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INCREASE REVENUE
Can you really increase revenue without selling more? How cool would that be? Right?
Today’s Summer Classic guest, Ken Wentworth, also known as Mr. Biz, says yes you can. Listen now to get the inside scoop.
What You’ll Discover About How to Increase Revenue:
* How eliminating the “silent business killer” lets you increase revenue
* Myth of the Loss Leader
* How aggressive pricing does not increase revenue
* How improving profit does not require an increase in revenue
* Mindset necessary to increase prices that increase revenue and profits
* The critical importance of maintaining discipline to increase revenue
* The problem with pricing low to get your foot in the door
* How your USP can increase revenue in competitive bidding
* How adjusting the mix of high and low margin products can increase revenue
* Pricing conversation mistakes to avoid
* Why you need to know your fully loaded cost to increase revenue
* And MUCH more!
Guest: Ken Wentworth, aka Mr. Biz
Ken Wentworth, aka “Mr. Biz”, is a strategic business partner who helps business owners run their companies more profitably & more efficiently.
After ascending to the top 3% at a Fortune 15 company and breaking six World Records, Mr. Biz now uses his experience & expertise to help others develop their skills to become more successful owners.
He is the author of two bestselling books, his most recent, “Pathway to Profits”, provides an actionable blueprint to excelling in any economy; as well as “Don’t Fake the Funk.”
Ken is the Award-Winning host of “Mr. Biz Radio”, which airs for 30 hours each week across several different networks. Being an influential business guru, he has amassed a social media following of over 300k.
For his expertise, he has been featured on Forbes, Yahoo Finance, Fast Company, The New York Finance, and American Express.
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How Smart Entrepreneurs Increase Revenue Without Selling More
Can you really increase revenue without selling more? How cool would that be if you could, right? Today’s guest, Ken Wentworth, also known as Mr. Biz, says, “Yes, you can.” And when we come back, we’re going to find out what the secret is. Stay tuned.
This is Business Confidential Now with Hanna Hasl-Kelchner helping you see business issues, hiding in plain view that matters to your bottom line.
Welcome to Business Confidential Now. I’m your host, Hanna Hasl-Kelchner, and today, I’m delighted to welcome Ken Wentworth, who’s also known as Mr. Biz. He’s a strategic business partner who helps business owners run their companies more profitably and more efficiently, using what he learned while climbing to the top 3% at a Fortune 15 company and breaking six world records. Boom. How’s that for some business chops?
And that’s not all. Ken is also an accomplished author of several books, How to Be a Cash Flow Pro. That’s his guide to crushing business owner insomnia and Pathways to Profit. His guide to running your business like a boss. Plus, he’s the host of the award-winning Mr. Biz Radio, which airs for 30 hours each week across different networks. So, I’m sure we’re going to learn a lot. Welcome to Business Confidential Now, Ken.
Hey, Hanna. Thanks for having me. Wow. What an introduction. I appreciate the glowing terms and all that stuff. I hope I can live up to that introduction.
That’s on you, Ken. I’m sure you will. I’m not worried about that at all. You know, finding ways to increase revenue and grow that bottom line is so important. And it seems like the default way is just to increase sales, but you say that we can actually increase revenue without selling more. I mean, what other way is there? What are small business owners missing out on?
HOW TO ELIMINATE THE SILENT BUSINESS KILLER TO INCREASE REVENUE
Yeah, look, here’s the thing. This is one of those things that I unfortunately see at almost every single business that I’ve ever worked with, and it is I call it the silent business killer. So, there are several different ways, first of all, but the first one I want to talk about is the one that’s most prevalent and the one that you can make the quickest transition to and the quickest implementation. And again, as I mentioned, the silent business killer.
MYTH OF THE LOSS LEADER AS A WAY TO INCREASE REVENUE
And what that is, is almost all businesses, unfortunately, have a product or service that they provide that is, at best, breakeven, but in most situations actually is losing them money. Now, the question becomes, you know, I get this often from clients and they’ll say, “Well, Ken, why would I purposely have a product or service that was unprofitable?” Well, that’s the point of it being a silent business killer is that you don’t realize it’s there. Of course, you wouldn’t purposely do that.
And a lot of that surrounding that business killer is the pricing aspect of it. And no, I don’t mean just, “Oh, we’ll just increase all your prices.” No, I don’t mean that. A lot of times, most or a lot of business owners that are small business owners that are really good at the product or service they provide, so they’re really good at plumbing or they’re really good at whatever it may be, but not as good sometimes on the business side of things and the financial side of things.
So, a lot of times, I found, unfortunately, is pricing for some things ends up being kind of on the back of a napkin for lack of a better term, very informal and not a lot of rigor around it in some situations.
