Business

3 Key Reasons Why Your Business Isn’t Making Enough Money

“There is at least one point in the history of any company when you have to change dramatically to rise to the next level of performance. Miss that moment – and you start to decline” – Andy Grove, businessman, author, and a pioneer in the semiconductor industry. 

Those who think entrepreneurs are driven by money believe in a myth. These are the people who are inspired by ideas and give up their steady jobs, sense of security, and lose their sleep over it. But amongst all this, the success of any company boils down to a single thing – Revenue.

When a business is not able to generate the necessary income, the entrepreneur’s belief in his/her ideas begins waning. Income fluctuates from time to time, the market is rapidly changing, and at times your customer’s needs may have evolved. While these could be a few factors, let us tap into the root causes of why a business isn’t making enough money.

Incorrect Pricing Strategy

Most entrepreneurs make the process of pricing their product based on how other market players have been charging their product according to what they decide as fair. This pricing strategy is flawed as the pricing requirements should also consider the factors and ways to make the business profitable. In order to calculate it efficiently, a business should be aware of the following:

  • Expenses of your business
  • Your tax liability
  • Debt on the business, if any
  • Salary you want to take home as a founder

To achieve this, one needs to follow a basic formula, get an idea of what your business’ annual revenue goal should be:

(Business Expenses + Desired Salary)/(1-Tax Liability Percentage Expressed as Decimal) = Minimum Gross Revenue

Once you know the number, you can work backwards and calculate your pricing in a manner that assists the business with their income goal. This is the minimum one required to reach a break-even point in the business and at the same time, provide yourself with the salary that you desire to take home. This strategy is a great jump start for your business and will assist you in determining the pricing of your products and services.

Low Client Targets

When you finalise a price for your product or service which accounts for all the time you have been investing in, you might conclude that the break-even price is higher than what you had been charging till date. This situation leads to doubts in the minds of your clients when you increase this price.

This doubt could be baseless as your happy clients will be true and loyal to your company. Strategically increasing the price or offering payment plans could assist you in better managing your clients. It is crucial to remember that a business should be built around clients who can pay the price that you quote to achieve your targets.

Scale With A Bankable Team

Entrepreneurs often find it difficult to seek help from their peers, especially when they are used to managing reigns. It is important to strategically trust your colleagues to assist you in making decisions which might otherwise narrow down your viewpoint. Many businesses owners often feel that managing a team could lead to added responsibilities, but that is untrue.

Alex Charfen, an entrepreneur, author, and speaker say “When you don’t have a team, you are exposed as you possibly could be …. When there’s no team, if something happens to you, everything stops”

Summing It Up

These are the three key factors that can assist a business in earning their desired income. However, apart from following the above-mentioned practices, you should also be aware of the dynamics of your business at all times to come up with more strategic plans. Don’t forget to review your historical sales, pricing strategies, client size, the scope of the product, and other areas to improve your business’ profits.

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