Habits of success. Good habits are one of the biggest keys to becoming successful in life. Whatever it is that you want to achieve- weight loss, a better financial situation, better relationships – it all comes down to taking simple, small action daily towards the attainment of that goal.Here’s a great video on the secrets success.
Habits of success. Streak in terms of sales and revenues and activities and so on but their costs get out of control and the company collapses they run out of cash there’s a rule that says that life is the study of attention and the more attention you pay to your cost the better you get at knowing your costs and especially at reducing them so the rule is you must know the exact cost of every ingredient that goes into the production of your products or services and very few people know the exact cost business success requires that you tightly monitor or control all your costs at all times some years ago I worked for a man who started with nothing and build a fortune of 800 million dollars and I was amazed that even at the time when he had his own private jet he had beautiful homes in luxury resorts he had hundreds and of office buildings banks shopping centers he still was meticulous about the cost of every single ingredient and that philosophy spread itself out through the entire company and that company was profitable year after year and you must do the same as well successful entrepreneurs are careful with their money they control their costs at all times they practice frugality frugality frugality they’re always tight-fisted. and interesting enough if you look at some of the biggest and most successful multi billion-dollar worldwide companies they’re also very careful with their costs they never take anything for granted and they are never excessive if success habits they can possibly avoid it well it’s essential that you know the exact cost of every product and service that you sell because you earn a profit by selling a product at a price that is greater than the total cost of producing it here’s an interesting discovery because of poor cost control many companies actually lose money on many of the products that they sell their selling a lot of them but because of cost of promotion habits of financial success Commission’s returns breaking shrinkage and all those other things actually losing money so they spend more of their resources selling more of the products and they keep losing more and more money ongoing cost analysis is a key responsibility well in in the habits for success in business university they teach you what is called micro economic theory and i took these courses some years ago and micro economic theory explains the relationships between cost and price i want to just give you three laws that you can think about number one is called the law of increasing returns what this says is that the more that you produce the lower the cost will be / item that you produce now here’s an important thing when you start to produce a new product or service or you start a new business everything is very expensive at the beginning because you’re going through a learning process you make every mistake you make every cost overrun it cost a lot but as you get better and better and you smooth out the system you will find that you can produce the same quality and quantity of products and services at a much lower cost and especially by the way you see this in manufacturing but it takes a lot of money to set up the factory to set up the equipment to train the people the first few products cost a lot but the successful students better and better they get at it the more smoothly they produce it the lower the price becomes and this is often the key to dominating the market is to be able to become so efficient that your costs are so low and you pass on those lower costs to your customers and of course i would sell your competition that’s the law of increasing returns the law of decreasing returns is the flip side with some products you’ll actually earn less profit with each item in other words because it costs you so much to upgrade your facilities to produce more products you will actually lower your profit level by trying to sell too many a perfect example of that by the way is harley davidson company harley-davidson company is always selling at the outside limit of their production and they’re encouraged why don’t you build wealthy people new factories because if you build new factories and there was a cutback or a slowdown in sales successful habits we would suddenly have the law of decreasing returns we have all these factories and people on staff and we be selling fewer so what they do is they produce at the level where they can make the maximum profit which brings us to the third law the third law is called the law of marginal return and the goal in the law of marginal return is to sell exactly the right quantity of products to earn the highest possible profit and you’ll find that every company has a point where at this level of sales with his level of cost they make the highest profit per unit and that is the optimum point it’s the point that every company aims at and then you have to aim at as well well there are several different kinds of costs that you must be aware of as a businessperson the first costs are what are called fixed costs now fixed costs these are costs that you incur whether you make any sales at all to do a fixed cost analysis you would say if we made 0 sales in the following month how much would it cost us to keep our doors open and then you realize immediately that a fixed cost is rent a fixed cost is permanent staff labor utilities taxes move salaries they’re fixed costs are things that you have to pay whether you make no sales at all that becomes your base your foundation and one of the things that you try to do in business you try to keep lowering your fixed costs which brings us to the next type of course called variable costs a variable costs are costs that you incur each time you make a sale for example there’s the cost of the goods sold the product or service that you buy or build to sell there’s the cost of sales sales commissions advertising delivery shipping these are costs that are only occurred