And so what happens is you end up with these products or services or maybe projects, right? I had this with a client that I started working with, and I’ll explain that in a second, but they have these products, and guess what, Hanna? Because these things are priced so low, artificially low, and then a loss, guess what happens with those products? They sell a lot of them.
So, think about that, that the quick example is let’s say you have a product and you charge $100.00 for it, but the product actually costs you $120.00 to give to the customer, to land it with the customer or the product or service. So, for every one of those that you’re selling, you’re actually losing money. You’re running in quicksand.
So, this is what happens in this scenario, as you can imagine, is you may, for example, be an owner and see that your top line, your revenue is growing and increasing, but you’re losing money and you’re losing more of it. And you’re like, “Gosh, this doesn’t make any sense.” It’s just completely, intuitively wrong that my revenue would be going up, but I would be losing money. And that’s where, you know, if you have that scenario in any shape or form in any volume level, you know this. You probably have that silent business killer lurking in the background.
HOW AGGRESSIVE PRICING DOES NOT INCREASE REVENUE
I can give you a real one. One real quick example is I had a client that I started to work with. They had earlier in the year before I started working with them, bid on a large project and this project was going to be about 20% of their annual revenue. So, they wanted to get in on this project, they wanted to win the bid on the project, and it was with a large company. So, the owner at the time was thinking, “Gosh, if I can get my foot in the door, do a great job on this project.”
“Gosh, I can get so much more business from this large company.” Well, because of that, he bid very aggressively and we got to the end of the year, we found out that he had actually lost a significant amount of money on that job. And it wasn’t that there were significant changes to the project, or a big hiccup that occurred. Things went mostly as expected, but it was priced too aggressively. So, it ended up being a silent business killer.
That became quite loud when I had to explain it to him that this project that was a big project and a huge undertaking for them, a lot of management, a lot of work that went into it and they actually lost money for it. I mean, he was just devastated. And so the pricing model that comes in, especially in a scenario like that, is just critically, critically important.
So, I can see how revenue goes up. You have more sales, but you don’t have more profit because the pricing is off. But I thought somewhere I read in your materials that you could increase revenue without selling more, and here, you really gave me examples of where you are selling more because the price just can’t be beat.
HOW IMPROVING PROFIT DOES NOT REQUIRE AN INCREASE IN REVENUE
Yeah, yeah. It’s really it’s more around you’re going to make more money, so you’re going to profit more, not necessarily have higher revenue. You can have less sales. Think about it. If you just eliminate it, if you had a project or product that you were losing, in that example I gave where it was a hundred – you’re charged $100.00 and it was $120.00, you’re actually losing 20% on every job.
Think about if you didn’t sell anything more, but you just eliminated the sales of that product that you’re losing 20% on. All of a sudden, your margins go way up. You’re not losing that $20 on every product or service, or whatever that is that you’re selling. So, now all of a sudden, again, this sounds completely counterintuitive, but that’s what this is. What happens in the scenario is your revenue actually goes down in this scenario, but your profits go up and look.
Revenues are vanity, profits are sanity. You’ve probably heard that before. That’s not an original term by me, but at the end of the day, I mean, revenue is great. And as you said, a lot of owners get enamored with that and they just want to push sales and more revenue, etc., which is clearly very important. But in this scenario, you can have less sales and stop selling these unprofitable products. And by the way, think of the slingshot and compound effect of no longer selling the unprofitable product and/or fixing the pricing and charging the appropriate amount.
But let’s say you just eliminate it. You say, “Gosh, we just can’t produce this product or service at a level that’s profitable for us at a competitive price. So, we’re just going to eliminate it.” And then you take your efforts or your sales efforts and you push them towards your more profitable products and services. So, think about the compound impact of that, of how you can shift to shifting your sales, focus on those more profitable things. Oh, my gosh. The impact on that is just huge.
MINDSET NECESSARY TO INCREASE PRICES TO INCREASE REVENUE AND PROFITS
Yeah, I can definitely see that. So, get rid of the losers is definitely one very important way that you can improve your profits, but there may be some listeners that are saying, “Well, okay, maybe it’s a loss leader, but people really like this product. It’s what brings them to my store or to my website. It’s why they pick up the phone and call or text or however they reach out.”
“And maybe I really need to raise the price to beyond my break even once I calculate it,” and perhaps with the help of someone such as yourself. Because you’re like you said, some people are really good at what they do and not necessarily on the business or the numbers side of it. So, okay, they want to increase prices. Let’s talk about that for a minute. The math would work, but they’re afraid of losing customers. What tips do you have for helping them build their confidence so that they could have a more winning mindset to increase their revenue?
