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IT'S ABOUT THE PROFIT                                                           

A surprising number of successful businesses are so busy getting the job done that they haven't taken the time to analyze which of their products and services are generating the most profit. Small businesses and sole proprietors in particular tend to look at overall income as an indicator of growth. A more accurate picture can be achieved by looking at profitability.

It's vital to establish cost estimates for different goods and services and then update these estimates regularly to reflect changes in the business and the economy. (See bottom of page for some good links.) It's also important to take current market value into account.

When income is viewed in light of these costs, it can surprise a business owner to discover that an undervalued sector of his business is generating the greatest profits for the company and in many cases, the core service of the business is not the most profitable.

This can be quite disconcerting. Often the first reaction is to do one of two things: start heavily marketing the profitable sector at the expense of the others, or start heavily marketing the core services in the hopes of picking up more business. Both of these approaches have merits, but it's possible to take far more control of the situation.

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WHERE ARE YOU GOING?                                                 

A business can change its make-up at any time in response to customer demand, but a reactionary approach takes the control away from you. A better way to use the data you have acquired is to look at it in light of your previously perceived business goals. Here are a few questions to consider:

- Is the profit coming from the part of the business that you enjoy most?
- When you envisioned your business growth, did it include this now most
   profitable area as a key component?
- Do you want to expand on this profitable sector?
- Has the market changed sufficiently to warrant adjustments to your    business model, or do you need to look more closely at how you charge?
- What are you going to do about the least profitable areas?

Many businesses have been created due to an intensely personal desire on the part of an individual to provide a certain core product or service to the market and generate a decent profit doing so. As the business grows, that core can suffer from a lack of attention on many fronts, including keeping up with current market values, while the newer add-ons benefit from the acquired business accumen.

Reassessing your business from the standpoint of profitability will help you make better decisions for the future.

However you choose to proceed, goals that balance profitability and your enjoyment of your business are usually those that will provide you with the most personal reward. All business comes with its own baggage, but there's no need to lose sight of what got you here in the first place. Thorough cost estimating will give you a place to start making adjustments and targeted marketing can help further your cause.

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CONTROL YOUR MARKETING FOCUS                                 

With this information in hand, it's time to get the the word out. You have been spending a lot of time and energy behind the scenes and your customer base, new and old, needs to hear your re-vamped message. Include your design and marketing team in the process by explaining your discoveries and your hopes for the future. The information will help them to create a targeted campaign that will more directly answer your current and future needs.

Once your targeted marketing is in place, you will be able to assess the performance of your products and services much more accurately -- and your future profitability reports will allow you to continue to make informed decisions about your business and adjust your marketing focus from a position of control.

Here are some great guides to cost estimating if you need a refresher -- use them as a basis for your own formulations:

Calculating Overhead and Prices

Putting Cost Back into Pricing - Calculating Overhead Percentages

(These links are from the Missouri Business Development Program website, and their library contains many useful articles for small businesses in general.)