One of the hardest industries in which to achieve profitability is agriculture-particularly cattle ranching. It's the oldest market on the planet. The average ranch only reaches profitability once in 10 years. Those who have overcome these odds and become accomplished ranch managers have a lot to teach the rest of us about being successful in business.
Many years ago I had the privilege of spending a few days on a large cattle operation that reached profitability every single year. Not only did they reach profitability, but they managed to achieve a good margin as well�every year. I spent two days listening to presentations from the ranch manager who taught us his secrets.
Know every expense as a per unit cost� How much meaning do you put into your sales figures? You sell something and you have expenses. If you deal widgets, or if services, what are your expenses for each unit? First, list out all of your expense categories and order them in terms of greatest to least. You should know the per unit cost of even your light bill. As soon as you have all your expense categories on paper, you and your team can be looking at ways to reduce your expenses.
Could you reduce power costs from $0.25 to $0.14 per unit by turning lights off when they aren�t being used, buying better lightbulbs, or changing services? One airline saved over $40,000 in yearly expenses by dropping 1 olive off of the salad served in flight. Remember also that your purpose is to find profits not cripple the organization.
Bust the Myths in Your Business- Which routine aspects of your business are completed just because everyone has done it that way? My ranching friends found that feeding cattle during the winter was their biggest expense. After some brainstorming, they concluded that buffalo did not have hay in the winter. So, they studied the winter feeding behavior of buffalo and discovered that they dig through the snow to obtain the feed. They applied these findings and placed cattle in a pen, buried the hay under snow and taught their cows to dig for hay. Not only did they bust the myth that cattle have to be mechanically fed during the winter but they also reduced several cents per pound from their expenses.
Focus on Your True Profit Centers� What really generates the money in your company? Too often we permit ourselves to be sidetracked from our central offering. By steering away from our core, we unintentionally use up cash resources as we adjust our systems to accommodate the new undertaking. Our ranching example shifted the focus of the operation from beef production to grass production. They knew how much beef they could obtain off an acre of land and they worked to defend and improve the land and its yields. The majority of ranchers focus on the cattle and over graze, which reduces production capacity. What about you? Are you concentrating on the real harvest of your business, or are you over grazing?
Factor in the Real Market Value- Many ranchers suppose that growing their own hay will save them money and raise profits in their cattle.
The truth of the matter is that hay has a market value. If you pay $30 per ton to grow your own hay and the market is paying $75 per ton, then your real cost is $75 per ton. You are, in reality, experiencing a $45 per ton decrease in cash flow. The same holds true for people. What amount would you be paid for your talents and expertise if you were employed by someone else? You must calculate your actual value into your company's expenses to get a true picture of profitability; or else you could be losing money in the form of lost opportunity costs. By failing to calculate your true market value of your labor, you might be simply transferring profit from yourself to make your company only appear to be reducing expenses. Besides, who wants to lose money? You're in business to make money by creating value aren't you? Why work for free in an extreme risk scenario? You had better have a good expectation and plan for a larger reward for your sacrifices.
Buy Customers on a Fixed Cost- In order to attract a greater supply of cash into your company, you should correctly allocate your marketing budget; you must begin by knowing the life-time worth of a customer.
You must determine how long a customer is with you and the net profit they yield. This number will allow you to see how much you can afford to pay in order to gain a new customer. For instance, if your typical customer stays with you for 2 years and they spend about $500 gross sales and you must pay $300 to provide that customer with merchandise and services, then the life-time value of your customer is $200. You could technically spend up to $200 to obtain and maintain a customer. Have you thought about using some of your marketing budget to retain customers? How would you respond if you did business with a company that remembered you on your birthday or other special events-like your anniversary? Create a fixed cost that you will use to gain new customers, and then continuously monitor your marketing activities to be sure you are operating within your budget, spending an adequate amount, and not wasting money on ineffective campaigns.
Let's learn from the professionals in the hardest industry on earth. Nasty little expenses are the bane of profit making. Drill down to the molecular level of your financials and uncover the hidden treasures of profit that exist in your business.
NOTE: Use of this article requires links to be intact.
Article Source: http://www.myarticlepub.com - Free Reprint Articles
Rod Alan Richardson has dedicated his life to teaching people to succeed in free enterprise through Business Training. Mr. Richardson believes he can change the world by directing people to a higher road and putting them on the path to Transcend Money. Make sure you visit his Small Business Training page.
Play Java Games Online for FREE - Sonic, Mario, Plus Many More
Free Sign Up - Start Making Money on Flixya »