Yeah, it’s a great question and it’s a common quandary as well in that. In that scenario, the first thing I would suggest is, as you mentioned, once you do actually calculate a more accurate breakeven point and then add on the margin that you need and you as your target margin for your company is look at that and then go out and mystery shop some of your closest competitors.
And is it competitive? Because again, in that scenario, in the example I gave earlier, you’re winning all these customers because it’s priced so low, because your price is so much lower than competitors in that example. And maybe by increasing your price and getting it up to the target margin level that you want, you’re actually fine and actually now, you’re competitive with them in that that you’re not lower than them. You’re about the same or maybe a little bit higher.
NEGOTIATION TIPS FOR HOW TO INCREASE PROFIT WITHOUT INCREASING PRICE
But I think that’s a very important thing. The other thing you can do and when you’re looking at this and it’s equally important is to really look at all the costs that go into that product. Because maybe if you’ve been selling this a high seller for you, you haven’t really looked at ways that you might be able to reduce the cost base for that and therefore creating some margin on your own.
Because again, in your head, this silent business killer is out there and it’s performing well from a sales perspective. So, you think everything’s peachy keen, you don’t really take a look at it. Take a really hard look at some of those costs. There maybe are some raw materials that go into it that you haven’t renegotiated with your vendor.
And now that you’re doing a higher volume with them, you may be able to go back to them and say, “Gosh, when I first drew up this contract with you, I was paying whatever, $10.00 per pound of raw material, but now with the volume I’m doing, let’s look at what kind of price I could get on this.” So, if I know I’m going to do at least X volume with you, could we do it at $8.00 per for ten pounds, or whatever I said earlier and look at that cost base and see how much you can lower your cost base.
THE CRITICAL IMPORTANCE OF MAINTAINING DISCIPLINE TO INCREASE REVENUE
And if you can do that, you create the margin without you having to raise your price in that scenario, but really, the discipline around this is super, super important because in that client that I mentioned that had the big project that they bid very aggressively on and found out at the end of the year, they actually lost the significant amount of money.
We implemented a pricing model for him, the price projects that are above a certain threshold. And funny enough, Hanna, in a probably three or four months after we implemented it, he goes to bid on a project and they’re a large project and he comes back to me. And he calls me kind of frantic and he said, “Gosh, I’ve got to get this bid in.” And I ran everything through the pricing model and it says I should try. I don’t remember the exact numbers, but I’ll make them up to illustrate.
It says I should charge $170,000.00 for this project. And I said, “Okay.” And he said, “Well, what should I charge?” And I said, “Is this a trick question? Is there a camera on me like you should charge a $170,000.00?” And he said, “But Ken, I don’t think I’ll win the bid if I do that.” I said, “Okay, what’s the alternative? What would you say? What do you want to do?”
He said, “Well, I think if I charge like $150,000.00, I could probably win the bid. I said, “Okay. So, at $150,000.00 and our margins are X, we’re going to lose $4,000 on this job. You want to win a job where you lose $4,000 or do you want to bid it at the target margin levels we want and if you lose that job, it’s okay.”
That’s a form of getting rid of the losers, as you mentioned earlier, Hanna. And that discipline is difficult, especially in this scenario, because this was another large company, another large local company to him. And his whole thinking again was, “Gosh, if I can get my foot in the door with them, I can get so much more business in the future.” The problem with that thinking on the surface, on the macro level, that sounds very, very intuitive, right?
THE PROBLEM WITH PRICING LOW TO GET YOUR FOOT IN THE DOOR
Here’s the problem. That large company has leverage. If they’re a large local company, they have leverage because they’re large and a lot of people want to do business with them as well as the next time they’re going to reach out to you for a project, they’re going to expect pricing like the first time. So, even if you say, “Gosh, I’ll just lose money on this first one and I’ll just make up for it on the rest.”
That’s probably not going to work because the second job, they’re going to expect similar pricing. You’re going to increase the price all of a sudden and they’re going to say, “We’re good, we’re going to go with Vendor B.” And then so that loss you took on the initial ends up being a problem. So, the two biggest things to do are again, looking at your cost base, everything, every cost that goes into that particular product or service.
Are there ways that you can reduce that, renegotiate, et cetera? And then developing that pricing model and then you’ve got to stick to it. You really have to have the discipline to stick to it no matter how much your mind or your heartstrings might be tugging at you to say, “Gosh, this is one time.” Because again, a lot of those things, especially in this scenario where it’s not just a product or service, it’s a large project. Well, as you can imagine, a larger project has more moving parts, which means more potential for challenges, issues, etc..
