Page 101 - The 7 Day Startup: You Don’t Learn Until You Launch - PDFDrive.com

Build a Business With Growth in its DNA

I did a lot of soul searching after I sold that business. I knew I did a lot wrong,
and I wanted to make sure I didn’t make the same mistakes next time.

I also want to make sure you don’t make the same mistakes, so I’ve come up
with five criteria for building a business with growth in its DNA.

1. Profit Margin

It’s easy to work out whether or not your business has profit margin, or to at
least estimate it early on.

Imagine not being involved in your business at all—everything the customer
experiences gets handled by a team of people or systems. How much does it cost
you to keep that customer and how much revenue do they generate?

The actual, acceptable percentage will depend on a lot of things, but obviously
you have to be making more than it’s costing you to service each customer. For
our services startup I decided a reasonable figure was double. That is: half of our
revenue is costs, half is profit, so I’d have a 50% margin. If it costs $50 / month
to service a customer, I would price the service at $100.

This is a very rough rule but I’ve found when you be truly honest about your real
costs, most small businesses don’t have a margin this high.

I solved this problem by cutting out 99% of what I offered and only offering a
service that I knew affordable contractors could excel at it. This enabled me to
have an acceptable margin in the business of around 50%.

For you, it could mean something different—perhaps just charging more.
However I would warn you about falling into the trap of charging more. It’s
much like cutting costs, you can only do it till a point. I much prefer having a