Ep #12 Profit First Chapter 8 – Find Money Within Your Business

Listen here

Subscribe To The Podcast Here

Watch here

Read here

Hello and thank you for joining us today on the Profit Scale Thrive Podcast, where we guide attorneys to overflowing profits, scaled growth, and thriving lives. I am your host, Kelley Brubaker.

We have a secret though - this is a special place because we don't work with every law firm owner, we support the solo attorneys who are single parents because we know the special challenges you face, and we know the business advice out there is not always practical for you and your firm.

Each week we will talk about things that will give you the insight you need to stop feeling overwhelmed, to gain back your confidence, and to finally enjoy your law firm and your life again.

Podcast Episode #12: Profit First Chapter 8 – Find Money Within Your Business

Hello and thanks for joining me today for podcast episode number 12. 

Welcome back, or for those who don't know me yet, my name is Kelley Brubaker. I'm a CPA and a business coach who supports solo attorneys who are single parents. 

I'm also a certified Profit First Professional, which means I help my clients implement the cash management system presented in the book Profit First written by Mike Michalowicz.

A few weeks ago, starting with episode 5 of my podcast, I began a dedicated series of episodes to share with you in detail chapter-by-chapter the book Profit First. If you have read the book, please follow along as I will share tips not in the book along the way. If you have not read the book, but you are curious about it, please stick around as we go through chapter by chapter.

This week we are talking about Chapter 8 – Find Money Within Your Business. We have done a lot of work so far to understand why Profit First works, how to use it, and how to customize it perfectly for our own business. And, we only have a few chapters left to review!

Money Is Everywhere

There are a lot of doubters when it comes to Profit First. And, I love Mike’s story about listening to someone else convince a doubter that Profit First actually works.

While at a roundtable event answering questions about Profit First, one person voiced their opinion that Profit First wouldn’t work for struggling businesses. Another person at the table chimed in. He explained that he didn’t know about Profit First, but in his struggling days, he challenged himself to cut his overhead by a third.

The business delivered oil but in two ways: outlet businesses received a delivery of hundreds of gallons at a time via a tanker truck and retail stores received a delivery of quarts for their store shelves via a box truck.

Because of the two different types of trucks needed, the overhead was massive as they needed two of everything to fulfill their orders for each service area: two trucks, two drivers, two customer service representatives, etc.

The owner challenged himself to come up with a way to cut costs by a third for the same volume of customers. But how?

His plan: cut a truck in half. Literally. Convert one truck that could deliver gallons of oil like a tanker does that also has storage for quarts of oil like a box truck has. While there was a cost to convert the trucks, he EXCEEDED his goal and cut overhead by almost HALF allowing him to ultimately grow his company to a $50 million dollar, highly profitable company.

It’s Smarter To Dig A Well Than Make It Rain

Did you know that in Idaho, their annual rainfall is only 17 inches which is 20 inches less than the national average? You may be wondering to yourself, who cares? But, then how does Idaho grow and export a massive amount of potatoes each year?

Because they tap into their underground water supply.

The same can be said for your business. Wasting time on trying to make it rain in your business will only highlight the inefficiencies in your business. Meaning, new revenue will not create a corresponding increase to your bottom line. What goes on “underground” or in the back office in your business can help you find heaps of hidden money.

The Profit Squeeze

Is it possible to have too much profit? Is there a maximum limit to profit? Interesting question!

The answer? A business should always strive to have the maximum profit possible because there will always be competitive pressure working to stifle your profit. When you figure out how to increase your profit, your competition will be close behind, which will force you to find another way to increase your profits.

For example, the flat screen tv market. In the early 2000s when they were first available, they were expensive and very much considered a luxury item until about 2005 when prices began to drop by 25% annually. By 2010, the prices were so cheap that sellers were practically giving them away!

Then, manufacturers figured out how to make them easier and faster which increased profits temporarily. But, as each manufacturer streamlined their production, they were able to drop their prices to capture more of the market.

But, profit is a slippery slope. When profit margins are high, competition is usually high too. The competition will continually squeeze you so you must continually look to do things better, faster and cheaper. 

The nice thing about Profit First is that as long as you keep your profit allocation consistent, you will automatically be forced to find ways to make this happen!

Two Times The Results With Half The Effort

Hopefully by now, you agree that adding more revenue does not lead to increased profits. More sales can actually make you less profit if you are not efficient.

Remember in the beginning of the book, we talked about toothpaste and Parkinson’s Law? Your supplies (or time to work) will expand or contract based on the need.  In other words, if you have 40 hours or 8 hours to complete a project, you will get it done in the time given. Now is the time to put this into practice.

Let’s work on this: increase your efficiency which will result in more profit per sale. Then, sell more. Then, improve your efficiency more. Sell more. And so on. Over time, your profits will skyrocket!

