Achieving more profits is consistently an area for improvement with the businesses The CFO Center works with. Here’s an illustration: 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.
We can learn more about increasing profit by looking in an interesting space: the business of rock and roll.
For example: How the changing music business means changing profit models
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, 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 CD’s. 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?
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.
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.