The Pumpkin Plan (by Mike Michalowicz) isn’t just about growth. It’s about profitable growth. After all, if your business is growing but so are your expenses, and you are not actually making money, what exactly is the point?
Cost savings and profitable growth won’t magically happen by themselves
In my last blog post, Let Your Bad Clients Go, Make More Money, I talked about how your worst clients and customers could actually be causing you to lose money as they use up a disproportionate amount of your time and resources. Once you let those clients go, you will certainly feel a new sense of freedom and breathe a big sigh of relief. You will have more time and resources to devote to better, more profitable clients. But those cost savings and increased profits won’t all magically happen by themselves. You have to take action.
In The Pumpkin Plan, Mike calls this action “The Tourniquet Technique,” designed to stop your company from fatally bleeding out cash. We have had many companies contact us over the past 5 years, looking for profitable growth so that they could support their bloated companies. I completely sympathize with these business owners. Sadly, as I have come to discover, it is backwards thinking and it rarely works. Here’s the problem – very often adding more customers or increasing sales requires a commensurate addition in resources. It requires a larger investment in marketing, and it requires the resources – people, materials, time – to deliver your product or service. Your company continues to bleed out cash, because you are not aligning your resources with your Top Clients, your Unique Offering, and your Systems (AKA Your Sweet Spot).
You can’t be everything to everyone if you want to be profitable
For example, a fashion jewelry company that I worked with experienced great success early in their business. The founders were creative and designed beautiful one of a kind pieces. Before Pumpkin Planning, they sold a variety of styles at a range of price points, through a variety of venues. They were trying to be everything to everyone. And while their sales were good, their profits were low, and as the business “grew” their profits grew smaller.
Then everything changed. Once they figured out who their top clients were, and what their brand (AKA Unique Offering) was, they were able to focus on serving those Top Clients with a specific style and forget the rest. Questions from less than ideal clients like “what happened to the low cost bracelets you used to sell” were met with “I’m sorry, we don’t carry that line anymore.” And herein lies the key. In focusing their resources on FEWER styles, and less of a variety, they were able to significantly cut their inventory and supply expense, setting themselves up for profitable growth. Because they had been purchasing many different types of components for their jewelry, they had been purchasing each in lower quantities, missing out on discounts for higher quantities. As they cut the variety of components they needed to purchase, they were able to increase their quantities on the remaining components and receive better pricing as a result.
Narrow your offering and make more money
I know what you’re thinking – if they cut the variety of styles that they offered, didn’t they make less money? Didn’t their business shrink? The answer is the opposite – they grew. Because they were able to focus their resources on growing their sales within a more narrow target market of customers who loved what they had to offer, they became more well known within that space. They also targeted their marketing dollars more efficiently, built a larger following and delivered their products more profitably.
The same is true in your business, in any business. If you take the leap and cut your worst clients, once you’re done doing the happy dance, your next step is to cut the resources that were devoted to serving those clients. I know, sometimes this process can be painful. Sometimes it means cutting employees, or really cool pieces of equipment, or services that you like but no longer need. But it also means becoming much more efficient, fully utilizing the resources that remain, and reversing the flow of cash back into your business, and your wallet.
Even without Pumpkin Planning, if you sit down and go through your P & L line by line, there are most likely many places that you can find to cut expenses in your business. But at some point, there is just nowhere else to cut. On the other hand, if you follow the Pumpkin Plan method, focus your attention and your product/service offering on a specific group of your best clients, and create systems to efficiently deliver your offering to your Top Clients, your cost saving opportunities will be exponentially greater, and your profit margins will skyrocket along with your revenues.
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