Here’s an idea to increase your efficiency. Serve the same type of clients with the same or similar problems which will allow you to consistently fix these problems with less effort and resources. The efficiency comes from less research time and less time needed to create the items needed to fix their problems.

Duplicate your best clients and reduce the variety of things you do for clients. There’s a reason why McDonald’s only sells a few things - because it’s the fewest possible supplies that can be repetitively prepared and serve clients consistently. That’s where they get efficiency!

I challenge you to look at every aspect of your business. Determine how to get the two times the results with half the effort. Effort being financial cost and time cost. How can you onboard two new clients in the same amount of time it takes you to onboard one client today?

There will always be reasons to avoid doing something better, but figure this out and you can be the market leader that everyone else is chasing. Innovation occurs in small steps, big leaps and everywhere in between. When you focus on doing twice as much with half the effort…that, my friend, has a direct impact on your bottom line.

Profit First creates a way of life where by running your business within your allocated OpEx, you are continually forced to find new systems that are more efficient today than yesterday.

Here’s an out of the box solution that I love. In 2006, UPS discovered that only making right turns in their delivery routes saved time from sitting in left turn lanes and less idle time waiting to cross traffic which resulted in a savings of $6 million a year from needing less fuel.

Another UPS efficiency find: drivers keep their keys on their pinky fingers. This move saves 5 to 10 seconds per stop times 50 stops per day over their massive number of drivers per day and there’s another huge savings.

My last UPS savings idea - washing the delivery trucks every 2 days instead of every day. The savings here was in time, energy and water! 

So, I challenge you again - what can you do to get two times the results with half of the effort?

Chip Away At Expenses

Cutting expenses does not need to be done all at once and never at the sacrifice of quality to your products or services. You can take it slow but just get started!

Fire Bad Clients

“The Pumpkin Plan” is another book Mike Michalowicz has written for the small business owner. Where “Profit First” focuses on cash management, “The Pumpkin Plan” focuses on increasing efficiency and business growth. A great lesson in “The Pumpkin Plan” is about letting go of clients who suck us dry because in addition to depleting our souls, they are eating up our profit margin.

By making room for clients we can serve exceptionally well by doing what we do best with the fewest resources, we can now grow our top line and our bottom line.

Mike shares a study conducted by a Chicago-based growth-consulting firm Strategex. The studied the revenue, cost and profit breakdown for 1,000 companies. The results were…expected. Let me explain.

Strategex sorted the clients of each company into 4 groups in descending order based on revenue. The top 25% clients were in group 1, the next top 25% in group 2 and so on through group 4. For the 1,000, group 1, the top 25% clients, generated 89% of total revenue while group 4, the bottom 25% of clients generated 1% of revenue. Ouch.

But, it gets worse. The study concluded that it took the same amount of cost and time to serve each client regardless of their size. Meaning it took the same effort to serve the top clients as the bottom clients.

And, even worse, the profit analysis concluded that group 1, the top 25% of clients generated 150% of total profit. Groups 2 & 3 clients were effectively break-even with respect to profit. Group 4 clients generated a 50% loss in profit! This means that the top 25% of clients were funding the losses to keep the bottom clients around!

I’m sure you’ve experienced this too. The clients who barely pay peanuts but constantly complain about how much you charge and do nothing for them; the clients who demand you re-work what you have already done for them before and still refuse to pay. Or blatantly drag out paying you forever. These clients are costing you money – get rid of them – FAST!

It may seem counterintuitive to fire clients, but remember that not all revenue is the same. Firing the bad clients will lower your revenue for sure, but you are now freeing up the unnecessary costs associated with them. This will lead to a jump in profitability and more importantly a reduction in stress. And these are benefits you will quickly see.

And now the flip holds true – now you will have time to purse and clone your best clients! So, take a chance and weed out one rotten little pumpkin. The one who you dread seeing emails in your inbox from or seeing their name on your phone’s caller ID. The emotional distraction that client has caused you and your staff will immediately disappear. Stop spending your profits from your best clients to carry the deadweight of the crappy client.

Clone Your Best Clients

Let’s talk about who your best clients are. Who is the client you always pick up the phone for? You are excited to answer their emails? They pay you what you are worth, on time and without question. They trust you, respect you and follow your instructions. You love this client and they love you. Now imagine this client has identical an identical twin or even triplet siblings. Wouldn’t it be easy to serve those clients? Wouldn’t it keep your bottom line healthy? Now imagine ten clones or even hundreds. 

Having clients with similar needs and very similar behaviors offers a few magical profit-making benefits:

1. You will become superefficient because now you serve very few but consistent needs rather than an excessive array of varying needs.
2. You will love working with your clones which means you will naturally and automatically provide better service. We cater to those we care about.
3. Marketing will become automatic. Birds of a feather flock together. Your best clients hang out with other business leaders who have the same “best client” qualities you are looking for. Because your client love you too, they will talk you up every chance they get.