I mean they’re more difficult to manage typically. So, you’re going to be managing this large project that becomes a pain in your neck potentially, and then losing money on it. It’s just not a good thing. And so in that scenario, we got to end the year and I explained all that to him with the initial project that they lost money on, and I said, “Imagine not having any of the headaches of that job and you would have put an extra $60,000.00 in your pocket.”
And he looked at me and he said, “Get out of my office.” He jokingly said, “Get out of my office. Where were you when I was bidding this project?”
Well, not to mention, with a large project, like you said, there’s things that don’t get anticipated that maybe fall outside the original scope and change orders need to be created. And so, if they don’t take advantage of that opportunity to say, “All right, this was bid based on X, Y, Z, and now we have L, M, N, O, Q that suddenly came into that. That wasn’t part of the original bargain. We need to have a chat.” So, something else…?
Let me – I’m sorry, Hanna. Just let me follow up really quick. I want to close the loop on that second scenario I mentioned where the $170,000.00 project and he said he wanted a bid lower. And I said, “We’ve got to stick to this $170,000.00.” Well, he bid $170,000.00 and did not win the bid. So, he was kind of disappointed and probably honestly, he wouldn’t admit this, but he probably was a little angry with me, right?
Gosh, Ken was the one that cost me this contract, right? Here’s what happened. Fast forward about 45 days, the customer called him frantic and said, “We need you to come and take over this project.” And he said, “Well, I lost the bid.” They said, “Yeah, we went with a cheaper bid. They started. They’ve completely screwed everything up and they kind of pulled the plug on us and they lost some workers. And so now, they can’t get it done in the timeframe we need.”
“We need you to come in and take this over immediately.” So, we ended up essentially winning it in the end. And then the scenario, the lesson to that is in quality wins in the end. It’s not just the cheapest price, etc.. So, you had mentioned before one of the questions you asked Hanna was, “How do you have that to be able to be disciplined enough?”
I think I can’t remember exactly how you said it, but to stick to your guns and be able to charge those things, the cheapest price in the long run isn’t necessarily what’s going to win from a customer or vendor perspective. So, in this scenario, we ended up coming back in being able to win the bid, and now we’ve done several projects with that vendor now. That customer, I should say. So, it all turned out really well in the end.
Well, I’m glad to hear that worked out for your client because one of my favorite sayings is the cheapest is not always the least expensive.
Right? Yes.
Because it winds up costing you in other ways, so you have to look at all of the costs, the direct, the indirect, and hopefully people who are listening realize that if they get into a competitive pricing situation, you have to find a way to distinguish yourself, and it’s not on price. That is a race to the bottom, or as Ken points out, you’re going to slice the margin so thin and that philosophy of I’ll just get my foot in the door.
HOW YOUR USP CAN INCREASE REVENUE IN COMPETITIVE BIDDING
These big companies are always doing competitive bids. And so you’re not going to be in there and have loyalty necessarily, not unless you have a lot of track record with them and the person in purchasing who is doing it because the purchasing people are under tremendous pressure to cut costs of their product and what they’re selling. So, you really have to find a way to have that unique selling proposition that the salespeople always talk about and know what you’re really good at and why you’re better.
Right, yeah. And sometimes the answer, honestly, it’s a tough pill to swallow for some owners because sometimes the answer ends up being, unfortunately, that maybe you just can’t price a product or service at a competitive level. So, you don’t necessarily take it off the table. Maybe you have to, because if it causes inventory changes and things like that, but it might be that because of whatever reason in your cost base, the competitive price for a product is $100.00. Your competitors are right around plus or minus 10% of $100.00 and you got to charge $150.00.
I mean, again, if it’s not an inventory issue, you can keep it out there and say, “Look, if you’re willing to pay $150.00, I’ll do the job, but I can’t do it for less than that.” Now, are you going to win much business from that? Probably not. But if you still want to honor it or offer, I should say, but really, sometimes you just got to cut things out, especially depending on the situation where again, maybe you have a brick-and-mortar retail and it’s that product that you just can’t offer a competitive rate and you don’t want to tie up inventory with it, et cetera. Now, you just cut that product and look for other ways.
Look at other products that, again, have a higher margin, that you can make a higher profit margin on, higher net margin on, and take up inventory with that and not these things that are not going to sell if you charge a higher price, et cetera.
Exactly. Where in the spectrum do you want to be? And like you said, inventory cost, or carrying costs is one of those things that a lot of times people don’t take into account until they have no room for anything anymore.
