Every business owner strives to maximise their profit margins. But is it really possible to 10x your profit? The answer might surprise you.
Recently, I had a conversation with a business coach who shared an incredible success story about one of his clients. This client, a 4WD mechanical shop and customisation business, managed to achieve a remarkable 10x increase in their bottom line.
How did they do it? Let’s talk about the strategies they used and how you may be able to apply the principles they used to your own business.
The Problem: Trying to Be Everything to Everyone
When the business coach was approached, the 4WD mechanical business was struggling with a common problem in the automotive industry: maximising the utilisation of their hoists. The owners were considering implementing shifts to improve their space utilisation.
However, after a thorough investigation, the business coach came back with a surprising revelation:
“You’re asking the wrong question and trying to solve the wrong problem.”
The real issue was that the business was trying to be everything to everyone. They were offering routine servicing for a few hundred dollars, doing tyre repairs, and handling general repairs that were well outside their core passion and talent, which was customising 4WD’s for serious off-road enthusiasts.
The Solution: Specialise and Focus on High-Value Clients
The coach advised the business to make a bold move: get rid of a lot of their customers. This might seem scary for any business owner, but it was a necessary step to focus on their core competency and attract the right clients.
The business decided to:
- Stop offering routine servicing and repairs
- Focus solely on customisations
- Specialise in Toyota vehicles only (primarily Hiluxes and Land Cruisers)
By making these changes, they attracted fewer but higher-paying, higher-value, and generally lower-maintenance clients. The result? They 10x’d their bottom line, achieving approximately $4 million in EBIT on a revenue of around $12-13 million.
The 80/20 Rule: Fewer Clients, Better Results
This (real life) case study is a fantastic example of the 80/20 rule in action. In their previous arrangement, 80% of the business’s problems likely came from the 20% (or more) of their clientele that wasn’t even contributing significantly to the bottom line.
By focusing on fewer, high-value clients, the business was able to:
- Reduce or eliminate Hoist allocation issues
- Reduce the number of problem clients
- Focus almost exclusively on much higher ticket jobs and projects
- Massively increase their “average order value” (AOV)
- Avoid low-paying routine services and fiddly low ticket repairs
Applying the Lesson to Your Business
We’d be the last to say that it’s easy to 10x your bottom line! But the key takeaway from this case study is the importance of evaluating your offerings alongside your existing or potential client base and identifying where there might be opportunities for leverage, more specific targeting and qualifying.
This lesson applies to a wide range of businesses, not just mechanical businesses. It’s important to regularly assess your service delivery or product model(s), and your client base and make strategic decisions to maximise your profitability.
Ask yourself:
- What are the profiles of my BEST clients/customers?
- How much do they spend and how much more is that than the current average client/customer? Do I even know my AOV?
- Is the amount of work for a high ticket/high value client linearly proportional, or is it in fact easier (per $unit of revenue) to deliver to the higher ticket client?
- Can you implement barriers to avoid attracting low-value clients and instead focus on higher-paying, higher-value, and generally lower-maintenance clients?
- Can you determine what is the “cost of acquisition of a client” (CAC) for higher ticket vs lower ticket? I.e., will the higher ticket client cost more $ and time to acquire? (Don’t automatically assume it’s harder to sell just because the sale value is higher.)
- How do the sales cycles compare both in time, and complexity (or other resources) – would you or your team need much better marketing and sales skills?
- What other changes would you likely have to make to migrate progressively towards higher value, and away from lower value?
- What would you have to say “no” to, to say “yes” to higher value clientele? (That’s the tough one!)
Focus on Your Ideal Customers to 10x Your Profit
In business, sometimes less is more. By focusing on your core strengths, specialising in a specific niche, targeting and attracting high-value clients, and actively repelling low-value clients, you may be able to dramatically increase your profitability. Just like the 4WD customisation business did.
If you’re looking to set your business up for long-term success and maximise your profit, our Gold Coast Accounting Firm KeyPoint Accountants is here to help. Contact us today at 07-5585-0600 or info@keypointaccountants.com.au to learn how we can help you maximise your profitability.
