209 | 3-Step Formula for Increasing Profits in Your Business: The Profit Pyramid

Hilary Hendershott: Welcome back to the Love, your Money podcast. Our relaunch package of episodes that are airing today include the proprietary frameworks my team and I use to show you how to consistently increase wealth. So, we use the Seven Steps to Wealth and the Profit Pyramid. So, this episode is the Profit Pyramid. And if you’ve got these two frameworks working in your life, you are definitely on your path to financial freedom.

Today, we’re talking about profits. Profit, of course, is that magic space in between costs and revenue. If you’re familiar with the definition of profits being business revenue minus costs, of course, but conceptually speaking, you can also have profit in your personal life. You won’t find that definition of profit in an accounting textbook. But when you go from being someone who spends more than you make to being someone who spends less than you make and saves the difference like I did, you know and can feel what personal profit does for you.

It means you no longer have to suffer through financial emergencies. When your car has trouble, you just take it to the mechanic and get it fixed. When your water heater breaks, you have the cash to buy a new one. When your friends call and want to do a weekend in Vegas, you buy the tickets, make the hotel reservations, and just go. You make memories instead of excuses. You dream in assets, not liabilities. So, I’m a very outspoken advocate for you having profits in your business and your personal life.

Today, we’re talking about a framework I created to teach my business owner clients how to maximize the profits in their business. And when you maximize the profits in your business, of course, that also maximizes the potential for generous personal income and abundant dollars in your bank accounts, business profits and personal profits. Again, we’re dreaming in assets, not liabilities.

Profits are what allow business owners to live rich lives, to take vacations, pay their teams generously. Businesses exist to produce profits. As the business owner, your focus should be on profits, building teams that create profits, building systems that create profits, tracking the actions and activities that produce profits. So, if you keep your focus on profits, everything else falls into place. Too many business owners focus on top-line revenue, and where you focus matters.

It doesn’t matter if you had $100,000 launch if you spend $150,000 on ads. But people like to shout their top-line numbers from the rooftops because those numbers sound better, they’re bigger numbers. And there’s that saying, “Revenue is vanity, profit is sanity.” But profit is way more than sanity. Profit is the juice. It is the business owner’s “raison d’etre”, your reason not for existing, but your reason for starting and running a business when you could take your valuable talent and education elsewhere and just get a job that you don’t have to think about at night or on the weekends. You’ve given your time and energy and resources to this business you’re running. It’s important to focus on the right things.

So, today, we’re talking about a formula that can guarantee profits for you. This concept comes directly from my work with hundreds of business owner clients struggling to make money work in a consistent way. We talk a lot about how to make money work on the show. But ultimately, you have to make money work in the background, so you can put business and family and joy and peace of mind in the foreground. So, you need systems that make money work for you that are elegant and that support you.

So, for years, I’ve been watching the difference between business owners who get it and make it work and those who don’t. And today, I’m teaching those secrets. I call this the profit pyramid because it’s three separate processes. You got to have all three in place, three sides of the pyramid or triangle like a three-legged stool. If you set them up, remain loyal to them, and honor these principles in your business, your profits and financial success should be inevitable. You have to do all the things, though.

So, let’s start high level. You’re the CEO of your business. The job of a CEO is to measure, track, analyze, and strategize. The CEO is the brain of the organization. You are air traffic control. I can easily say this is one skill set that is most glaringly missing for business owners who don’t achieve their goals. It is the great differentiator too. So, without fail when I meet business owners who do this, they’ve got a reliable growing and profitable business. When I meet business owners who don’t do this, they’re overworked, overwhelmed, and underpaid.

And the “this” that I’m talking about is tracking and making decisions by a certain set of indicators. So, everyone has heard of KPIs or key performance indicators, but the fact that everyone has heard of them and most small business owners still aren’t making use of them means their meaning and significance has faded. The definition is vague.

So, the first side of the profit pyramid, I’ve affectionately named profit-generating activities or PGAs. Yes, PGAs. These PGAS have nothing to do with golf, though. PGAs are the actions you or your team take that eventually lead to profits. They evolve as your business grows, so they’ll change over time. And of course, everything follows the 80/20 rule. So, if you isolate your most profitable PGAs, you can soon find yourself working a few months out of the year and enjoying seven-figure compensation. That might be a little bit of an exaggeration. But life gets really easy when you focus on your PGAs. Why is that? Because clarity about how to use your time and resources is what leads to a lucrative business.

If you want to be an effective strategist and earn the profits you want, you have to use a data-centered approach. So, this is universal, whether you were born with a calculator or a paintbrush in your hand. But don’t worry, it isn’t hard. However, it might require changing a strongly held mindset, like, “Hilary, my brain does not work that way.” Oh, but it can. It can work this way. It’s really just like being a private detective. So, you’re seeking out actions and activities that lead to profit.