if you make a sale so if you can imagine stacking first you have your fixed costs then you have your variable costs that stack on top of that the third type of costs are your semi variable costs these are costs that are partially fixed and partially variable that for instance labor cost is partially fixed but you can cut back on it by laying people off or by hiring temps these costs go up and down and you have a little bit of control over them and they vary depending upon your level of business activity and so then you put your semi variable costs like the third level onto your total fixed variable and send me variable another type of costs that people have is very important is called a sunk cost now a sunk cost is money that is gone forever you can never get it back for instance it could be an advertising campaign you engaged in last year it could be a piece of equipment that you bought that is obsolete it could be a computer that is broken that no longer works it could be furniture that’s over in your storage in other words a fixed cost is money you can never recover the reason I mentioned is is that many companies and many business people make the mistake of trying to recover fixed costs money that’s lost forever by investing more money we call this pouring money down a rat hole or sending my good money after bad when you have made a business mistake and you have lost the money recognize that it’s irretrievable and don’t spend more money trying to make back something pitch you can’t get back the final cost you have to be concerned with is called an opportunity cost now an opportunity cost is important this is money that you could earn if you invested the same amount in another product or service or activity for example let’s say that to engage in this activity to produce this product or service bring it to the market will cost a hundred thousand dollars before you make that decision ask what else could I do with the hundred thousand dollars and could i earn a higher return let me give you an example some friends of mine had built up over the years their family a very successful lumberyard and they built it almost in the center of town and over the course of 20 30 40 years the city had grown to a hundred hundred and fifty thousand population and this land with some of the best land in the city but they continue to operate their business they continue to make two or three hundred thousand dollars a year profit on their business which was distributed to their family members one day hot summer the lumberyard caught on fire and it burned down completely well it was completely insured so the insurance company presented them with an insurance check something like 20 million dollars well the question was how quickly do we rebuild or do we rebuild outside of town do we sell the land and then they realized wait a minute they could invest that 20 million dollars very carefully and intelligently and earn twice as much each year or more than they were earning running the entire lumber company with the whole family working in the company so what they did is they just simply reinvested the insurance proceeds and the whole family retired because of the opportunity cost so keep asking whatever you have to make an investment is there some other opportunity that you could invest the same money in that would give you a higher or safer or more predictable level of return opportunity costs are absolutely critical well you look at your business there are several cost that you must include the first cost of course is the cost of the products and services that you buy from others for resale not only the products or services but all the supplies the cost of the materials that you purchase the office materials the computers the telephones the accounting equipment and salt you have to include the cost of all labor and there’s two types of Labor this direct and indirect for example we have an internet business in our internet business we have half of the people who work there are direct their on our internal payroll the other half of people the people who work in the internet business are indirect they’re outside contractors but their labor is essential to the business so when we calculate the cost of the internet business as a separate business within the business we calculate all labor inside and outside you also have to include the cost of sales and marketing and commissions and advertising / product or service at yourself now this is important one of the most important cost you have in businesses what is called your acquisition costs it’s your cost of acquiring a sale sometimes its customer acquisition cost your cost of acquiring a customer who then may make several sales but you have to think how much do you pay to get a sale in the first place when i began my professional speaking career many years ago I I joke i say i learned to sell again when i began speaking i sold my house i sold my car i sold my furniture i sold every bit of savings and and investments that I ever had in order to to start my business what I found is because of my inexperience is that in the first year of speaking i paid 110 dollars per person for people to come to my seminars and listen to me and others i didn’t get anything back i paid out-of-pocket costs me a hundred and ten dollars to acquire a person who would listen course over the years that change but in your business you have to ask yourself how much are you willing to pay for a customer in terms of advertising sales commissions marketing costs and so on how much you’re willing to pay per product or service that you sell and then you ask yourself how much is it costing today to acquire a customer and could you lower that cost of customer acquisition could you lower that cost of acquisition of each sale it’s a critical cost you have to calculate another cost is the cost of packaging the cost of shipping the cost of distribution the cost of the people who put it together the cost of a male and postage at UPS and FedEx and everything else what does it cost to get your product or service to the customer you know that a single letter that you write to a customer cost anywhere from 25 to 75 dollars by the time you have taken your time to write