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What Ancient Rockers Can Teach You About Making Profit

At an age when they should (or we just wish they would) hang up their leather trousers and retire disgracefully, more and more ancient rockers are embarking on yet another tour.

This year alone, the Rolling Stones (of course!), Madonna, The Who, Neil Young, Rod Stewart, Pearl Jam, Queen and even Ringo Starr are performing on stages around the globe. Given that many of them are nearing or way past grandparent-age, you might wonder why they’re still bothering so many years after their first taste of fame.

The performers will say it’s because they love it and that they ‘don’t want to let the fans down.’ But there’s another hard-nosed reason to get their weary old bones back on the tour bus. And it’s this: touring boosts their profits in a way that digital music sales and royalties can no longer do.

Digital music generates very little return. Peter Tschmuck, a professor at the University of Music and Performing Arts in Vienna told Business Insider’s Rob Wile that the return on investment from selling a digital copy of a song is 12% compared with about 36% for CDs. That’s before the revenue is shared between various title holders.

“With digital music so freely and widely available, hardly anyone makes money off sales or royalties these days,” reported Mike Rowell in an article for Forbes and Zocalopublicsquare.org.

“Often, these bands seem to approach nostalgic tours as the most expedient way to make bank; choice seats for top acts—Fleetwood Mac, Elton John, the Rolling Stones, and Stevie Wonder—can run in the hundreds of dollars,” he said.

Top concert draws can take home 35% of the night’s gate sales and up to 50% of the money made from merchandise sales sold at the show, according to Forbes’ journalist, Peter Kafka. Their record labels are likely to receive none of that.

That means the stars—including Paul McCartney, the Rolling Stones, Neil Young, The Who and Roger Waters—of what has been billed as a ‘once-in-a-lifetime’ mega-concert this October are likely to receive a whopping payout for their performances. Tickets for the concerts (taking place over two weekends) were snapped up within hours of going on sale and topped a hefty $150 million, according to Billboard sources. Think how many downloads those artists would have to sell to get anywhere near that kind of money!

Singing aside, what can you learn from the likes of Mick Jagger and Keith Richards when it comes to your business?

To focus on the part of your business that brings the most profits. The Rolling Stones could have retired decades ago and waited for the income from album sales and royalties to trickle in. Instead, they made the decision to continue to tour and have generated many millions as a result. In just under three years, for example, the band’s overall concert grosses topped $401 million, according to Billboard.

If you would like to read our brand new report on how companies can greatly increase their profit through detailed analysis of the numbers you can do so by clicking here.

The following story illustrates why it makes sense to focus on the most profitable part of your business. A major US direct marketing company with over $1 billion in annual sales recently reviewed its database to determine where its profits were coming from, B2B or B2C. At that time, 50% of its sales were to consumers and 50% to businesses. It was shocked to discover that the profits on the business sales were 500% better than those to consumers. Most consumer sales weren’t even profitable even though they represented the majority of customers, transactions, and expenses.

The decision was made to focus on B2B sales. It required a significant turnaround in the business: at that time, the company employed 500 people taking inbound calls from customers and only 100 people making outbound calls to businesses.

The change took two years. By the end of that period, 95% of its sales were to businesses and only 5% to consumers. Sales flourished. They had been growing at 21% before the turnaround but by the end of the two years averaged 50%. Profit growth was equally dramatic.

So what can you do to boost your profits besides cutting costs? For a start, identify your most profitable customers and then do everything possible to increase sales to that segment of your business. Focus on attracting more customers like them.

Fortunately, it’s not something you have to do alone. A part-time Finance Director (FD) or CFO will help you to accomplish a more profitable company with less stress and hassle than if you were to try to do it on your own. You can watch our 3 minute video here which explains the part-time FD/CFO model.

Make it easy on yourself: book your free one-to-one call with one of our part-time CFOs now to learn how your company can become more profitable. Just click here now.

Rolling Back The Years…

Rolling Back The Years…

The comedian Barry Cryer tells a story about a Finance Director walking down the street. The FD is approached by a homeless man. “Excuse me, mate” says the man “can you spare me a few quid, I haven’t eaten for two weeks”? “ I see” says the FD “And how does that compare with the same period last year”?

Of course, no FD would be that heartless but the story also hides a deeper truth – most of us think in fixed periods of time, mainly years and months. This puts us in a situation where we measure financial performance by the distinctly non-financial yardstick of how long it takes the Earth to revolve around the Sun. This is understandable as we measure our lives in the same way – but is it the best way to plan a business?

There has been some movement away from the annual forecasting and planning cycle; I work with several businesses that use rolling forecasts , for example. According to a study by CIMA about 20% of businesses use them – but what do the other 80% do? Fixed annual forecasts, presumably.
The idea of a fixed annual forecast includes the following assumptions:

• A year is the ideal planning period
• We can get a good fix on revenues, costs and profits over that period
• We can reasonably predict how external economic, political and social factors will turn out.

Let’s think about this a little more. Why is a year the ideal planning period? What if we consider, for example, a five quarter forward planning period instead? Firstly this gets us away from what I call “the January factor”. By this I mean that a forecast is prepared and January, (or Q1), shows a marked change from the end of the previous year. Revenues shoot up; costs are magically under control.

In reality less changes in most businesses between December and January than at any other time of the year; staff, directors, customers and suppliers are all off for Christmas!

Yet this happens. Perhaps businesses, like people, make New Year Resolutions – and perhaps they break them too. The fact is, a business is a continuous process; the last quarter of one year flows in to the first quarter of the next. Businesses don’t stop and start with a jolt and unless we make changes they will stay the same, yet the planning process often suggests otherwise.

If we choose a different planning period we automatically start to look at the business in a different way. The selected forecasting period needn’t be longer than a year – we might wish a six or nine month period if we feel that this reflects the nature of the business. A restaurant might have a very different planning cycle from the manufacturer of Oil Rigs, for example. But the selection of an appropriate planning period is key.

This brings us on to the next part of the change in the planning process: if we break away from the notion of the annual planning cycle we can then take it to the next stage, rolling forecasts.

Businesses spend time and resources preparing annual forecasts that run January to December. That means that at the start of the year they look forward to the next twelve months of activity, but as the year progresses the horizon shrinks. Rolling forecasts enable the business to keep looking up and thinking about the future rather than focussed inward on a set of assumptions that are all too quickly outdated.

What underpins this idea is that in uncertain times (and I would argue that businesses always face uncertain times) the forecasting and planning process needs to be nimble enough both to predict and react to changes in the business environment. A rolling non-annual based forecasting process enables us to do just that. The non-annual part acknowledges that a business is a continuous process and the rolling part keeps it focussed on change and development.

This is not to suggest that the business should be purely reactive or incapable of setting long-term strategic objectives but that such a mechanism is the best way of reaching those objectives.

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