The Sales-Related Money Problem
Last week, I was talking to Lucy, who has her own business. She’s feeling at the end of her rope. She’s worked so hard and yet doesn’t feel like she’s getting anywhere. Her perception is that it just isn’t worth it. She might as well give up and get a job. Specifically, she hasn’t made enough money to pay herself in fact, it feels like her business is costing her money. She works hard and has a good customer base, but just doesn’t ever seem to have enough cash in the business to pay herself.
I spent a while with Lucy looking at what she’s done sales-wise and how it’s going. She’s is a direct marketer who sells make up. She loves what she does, image is her thing. Lucy is passionate about helping other women look and feel great, using products that don’t damage the environment, or animals. She decided to start a direct sales business, because it saved her the job of creating a whole range of cosmetics herself (which is something she had contemplated originally).
Do You Know Who Your Perfect Customer Is?
Lucy has done the Perfect Customer work and she knows that her Perfect Customer is a woman aged 45+, who feels a bit out of date with her make-up and wants to know how to update her image. The Perfect Customer has a good level of disposable income and is prepared to pay a bit more to buy premium products.
Great! Lucy knows who she is marketing to. She knows where her Perfect Customer is and has made great strides towards being in the same places. One of Lucy’s marketing strategies has been to make contact with independent clothing shops, and she has run a number of successful events in collaboration with them.
However, Lucy hasn’t had the results that she wanted by this point in her business journey.
So, we had a proper look…
How Much Stock Are You Holding?
Lucy had done what felt like the sensible thing when she joined her direct sales company and she had bought in some stock. She wanted to be able to provide great customer service, and felt that holding stock was an important part of this. Lucy is also a savvy businesswoman and had therefore taken advantage of a couple of special offers that the company had where there was a good saving to be made and she had an event coming up. In addition, on more than one occasion she had bought stock to bump her up to the next level of compensation, because it makes a significant difference to her profit margin if she sells products that she buys at this particular level.
In short, Lucy has a lot of stock. Actually, she has a LOT of stock. When I asked her the value of the stock she was holding, she couldn’t tell me specifically, but knew that it “was around £1,000 wholesale”. I got Lucy to do a proper stock take. She dug out every single lipstick, eyeshadow and lip liner (even the “oh, those are old stock” ones). She scoured the house/garage/shed for sneaky little bits of stock that had been put ‘somewhere safe’. Lucy counted it all.
To her absolute astonishment, Lucy realised that she is holding over £8,000 wholesale of stock. She couldn’t believe it. That’s over £15k retail! No wonder Lucy hasn’t been able to pay herself, she’s spending everything she earns (and more) on stock.
6 Places You’re Leaking Money
What has happened to Lucy can happen to lots of us. We think we know what’s going on in our businesses financially, but sometimes we don’t actually know where our money is going. In Lucy’s case, what should have been income and cash flow was tied up in stock, but she had no idea. Her ‘best guess’ on what she was carrying stock-wise was only 25% of the actual value of what she was holding.
Please don’t misunderstand me here, it’s your money and you can do whatever you want with it. However, if you don’t know where it’s going you need to sit down and work it out. Here are some places I’ve seen (and had!) money disappearing to without realising it.
- Subscriptions. They seem like a good idea because they’re only £5 (or whatever), but only if you actually use the product.
- Courses! Online, offline – if you buy lots of courses but never complete them, you may want a rethink.
- Gadgets. I know you need that gadget, but if you’ve not paid yourself yet, perhaps it isn’t desperately urgent?
- Free trials. You know the ones? You get 7, 14 or even 30 days for free, but then forget to cancel them and end up paying.
- Discounts (the ones you give!). I know that one place that money can disappear is with those of us who find ourselves discounting because we worry that we’re too expensive. Pricing is a whole separate issue, but if you’re randomly discounting, stop it! 😉
Don’t give up because there never seems to be enough money to actually pay yourself if you can’t, hand on heart, say where it’s all going.