the letter by the time the Secretary has typed it by the time it’s been put on stationary put into an envelope and put into who drive through the franking machine and then taken to the post office all labor costs 25 to 75 dollars per letter it’s absolutely phenomenal when you start to look and break down each little cost you also if you’re selling that product especially you also have to include the cost of what are called shrinkage of waste loss and also left and breakage it’s interesting many companies restaurants especially but many department stores retail businesses will actually make profits on the front end and go bankrupt because of the amount of theft that takes place on the backend so what you have to do you say what if one of the one of the Lost cost how many of our product or service disappears we used to do seminars with a large organization and we would send them 5,000 units and they would come back to us and they would give us an accounting less shrinkage of 300 units we call them up when we say what’s shrinkage well this is what we include into our costs it’s just products that somehow disappeared what we found out later that they were giving the products away they were actually selling them and not accounting for them so we eliminated the shrinkage we said zero shrinkage I said no no we we include shrinkage in all of our business is it you don’t include shrinkage with our stuff so ask yourself how much is being wasted how much means being lost how much is being thrown away but especially theft and breakage sometimes a product that is broken cost to enormous amount of money and wipes out the profit from five other products that you sell but that is a cost of business as well and it’s usually expressed as a percentage of total sales now another cost is interest costs if you are borrowing money on your line of credit you have to pay interest every month and what you do is you have to allocate your interest costs against the products and services that you sell so let’s say you pay a thousand dollars a month in interest and you sell a thousand units of your product what you do is you allocate one dollar per unit in interest costs let’s say eighty percent of your sales come from one product area and twenty percent comes from the other then you allocate eighty percent or eight hundred dollars to that area as an interest cost cost of doing business ok it’s very important that you be both accurate and honest another cost that you have to consider is bad debts now bad debts run differently in different industries sometimes the three-percent sometimes are five or ten percent if you have high markup products then you can absorb bad debts more than if you have low markup products but bad debts can cost you an enormous amount of money and some companies actually go broke because they don’t get paid substantial amounts this is why you have to be very very tight with regard to credit you have to follow up and people don’t pay you have to demand payment in advance cash you have to make sure credit cards clear because bad debts drain away all of your profits you can make it on the top line and actually lose money because of bad debts and because of shrinkage and then finally you have to include all other costs that must be paid well there are several companies now that do this type of cost analysis and what they do is going to accompany and take a particular product and they say all right let’s workout one hundred percent of the costs attributable to this product relative to the amount you sell it for profit then they’ll take every single product and they will do an analysis and they’ll find out that in your business in any business that there will be one product that wields the highest profit of any other product after all of the direct and indirect costs have been calculated then there is a number to product a number three product in a number four and in every single business you can order every product or service in order determined by how much they actually earn the company whenever they do analysis like this the owners of the companies are shocked and you know why it’s because sometimes the product that they’re selling that seems to be doing so well they’re actually losing money on everyone and sometimes a product they weren’t paying attention to because it’s easy to sell as high level of customer satisfaction highly profitable low returns sometimes a product they’re not paying attention to is the mainstay of the company so here’s the question to you what is the exact profit down to the penny that you earn for every single product or service that you sell and in order which is number one which is number two which is number three and so on now another thing that you have to do in business is you have to include the cost of your own personal labor there’s two ways that you can do this the simplest ways to ask yourself if you were working for another cup how much would that company pay you per month now was your last job how much are you worth in the marketplace let’s say that you were sixty thousand dollars a year in the marketplace that means that your labor cost your company five thousand dollars a month because that’s how much of your labor you are investing in the company each month ask yourself with regard to every product or service how many hours do you personally invest in a product or service one of the things that I’ve done with my entrepreneurial clients as i pointed out that there are some activities in their business that are such low value no value that they don’t warrant very much personal time at all and there’s some areas in their business that have such high potential that they wore it almost all of your time so you have to keep asking is this a good use of my time is this the most valuable use of my time is this the best place that I can invest my valuable scarce time in terms of the amount that it costs to hire me for example if you were in sixty thousand dollars a year it means that you learn about thirty dollars an hour alright so you have to ask yourself every hour is what i’m doing right now paying thirty dollars an hour and what else could I be doing with my time that has a higher potential payoff you should ask yourself what