PDA

View Full Version : You must see profit margin growth in order to invest.


Steve
03-06-2011, 08:52 PM
Research and development plays a very important part in a company's growth. That research can go into the creation of a new product or in development of ways to provide services more efficiently.

To succeed, a company not only needs research and development, but they also need to translate those new products and efficient services into sales and revenue. Without an increase in sales and revenue, the efforts spent on R&D will be wasted.

How do you translate your R&D into increased revenue? You do this with your sales team. Your sales team needs to be the facilitator of ideas and communication between the customers and the researchers. The sales staff must take the new product or service and translate that improvement into something the customer will want. The translation will come out as a benefit to the customer.

It is important to remember customers don't buy options, they buy benefits. This applies to every industry. If you want to sell to your customer, you need to ask yourself, how will the customer benefit from what I have to offer and create your marketing around that message.

Will their lawn become greener? That is a benefit. Will they have more time with their family because they won't have to cut the lawn themselves? That is a benefit. Will your newer equipment that has a wider cut, allow you to do the job faster and cheaper than a competitor? That is a benefit.

Your sales staff not only needs to translate your products or services into benefits, to sell to the customer, they also need to listen to the customer and pick up signs of trends that are occurring in the industry. Are they hearing more customers looking for organic services? This is a trend. Such trends need to be monitored and experimented with to see if such trends can lead to new products or services. Your R&D team need to take these trends and add them into their ingredients to experiment with in order to create more products or services that will provide your company with future growth.

At the end of the day the, all the growth in the world will not equate to a good investment if that growth does not produce an increase in revenues.

This applies to every small business as it does to a large public business.

Don't let the excitement of growth alone effect your investment judgment in your business or your other investments. Growth must be accompanied with an increase in revenue to make it a worthwhile investment.

What do I mean by all this? How does this apply to you? Don't invest in that extra truck or that extra mower or extra employee, unless that growth will bring along and increase in revenue. And when I say revenue, I mean profits.

So next time you are going to invest any money in anything, you need to ask yourself, will this investment bring me an increase in profit margins?

Before you invest in that McDonald's stock because you heard all these news articles about their growth, check to see if their profit margins have been increasing first.

Before you invest in that new mower, work some figure projections out on a piece of paper to see if this new mower will increase your profit margin.

If the profit margin will increase, then you should invest. If it won't increase, don't waste your money on that investment and instead, look for another.