Clones of your best clients are the very definition of efficiency which is why they are like gold. Find them. Nurture them. Find out where even more best client clones hang out and cultivate them too.

Sell Smart

Remember in chapter 1, Mike told the story about his landscaper, Ernie, who tried to expand his menu of service because he was already at Mike’s house? Instead of doing his one thing, landscaping, really well, he tried to be everything to everyone. In doing so, it required a lot of equipment he did not own. Additionally, some of these services were new skills that Ernie had to learn which made him inefficient. 

Don’t get caught in the Survival Trap. Efficiency is the secret sauce of profitability – getting more of the same things done with better and better results using fewer and fewer resources. Selling without having the efficiency in place is the most difficult way to increase your profit.  But, applying efficiency strategies to your top line – firing bad clients, closing the good ones, refining your offering to get the most out of your resources and then selling smart – is a surefire way to increase profitability.

Listener’s Question of the Week

And now, it’s time for our Listener’s Question of the Week!

Instead of a listener’s question today, there is a side note in chapter 8 of Profit First that is something I would like to address here.

The Pareto Overlap

The Pareto Principle is commonly referred to as the 80/20 rule. Pareto was an Italian economist in the late 1800s who studied the distribution of wealth. He discovered that 20% of the Italian population owned 80% of the land. He looked at his garden and realized that 20% of the peapods contained 80% of the peas. And, on and on.

Pareto’s Principle also applies to your clients in that 20% of them yield 80% of your revenue. And, even further, 80% of your profit is derived from 20% of the services you offer.

The key to this advanced strategy is to connect the two – your top clients and your top services. While some of your top clients buy most of your profitable services, some of your top clients also buy your lowest margin services. But, the opposite is true – your worst clients may buy your highest profit services or lowest margin services.

But, once you see the overlap in your top clients and most profitable services, your decisions will become very easy. Get rid of the “bad” clients who only want your least profitable services. They are not a good fit and not making you money.

Find a new way to manage the weak clients who do buy your most profitable services. Often, “bad” clients can become better clients if you meet with them to set new expectations and methods of communication. Be sure to meet with your top clients who don’t buy your most profitable services to find out how you can deliver profitable stuff to them too.

When you focus on Profit First, even when choosing the clients, you are willing to work with, you increase your profit dramatically. Not only do you save money by cutting unnecessary expenses related to service weak clients, who don’t buy your profitable services, you also free up your time, energy and creativity to focus on the clients you love who bring in the profit. Applied to your client base, the Pareto Principle is an advanced Profit First technique that does double duty – you save money and gain profit. Got to love that!

If you would like to submit a question for a future episode, please send an email to [email protected] – and no - by sending an email you will not get added to an email distribution list, there will not be a phone call and there will not be a sales pitch. We follow the golden rule – treat others how you wish to be treated!

Inspirational Quote

This week’s inspirational quote is from Earl Nightingale, “Success is the progressive realization of a worthy goal or ideal.”

Final Thoughts

Final thoughts for today! I hope you are enjoying this approach to the book Profit First! Before today, we have been focusing on increasing bottom line profit without a concern about top line revenue. But, today we talked about a couple of different ways to grow your top line revenue. 

Great tips – fire bad clients, clone good ones, and shrink your menu of services.

Next week we will be talking about some advanced Profit First techniques.

Here’s your homework for next week:

Step 1 – For one aspect of your business, one that benefits your best clients, challenge yourself to figure out how to get two times the results for half the effort.

Step 2 – Using the strategies we learned about today, identify your weakest clients. Fire the weakest links. Don’t burn bridges – just politely end the relationships. You are not dating anymore, but you can still be friends.

If you have any questions about today’s episode, feel free to comment if you are watching on YouTube or send me an email to [email protected].

If you know someone who might need to hear this information, please share this episode with them or if you are on YouTube, tag them below! 

Be sure to follow and subscribe to get notifications for future episodes.

Did you enjoy this episode? Please consider leaving a review. 

And before I go – remember - profit is something you intentionally plan for in the beginning. It is not a potential bonus at the end of the year!

Thanks, and have an amazing day!

Let’s talk about why more sales is not always a good thing, why you need to fire bad clients and Pareto’s Principle.

Also, in episode 11, I offered my digital course for the Debt Freeze exercise discussed in episode 11 that can be purchased by clicking on this LINK. It was such a popular offer that I am extending the offer! The first 20 people who click on the link will get the course for FREE! You are welcome!

Be sure to follow and subscribe to get notifications for future episodes!

✉️ EMAIL: [email protected]
📞CALL: (234) 207-5772
💻 VISIT: www.ProfitScaleThrive.com

#entrepreneur #soloattorney #singleparent #attorney #lawyer #sololawfirmowner #profitscalethrive #moneymindset #business #moneypodcast #sololawyers #smalllawfirms #cashstuffing #envelopemethod #profitfirst #relay #pareto #firebadclients