is the amount of your salary or compensation how much do you take out of the company and allocate that against all your activities ask the for the about the value of the labor of your family members does your wife work with the company or your husband do your kids work in the company put a number on their contribution and attributed it to your costs even though you may not be painted out directly and finally asked how much could you learn if you work for another company this here’s a discovery eighty-six percent of entrepreneurs because they’re not knowledgeable and sales marketing and cost controls eighty-six percent of entrepreneurs could actually earn more money working for someone else then running their own business and so ask yourself how much could you work earn working for another company rather than running your own business and how can you start to make every minute well ideally you should reduce your fixed costs and increase your variable cost the lower your fixed costs the lower is your break-even point so think about your offices and equipment it’s often better to lease or to rent officers and equipment many people started in business I think about buying their own premises no the smartest and biggest companies in the world rent and they leased equipment because they say when I’m not in the real estate business I’m in a different business if you’re not in the real estate business it’s much better to lease and have the flexibility of working out your lease and leaving rather than to own and have no flexibility at all sometimes it’s better to lease or rent computer equipment or office equipment or or trucks or cars or anything else try to keep your fixed costs down by avoiding buying this stuff in the first place with regard to labor costs you can lower your labor costs by hiring people to work part-time there’s a rule that says you should only hire people to work who are needed one hundred percent of the time you should never have people on the payroll in case things pick up so the best companies that I know have people who are fixed full-time who are working one hundred percent of the time and then they have part-timers and temps that come in and work with the with the workload goes up a critical thing now that many companies are doing is outsourcing they hire other companies who specialize to perform particular services for example in terms of payroll that their companies like paychecks and ATP that will come and do a hundred percent of your payroll for you all require is a single check once a month and you can close your entire payroll department these companies specialized so well in payroll that they actually do a better job at a lower cost than it would cost you for rent utilities people male staff computers and so on look to outsource everything that you can that is not part of your core business one of the great techniques for running a business efficiently and profitably remember the lower your fixed costs the higher can be your profitability the lower you’re locked in cost the more you prophets you can make when business gets going good now there’s several ways that you can calculate the efficiency with which you run your business and these are tools that you can use for the rest of your career the first is called return-on-investment the return on investment ROI is the amount you earn as a percentage of the total money’s invested in your business now total monies means the amount you’ve invested your friends have invested but also the amount of money that you borrowed either directly or indirectly through lines of credit what’s your percentage of return the second figure that you can use which is even better is called return on equity the return on equity is the amount that you are in Freeland have found the amount of cash that you or your friends have personally invested in the business this is your out-of-pocket how much what percentage are you returning or earning on the amount of you that you have invested another critical figure you can use is called return on sales now return on sales is sometimes called your sales margin but it’s the amount of gross profit and net profit that you earn from each item that you sell for example if let’s say you sell an item for a thousand dollars and it costs you nine hundred dollars to buy the item package itself paper staff and everything else it means that you earn one hundred dollars on return on sales from each item one of your goals is to increase your return on sales to earn more per item by lowering the cost or by increasing the price or both but this is a critical figure what are your returns on sales some companies very successful high-tech companies have fifty percent return on sales grocery stores have three percent return on sales it’s a small change in your return on sales can dramatically change your results the final number is called net profit that’s the amount that you have left after deducting one hundred percent of all the cost listed above what you do is you calculate everything in every single month you look what is your net profit what is your net loss keep focused you should be knowing every single month sometimes every week major companies will know every year within seven days at the end of the year exactly how much they burned were wyd because of their sophisticated and complete bookkeeping and accounting systems you have to determine your profitability each of your products and services conduct a complete cost analysis of each product include a percentage of all fixed costs that are attributable to that product or service include the exact amount of variable and semi variable cost per item you then deduct the cost of your personal labor is your hourly rate plus an allowance for all losses and write-offs determine exactly how much it cost and how much you earn from the sale of every product and service and finally remember that everything is based on attention you must continually study every cost and look for ways to reduce them this is a critical part of business success many companies are successful on the top line because they sell lots of their products and services and they go broke because of poor cost control on the bottom line don’t let that happen to you