Finding meaningful ways to measure success and shortfalls is not only critical, it’s your most important job. You’re the CEO and nobody is going to do it for you. Tracking PGAs drives you toward growth and optimization. Without knowing and tracking your PGAs, it’s almost impossible to build a thriving business. The more you understand your numbers, the more effective you’ll be at making the right decisions about how to allocate your time, which is scarce, and of course, your team’s time, your company resources, and focus.

So, what are examples of PGAs? Examples of the common essential PGAs used in businesses can include but certainly are not limited to the following: The number of Google Ads you’ve placed or paid for. The number of times you’ve “touched” a prospective customer, whether that’s with a pre-written email, a face-to-face strategy consult, or even a gift you send them. The number of times you’ve asked people to refer their friends, assuming 1% to 2% of them actually do that. The number of offers you’ve made in your weekly newsletter, depending on how effective that newsletter is. The number of meetings you’ve personally had or your sales team has had with qualified clients or qualified prospects, I guess you would say. The number of clients you received from that book you self-published because, for example, if you know you’re getting great traction from your book to real life sales, you can focus on book distribution above and beyond other sales techniques, if that’s working for you. The number of people you’ve asked to come work in your network marketing team, if that’s what you do. The number of outbound phone calls you’ve made to qualified accounts. Not many people make cold calls anymore, I guess, probably that’s selling in the DMs as of the end of 2023, right? Nobody’s making cold calls, Hilary. We’re selling in the DMS. Or maybe the number of speaking gigs you’ve booked, that can be a PGA.

So, of course, you can also track vanity metrics like podcast subscribers, social media followers, newsletter opt-ins, those are great numbers to know. But ultimately, your challenge is to figure out what actions you took to acquire those followers and then keep doing those things. And then, of course, you need to track your effectiveness on all those measures. For example, let’s say you’re a real estate agent and you visit 50 of your past clients, and from those visits, you receive one referral, that’s a 1 in 50 effectiveness ratio. And now you know if you want another client, you need to go see 50 more past clients.

Example number two, if you sold 500 self-published books and got two clients, that’s a 2 for 50 or 1 in 25 effectiveness ratio. And now you know if you need four more clients to close out the year profitably, you just need to sell 1,000 more books. Example number three, which goes hand in hand with example number two, like remember, in example number two, you need to sell 1,000 more books this year to close out the year profitably. So, let’s say you book a keynote speaking gig, a local business owner event, there’s 100 business owners there. At this event, you sell 50 books.

Now, remember, we decided in example number two, you actually need to sell 1,000 books this year. So, if you’re the same person in that example, you now know that you need either 19 or 20, depending on how you’re doing that math, 19 or 20 more events with 100 participants each to close out the year profitably. So, get that math is going to be customized to you and what you do. We can work that out together. If you’re unclear how to do that math, you can come do some money coaching with me. But the point is, this number is going to be customized to you. So, it really makes things simple. I love clarity. And these are the numbers we need to figure out for you in order to know exactly what your PGAs are.

The second side of the profit pyramid is a check-in routine. You need a regular and relatively frequent routine in place to measure, analyze, and strategize what’s happening in your business. It sounds simple, but I know that you know what I’m talking about when I say, we entrepreneurs are full of good ideas. They get jotted down in notebooks, highlighted in Kindles, misplaced in Google Docs, and even professionally documented in lovely calligraphy. On a business plan, you write at a big event and get very excited about and then forget even exists, right? It’s happened to me, I know it’s happened to you. I have lots of calendared routines in my life now, but the one that is responsible for the most money in my life is my weekly team meeting. That is where I check in on my PGAs.

Now, if you’re a solopreneur, I highly recommend you get yourself an accountability partner because 99% of people really, myself included, by the way, can’t be relied upon to keep promises to themselves. This is because breaking a promise to another person is public, someone knows about it and you feel ashamed or embarrassed. So, you’d rather break a promise to yourself. That’s invisible, right? Nobody calls you on it.

You can violate your food plan or not show up at the gym and nobody knows unless you tell them. I’m sure you’ve experienced that making a promise to yourself and keeping it in your head is far less effective than making a promise to another human and that putting that promise on the calendar leads to the most likelihood that it’ll get done. An accountability partner is like a coach, it’s more of a friend. And you can just make an appointment to meet and close the loop on promises you made last time you talked, make new promises for the next time you talk, and not let each other off the hook about these things. You’re trading value, you’re providing value to them, and vice versa. So, this is probably a free agreement that you’re making with another business owner you trust.

For me, I have a team that works for me now. So, I actually no longer have an accountability partner but I did for years. My check-in routine, like I said, is my weekly team meeting. Each member of my team has certain responsibilities. They fill out their part of this giant Google Sheet, we call the sales dashboard, before the meeting, and we get together for a 30-minute meeting every Thursday. We have a super tight agenda. The meeting moves fast. It’s a written Google Doc, I have all the documents I need, bookmarked in a particular folder in my Chrome browser. And we review the company mission and vision.

