Q: I own and operate a lawn-maintenance and landscaping business. Over the past two years, I've added house-painting and home-renovation services in an effort to grow. Although I've increased my overall sales, my business is only slightly more profitable than before. What can I do to make my business more profitable?
A: You may be experiencing the results of attempting to operate outside of your business's core products and services. Although you have the ability to offer other products and services, you may be better served by concentrating on the mix of products and services in which you have a comparative advantage.
When a business focuses on the products and services in which it has a comparative advantage, the business is attempting to grow by increasing the sales of products and services that it has the ability to provide better than other businesses, and often times much more profitably. This increased "ability to provide" translates into your business's reputation for providing quality products and services. Your business is then in a position to grow more quickly, as potential customers think of your business as a provider of certain products and services. And since your business has trained labor and established wholesale distributors, your cost of providing these core products and services can be expected to be less, thereby increasing the profit margin on these core products.
When your business attempted to offer house-painting and home-renovation, it was trying to compete against businesses that may well have a better reputation for this type of work and may also be able to provide these products and services at a lower cost, which translates into either higher profit margins and/or increased sales due to lower prices to customers.
If you promote your business's existing reputation for providing lawn-maintenance and landscaping services, you may find that your business will grow and become more profitable faster than when it offered the house-painting and home-renovation. Also, your business's labor and advertising expenses may well decrease, too, as you redirect your emphasis on the business that you're in. Remember, as your business becomes established, it creates a certain image in the minds of the consumers. The more focused your product mix is, the stronger the identity your business enjoys. If your business offers too broad a product/service mix, this may tend to confuse your potential customers--and a confused customer rarely buys.
Attempting to grow a business horizontally, such as by adding house-painting and home-renovation, can be costly and can also contribute to a loss of market identity--both of which can slow your business's rate of growth. If you feel that you need to add additional products and services to your mix, you may wish to consider adding new products and services vertically. This means your business adds complementary products and services. In the case of your particular business, this might involve new additions such as underground automatic sprinkler systems, brick or stone walkways, or even fencing. Just be certain that your business has the ability to provide these added products and services efficiently and without a large increase in capital investment.
Alternatively, you may wish to consider your business offering additional products and services that it does not directly provide. By establishing and nurturing strategic alliances with other businesses--such as providers of underground sprinkler systems, brick or stone walkways, fencing, or even house-painting and home-renovation--your business can earn a referral fee by directing your existing customers to these other strategic alliance partners. Because these referral fees are pure profit, they directly grow your business without any additional investment, effort or risk.
David Meier received an MBA in Finance from Loyola of Baltimore, and spent much of the 1970s teaching business courses; later, he created a consulting group, and for the next two decades, provided accounting and tax services to small-business owners. He is currently the founder and COO of Small Business 411, which provides small-business owners with ongoing business coaching and the knowledge and support required to enable them to become truly successful entrepreneurs. Visit the Small Business 411 site at http://www.smallbusiness411.com
The opinions expressed in this column are those of the author, not of Entrepreneur.com. All answers are intended to be general in nature, without regard to specific geographical areas or circumstances, and should only be relied upon after consulting an appropriate expert, such as an attorney or accountant.