.

(0:45) The road to better profitability for your business often lies in just fixing a few key areas, (0:51) which is great news, because you don't have to go out there and scrap your entire business (0:56) and start over from scratch, or you don't have to reinvent all areas of the business. (1:00) Instead, it's just focusing on a few key areas.

(1:04) That's what I've been doing for the majority of my career, turning around and growing businesses.

(1:09) So today, I'm going to break things down into five straightforward areas (1:13) that could be holding you back, and then show you how you can get out there (1:17) and fix things in your business to turn things around and to make more money in the process. (1:22) Sound good?

(1:23) All right, let's go ahead and jump in to number one. (1:27) And guess what? (1:27) I'm going to talk about strategy because that's what this podcast is all about.

(1:31) But for real, the number one thing is that most organizations lack a clear strategy. (1:36) So your business needs a roadmap. (1:40) Without a clear strategy, it's so easy to get distracted by every new opportunity, (1:45) even if it doesn't fit your long-term goals.

(1:48) I just talked about this in last week's episode, and it comes down to focus. (1:53) Because if you don't focus, these distractions lead to wasted time, energy, and money. (1:59) So here's why it hurts.

(2:01) Without focus, you can spread your resources way too thin, (2:05) missing out on bigger wins that come from consistent, targeted efforts.

(2:10) At Coltivar, we follow the theory of constraints, (2:13) wherein we help organizations to define their strategic problem. (2:18) This is the number one constraint that's holding their organization back from growing (2:21) and achieving their full potential.

(2:24) And once that constraint is solved, then we move on to solving the next constraint. (2:29) And you can do the same exact thing in your business (2:31) by getting very clear on what your strategic problem is.

(2:36) If you don't know how to do this, check out my other episodes. (2:38) I have a few episodes where I just narrow in on how to define your strategic problem. (2:43) But this is probably one of the first steps you have to get right in your strategy process. (2:49) Because this is going to give you focus.

(2:51) Because if you know what the problem is, (2:53) then you're going to know where to allocate your resources to overcoming this problem.

(2:59) So here's how to fix it. (3:00) Number one, you want to have a very clear strategy. (3:05) So you want to get crystal clear, like I said, on what is your strategic problem (3:09) and what does winning look like for your organization.

(3:12) Then you can set initiatives to help you to overcome your strategic problem, (3:16) win and drive value in the process. (3:21) When I say win, I'm not talking about like W-H-E-N. (3:23) I'm talking about winning, winning in business.

(3:25) If you have a very clear strategy blueprint, then you're going to be on your way. (3:30) Next, once you have all this defined, it comes down to focusing, right?

(3:35) So if you focus on the right value drivers in your business, (3:39) the ones that are going to have the biggest upside, (3:41) and then you cut out anything that doesn't align with your strategy, (3:45) that's when you're going to be successful.

(3:47) I was meeting with a client just the other day, (3:49) and I said, look, here are your value drivers for the year. (3:53) Here are the unit economics of your business. (3:55) In other words, your number of customers and the average value per customer.

(4:00) And if you combine those together, that gives you your revenue number, your top line. (4:05) And one of their initiatives was to scale the business profitably, (4:09) and it started with more revenue.

(4:10) So I said, if you just focus on these two unit economics, (4:14) getting more customers and making them more valuable, (4:18) and cut out everything else, I promise you, you're going to be very successful.

(4:22) See, that's the problem when it comes to organizations without a clear strategy. (4:27) They'll just go out there and they'll set random KPIs, (4:30) KPIs that they Googled or that they found on ChatGPT for their industry, (4:34) and they just start measuring a bunch of random things.

(4:37) Or they just have a laundry list of initiatives, (4:39) which are really just actions, right? (4:42) But they have like 80 things they're pursuing for the year, (4:44) and guess what? There's no focus.

(4:46) So this lack of a clear strategy is the root cause of so many issues. (4:51) Here's the other thing when it comes to a clear strategy. (4:53) You have to communicate. (4:55) You have to make sure your team understands the strategy (4:57) so everyone is rowing in the same direction.

(5:00) I've talked about this before, (5:02) but when I was a CFO of this billion-dollar company, (5:04) I would fly around to our different offices. (5:06) I was living in Chattanooga at the time, (5:08) and I'd fly to Dallas and Boston.

(5:10) I remember we would just get done with a strategy meeting, (5:14) a company-wide strategy meeting, (5:16) where I'd roll out the strategy and the initiatives we were pursuing. (5:19) Then I would fly up to the Boston office.

(5:22) I would catch somebody in the elevator, (5:23) and I was like, hey, how's it going? (5:24) What you working on? (5:25) And hey, what is our strategy? (5:27) And what are the few initiatives we're pursuing?

(5:30) And I kid you not, just a few days prior, (5:32) I explained everything really clearly. (5:35) I had a nice PowerPoint deck. (5:36) I distributed it after the meeting.