HOW ADJUSTING THE MIX OF HIGH AND LOW MARGIN PRODUCTS CAN INCREASE REVENUE
Yeah. And a kind of a simple example of that, it’s a little bit of a tangent of what we’re talking about, but I think it’s relevant enough. And that is, I was working with a jewelry store, a single location jewelry store, and they had a picture of a store that has the glass cases. Right? It looks all elegant and everything. And when I first started working with him, he had 12 display cases and four of those cases. So, a third of his display area in his retail location was a super low margin product or products.
And so, just changing the product mix and saying, “Let’s devote one case to that because it was something that was complementary to other things that he sold. It was just a low margin product, and rather than tie up a third of the display area with a super low margin, we used one case and took the other three cases and put higher margin products in that.
Just making that simple change significantly change the profit margin of overall and it doesn’t again tie up your space, your inventory, et cetera, with these low margin projects which again just increases profitability significantly without even necessarily, again, selling more.
Exactly. You put your finger on something, you know something that was complimentary. So, you buy this and you get one of these to go with it and it’s a bundled price. So, that would be another way to handle it.
Yeah, absolutely.
PRICING CONVERSATION MISTAKES TO AVOID
What do you think are some mistakes that business owners make when engaging in a pricing conversation?
One of the things that you mentioned earlier, Hanna, is that thinking that pricing is the end all, be all. And as you said, I agree with you 100%. That’s getting into kind of a price war. A price battle is just a race to the seller. It’s just a race to the bottom. Not in the long term, that is not going to do well. That’s one of the things I see most often.
And I guess one of the other ones kind of I alluded to as well is it’s – I don’t know if it’s a – I wouldn’t really say loyalty, but maybe a little bit of an ego thing of again, as I mentioned, sometimes you have to just say, “You know what? We’re not going to offer that anymore. We just can’t offer a competitive price.” And oftentimes, if a business owner has been in business for 10 or 12 years and always offered whatever that was, they go and got, “Well, we have to.”
Well, no, you don’t. You don’t necessarily have to. If it’s hurting your business, why would you want to continue that? And again, that’s the last resort, right? You want to look at ways to be able to keep that product or service available.
Again, like I mentioned, looking at the cost base and other ways to renegotiate with some of the raw materials or whatever that might be, all those different things, but sometimes, those tough decisions are difficult for owners to make, especially as I mentioned, if it’s been a long-term thing. And then the third thing is along similar lines of being able to look at things and just being able to stick to the pricing. Right?
Again, like that project thing I mentioned of, “Well, gosh, I don’t think I’m going to win at $170,000.00. Let’s make it $150,000.00.” Again, getting your foot in the door, things like that. Those things just again, that’s a price war type of thing. It doesn’t lead to long-term success. But those three things, even though I mentioned them before, you mentioned one is those are difficult…
…what I found for owners to really kind of swallow that pill sometimes because for whatever reason, they’re just kind of stuck. Maybe kind of stuck in the old ways a little bit, and so it’s difficult to wrap your mind around, “Well, how can we not offer that product anymore? It just doesn’t make sense. We’ve always done that or whatever.”
HOW DECISIONS TO INCREASE REVENUE ARE AIDED BY KNOWLEDGE OF FULLY LOADED COSTS
So, I would say those are the honestly, the three biggest things. The last one I’ll mention is just what gets you into that mess of the silent business killer in the first place? And that’s just not devoting enough attention and/or having an accurate way to price things. And that’s one of the things that sometimes people, again, just don’t – they’re really good at what they do. They just don’t have enough of the background to be able to really dig in and get a fully loaded cost.
A lot of times people will – when I start working with the client, they’ll quote, “Oh, well, my margins are X,” and when we dig into it almost every single time, they’re actually lower because they’re not incorporating everything in. They’re not incorporating all the costs. Oh, did you put freight into this? Well, that’s not a cost of the product.
Yeah, but to deliver it to your customer, that’s a cost of delivering that product. The landed cost includes all that, so things like that. I think those four things I would say are the biggest four sort of challenges or issues I see that business owners run into with pricing.
Well, Ken, I appreciate your tips on what people can do to improve their margins. And if you’re listening and you’re ready to increase your bottom line, Ken’s contact information can be found in the show notes at BusinessConfidentialRadio.com along with the link to his books and the Mister Biz Radio Show.
And if you know someone who wants to generate more profits and can’t spend a whole lot more time on sales, tell them about Ken Wentworth, Mr. Biz and this podcast episode. Share the link and leave a positive review so others can find out about it too. And you can do that on your podcast app or come on over to lovethepodcast.com/BusinessConfidential because this is Business Confidential Now with Hanna Hasl-Kelchner. Thank you for listening. Have a great day and an even better tomorrow.
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