My chief of staff runs the meeting. We actually start by looking at our bigger vision and mission for the firm. So, we’re reminded of the inspirational vision we have for how human beings relate to and are supported by money in the future. And then we look at our firm’s PGAs. We verbally review the promises we each individually made last Thursday, and we state out loud whether we completed them or not. And the rule is, if you didn’t complete your promise, you look to see and analyze what happened that you didn’t complete your promise.

The idea is to, over time, identify the things that get in your way and, of course, get them out of your way. And I’m sort of now getting into step three of the pyramid. But let’s set that aside for now. Maybe you didn’t complete your promise because you forgot about it. So, you create a way to ensure that you are reminded. Maybe you didn’t complete your promise because you didn’t schedule time in your calendar to do it and other things came up and you did those instead. So, you blocked time on your calendar next time. Maybe you didn’t complete your promise because you didn’t actually know how to do it so you avoided it.

So, your promise this week is to go find someone who knows how to do it and have them teach you. So, you’re starting to see how this works. But the idea isn’t to always keep your promise or keep your word. I mean, if you fulfill everything 100% every week, counterintuitively, that’s actually a problem. And what is that problem you might ask? Well, you’re not making big enough promises. I mean, come on, how do you grow in life, right? You attempt, you make efforts at things you don’t know how to do or you don’t know how to accomplish, you exert effort that produces stress, which enables you to grow and expand.

So, the point is not that this weekly team meeting is an opportunity for people to look good by keeping promises or look bad by breaking them, it’s an opportunity for us to declare into the future, how we’re going to fulfill in our vision for the future, and then go out and create a world that doesn’t exist yet. That’s really the magic of being in business and the profound gift and opportunity of being someone whose life is about fulfilling a vision. So, the magic and uniqueness of this particular aspect of how to interact with your vision, your plan, and your promises is actually the pyramid’s third side.

So, let’s talk about a little bit more about the routine side, number two, before we move on. And then we’ll move right on to side three. So, from my team, every person on the team has the opportunity to say if there’s something they need from the company, which is like me, to get their job done, and then we look at next week’s calendar. And I, as the CEO, ask them to make certain promises for results that they’ll accomplish. I need them to do the things I see need to get done, and they get to make promises they want to make as well.

We do this team meeting, like I said, 30 minutes. If you want to do every two weeks instead of every week, I think that can work. But every two weeks is honestly the least frequently I would recommend you do this. And so, in that way, you have it in your calendar and it’s definitely going to happen that you’re going to check in on your PGAs at least twice a month.

Okay, profit pyramid side three, have an accountable relationship with your word and your results. I can best elucidate this by saying what it isn’t. Too many people have this relationship to keeping their word or keeping their promise, like I never break a promise, right? My word is my bond. Okay, that’s good. This is better than not caring if you keep your promises. But honestly, it’s highly unlikely that you never break a promise. You just don’t see it that way and you won’t acknowledge it, right? Stuff happens.

So, if you’re keeping your word to other people, no matter what, you’re probably breaking your word to yourself. And you’re probably not making big public promises because your relationship to it is I can never break my word. So, I’ll never promise something that I don’t already know that I can accomplish or complete. It just really keeps you small, right? You actually want to be making big public promises.

And I’m not saying go make it on Facebook every Monday. I see those posts also. I’m saying to a person or a group of people that care about you fulfilling on this vision, make it to your team or your accountability partner for what you’re going to accomplish in your business, and then you just want to relate to that promise, like it’s your word and you’re going to give it 100% to keep that promise, but the real growth and development occurs when you give it 100% and still don’t keep the promise because that is how you expand yourself and your capacity. I actually think that having an accountable or accountability relationship with your word is one of the most critical, yet under discussed skill sets for CEOs. I’m always a little surprised that almost every business and productivity book doesn’t start with this as a foundation.

Okay, so to recap, the profit pyramid is first isolating and then letting your profit-generating activities dictate your schedule, not your email, not other people’s emergencies, not your calls, not your text messages, not Facebook DMs. During your business day, have a scheduled portion of time where your PGAs guide your actions. The second side of the pyramid is tracking and recording PGAs and your results periodically, either weekly or every other week. So, pick a day of the week or every other week to circle up with someone else or some other group of people, track your results and let those results and your goals and form your promises for the next tracking pyramid.

And the third and final side of the magic profit’s pyramid is creating an accountability relationship with your word. What that is, is it enables you to become more effective at producing profits with the same level of activity. So, if you adopt these principles into your daily routines, I have every reason to expect huge profitability increases for your firm and more money for you and your family. Thanks for being here, and we’ll see you next week.

[END]