(5:38) And even after all that, it just wouldn't translate well, right? (5:42) People wouldn't remember it. (5:43) And I was like, ah, okay, I have to be more specific. (5:46) I have to repeat myself over and over again.

(5:49) So it becomes stuck and reinforced in people's minds, right? (5:54) And in their behavior. (5:55) So communication is very clear, (5:57) but it starts with a lack of a clear strategy.

(5:59) So if you're not earning the money that you want (6:02) and that you feel like you deserve, (6:04) if you're operating below industry average profit, (6:07) I promise you it probably begins (6:09) with a lack of a clear strategy.

(6:11) You may not understand what your strategic problem is. (6:14) You may not have clear initiatives (6:16) or you understand those things, (6:19) but you're just focused on the wrong items in your business, (6:22) right, the wrong value drivers.

(6:24) So that's number one.

(6:25) Number two is ineffective pricing. (6:27) I talk about the four levers that drive profits, (6:31) and it comes down to volume, improving cost of goods sold, improving your operating expenses, and pricing. (6:37) And guess what? The number one lever that moves the needle when it comes to the bottom line is pricing.

(6:44) That's why I love pricing. (6:45) So number two, ineffective pricing is one of the biggest problems when it comes to profitability. (6:51) So if you want to improve your profitability, look at your pricing.

(6:55) But oftentimes, pricing is set arbitrarily or it's based on what competitors are charging. (7:01) If your prices don't reflect the value you bring or if they're not covering your costs effectively, you're leaving money on the table. (7:09) So just remember when price exceeds value, customers do not buy.

(7:15) It's when value, perceived value, exceeds price that customers buy. (7:20) So when I go and work with a company, oftentimes they don't have a dynamic pricing strategy, and oftentimes they don't have a strong offer, a strong pricing structure.

(7:31) So they're going out there, they're spinning their wheels, they're doing work that is underpriced. (7:35) Their offer isn't super strong. (7:37) It's not sexy. (7:38) It's not compelling.

(7:41) It's not making their prospects think, "Huh, I would be an idiot if I say no to this offer." (7:44) And when all this comes together, guess what? Organizations suffer because their pricing suffers as well, because customers don't understand their value proposition.

(7:53) So when it comes to pricing, you have to have all of those components, and it starts with a strong offer and then trickles down to understanding your cost and making your pricing dynamic, right? (8:05) So you can make money.

(8:07) Here's why it hurts. Underpricing squeezes your margins, while overpricing without delivering enough value can scare off your customers. (8:15) Remember, your price is going to exceed your value, and then that creates churn and other issues.

(8:21) When it comes to pricing, here's a trap that some companies get into: Number one, they don't charge enough. (8:28) So customers don't take their service or their products seriously.

(8:33) Let's just say I'm doing consulting. I'm just going to relate this to consulting. (8:37) Let's say I go into a company and say, "Hey, I'll come out and spend an entire day with you, and we'll focus on your strategy."

(8:45) And they say, "Steve, how much are you going to charge?" I say $1,000. (8:48) They're like, "$1,000? Dang, that's cheap. Okay, yeah. Come on out."

(8:52) They’re not prepared. They didn’t clear their plate. (8:55) They’re distracted, so they don’t take it seriously. (9:05) Then, they won’t achieve the value, and they’ll say, “Yeah, Steve’s cheap, but he’s totally ineffective. We’ll never use him again.”

(9:20) Versus if I say, “Look, it’s $50,000 for me to fly out for a day.” (9:27) Now, they’re going to take it seriously. They’re going to be prepared and focused because they’re spending so much.

(9:45) You can see how pricing directly impacts perception, execution, and ultimately profitability. A weak pricing strategy hurts your business and your customers.

(9:55) To fix it, you need to do three things: Fix your offer: Make it irresistible. Understand your cost: Ensure your pricing covers everything, including labor and overhead. Test and adjust: Experiment with models like bundling or tiered pricing.

(10:58) Number three is high operating costs. Every dollar spent on operations is a dollar that doesn’t go to profit.

(11:11) Overhead like rent and utilities can balloon if not reviewed. (11:19) Operating costs, especially your cost of goods sold, can quietly erode profitability if not managed well.

(11:58) To fix this, focus on strategy. Eliminate distractions, reduce costs through simplification, and look for opportunities to outsource or use efficient tools.

(12:28) Number four is weak customer retention. Acquiring new customers is expensive, and churn hurts profits.

(13:13) To improve retention, focus on the customer experience, build loyalty, and stay connected with customers.

(15:02) Finally, number five is not tracking key metrics. What gets measured gets managed. Without data, it’s impossible to prioritize and improve.

(15:54) Many businesses track the wrong things or ignore data altogether. To fix this, define your strategy, align your KPIs, and regularly review performance.

(17:28) Those are the five areas holding back profitability: strategy, pricing, costs, retention, and metrics. (18:11) By addressing these, you can drive real change and success in your business.

(18:21) If you know someone who could benefit from this episode, please share it. For more help, visit Coltivar.com. Cheers!