How I cut my sales & DOUBLED my profits

Now I know what you're thinking. How on earth can you cut sales and double your profits? In fact, how can less sales mean more profits at all? Well, the answer is that not every sale is equal. Now, before we get to the detail, I'd like you to do me a quick favor, and that's click the subscribe button below. I post new content every week and I would love to be able to share it with you.

Okay. If you've not come across it before, let me introduce myself before we start. My name is Paul. And I'm an accountant. I'm a CFO. I'm an entrepreneur. And I’ve spent over 25 years helping businesses to grow profitably. And not only that, I've also run three businesses of my own over that time. So believe me when I say I know what it's like to be an entrepreneur and I know how tough that can be.

And that's why I started this channel. And today I'm going to focus on one of those businesses which I ran, which was the Kemp Townhouse, an 11 bedroom hotel on the south coast of England, which we ran for about six years. I can tell you, I learned so much from the experience.

Let me give you some background. We bought this business back in 2012, right? And it was turning over a decent amount of money for a small business, it wasn't making any profits but it was a really lovely boutique hotel and it had a lot of potential. And because I was new to the hotel business, I decided to run things just as the previous owners had done whilst I learned the business and something quite interesting happened. We managed to grow the sales. In fact, we grew the sales by about 50% by literally doing the same thing that the previous owners have been doing, which was plugging away, doing certain bits of marketing, not being particularly clever with what we were doing, but working really hard. But actually we got a bit of a shock at the end of the year because when we looked at how much profit we'd made, we found we’d actually made less profit than the previous guys had because not every sale is equal.

And so something really drastic had to change as we went into our second year, and that was to fundamentally change our approach from focusing on sales (revenue) to focusing on profitability. Now, I don't know if you guys have had the same experience of chasing the top line, but still never having any money in the bank at the end of the day but if you've had that experience, I'd really love to hear from you. So drop me a line in the comments below.

So, what did we do in year two? By switching our focus from sales to profitability, we had to literally go back to scratch. The first thing we did was we had a really good look at the numbers. We kind of broke down our accounts on a monthly basis and we looked at how much money we were making, how much in discounts we were giving away, how each category of costs were changing over time and how they varied in relation to sales. 

And what really brought it home to me wasn't just looking at numbers in total. You know, you can look at a number and say, okay, my food and beverage costs were $5,000 last month. Is that good? Is that not good? It's just a number.

But actually, when you start dividing those costs by the number of units you're selling, in our case, it was the number of room nights, things become really, really clear. We found that whilst we were charging on average, about $200 per room, when we looked at the profit we were only making about $10 in profit for every room night. So, with that in mind, when we had food and beverage costs around $5 per night, you can imagine that if those go up just by $5, all of a sudden I'm not making $10, our profits (which were not great to start with) would have halved!

And we did the same with all the other costs, such as housekeeping. How could we do that more efficiently? And we found we could save another $3 there. So drilling down on your numbers is really the starting point and can be highly insightful.

The next thing we did was to look at the quality of our sales - by looking at these over a year and ranking them in order of profit rather than sales. In our case our profit was completely driven by seasonality and the level of discounts that were being given. And we started to be a little bit more ruthless. A big area for us was promotions. Okay. Now, we all know that you have to give money off or run a promotion to get more business in. And at certain times of year, depending what your business is, you're going to have to give more money off than others. But too often those promotions aren’t particularly smart, as in our case. We found that initially we were making a nice profit over the summer, breaking even in the autumn and spring and making a huge loss in winter.

So we started being a bit smarter about the types of promotions that we were running and when we were running them and that made a huge difference to our business model. And that's something that I really urge you to do. Don't just do things which you've always done before. Just think a bit more smartly about how you can do things differently, and perhaps look at what your competitors are doing because that's another really good sign.

And then once you've made some changes, leave them for a while. I'd suggest letting them run and review them after two or three months - look at what's worked and what's not worked, what needs tweaking, and then rinse and repeat, as they say in the old shampoo business, based on a rolling three month cycle. 

That way you're going to really focus on growing your profit rather than sales and you’ll be amazed at the difference you can make. That's what we did in all year two of business. The guesthouse - we actually doubled our profits and sales dropped back to where they were in the first year. And, for us, it really took the pressure off.  We were making decent money. The staff were happier. It was a really lovely place to be. 

I'm going to give you a bit more detail in terms of what else we did, because I think depending on your business, you might find it helpful.So we've talked about looking at our promotions, which was a big thing. We also evaluated the partnerships we had, the promotional partners, working out which ones were really driving profit, not just sales. 

We then looked at our pricing model and we implemented a variable pricing structure, which meant that when demand was higher, so were our prices and we pulled them back when there was less demand. Finally, we made another bold decision which was we decided to close the hotel in January for 4 - 6 weeks when there was practically no demand. As well as saving money, it also gave us the time to do the bigger maintenance jobs that were much more difficult to do when the hotel was open.

Well, I hope you found those examples helpful. Whilst most of you won’t be running a hotel, bear in mind that most of these learnings can be applied to any business.

There was a fair bit of detail there so to make things easy for you, I've got a free fact sheet which summarizes the points we've talked about, so if that's helpful, feel free to download that and think about how you can start applying those to your own business.

And also before I go, I also have another free factsheet, which I’d really like you to download, and it's all about turbocharging your cash flow in your business and doing so without selling a penny more.

So if that's interesting as well, click the link below and download it. And if you've not done so as yet, as I mentioned earlier, please subscribe because I'm posting new content every week and I'd love to be able to share that with you. Well, thanks very much for listening. I appreciate your time and I look forward to seeing you in the next video.