Episode 42: Why it Feels Difficult to Grow and Scale Your Beauty Business
Many beauty business owners reach a point in their growth where their revenue doesn't turn into more profitability. Therefore, that cash overflow that's necessary to expand the business through buying more inventory, hiring a team, investing in productivity systems just isn't there. Essentially, they are stuck and have plateaued.
Are you in the same boat? In this article, we uncover three underlying reasons why you've reached this point and provide a way out of this rabbit hole.
Reason #1: You Love Money, Not Profit
The first reason it's feeling hard for you to grow and scale your business is that you love money, but you haven't learned how to love profit.
Profit is the money left over after you've paid your expenses, including paying yourself. So if you're making $500,000 and don't have anything to show for it, then you're not making any profit. So you're literally making zero.
And so, this is what you need to understand when it comes to profit. Assuming you work at Sephora, and Sephora is paying you. So let's say they pay you $40 for selling a primer. You're making $40 from that sale. But when you're a CEO of your company, when you sell that primer for 40 bucks, and it cost you 20 bucks to make it, you're making a profit of $20. And over time, that accumulated profit is what adds up. So it becomes cash left over in the business that eventually allows you to scale up your inventory, scale up your production, hire your team, invest in complex marketing strategies, and pretty much be able to weather the storm when something happens. So that's one thing we always have to understand.
If you don't have that cash overflow, something is not right in your pricing architecture. Your pricing blueprint is not accurate. I've seen a lot in the product space because many of us do a fantastic job pricing our products to sell on our e-commerce platforms. However, we don't do a great job ensuring that our current pricing strategy can support multiple channels. The price point you sell wholesale is not the same as at retail. And if you're using the same price point across different channels, you're losing money on the table.
That's why sometimes you feel like you don't have the cash. The biggest mistake I see here that has been touted in the online space is using the multiplier strategy. I have never built brands on a multiplier strategy. Ultimately, I truly believe that even though you're selling a product, you're selling a brand. And a brand is a transformation for your desired audience. Branding is why people buy you; marketing is how people find you. And there is a sentimental aspect regarding brand and why people buy. So you have to price your product accordingly because you're conveying that emotional aspect, and people will buy you because of the why.
Branding is why people buy you; marketing is how people find you. And there is a sentimental aspect regarding brand and why people buy.
And so, using a multiplier strategy subjects your product to commodity status instead of a genuine transformation or an emotional experience. And so, you're diluting the perceived value. And if you haven't done this, I want you to ask yourself, within the product you're selling, what is the why behind people buying your product? If you're selling a skincare product and it deals with hyperpigmentation, deals with blemishes, why are people buying that product? What is it that they want to feel? So what are they trying to achieve? What's that aspirational idea that your person is trying to buy. Because that is what I want you to sell. That is what I want you to market, and more importantly, I want you to price that accordingly.
That profit comes from the brand development work that you do. If you do an excellent job at your brand development, you will be able to price accordingly, have profit, have cash flow, and eventually be able to scale. So if scaling is feeling hard, feeling tiresome, feeling very grueling, go back and look at your pricing architecture. Do you have enough profit left over after everything is paid? Are you even paying yourself? Let us even start from that? Are you paying yourself? And are you paying yourself a market-based wage?
What's happened in our space is this. Because we start our businesses and build it up, we often pay ourselves much lower. And when we pay ourselves much lower, when we get to a point where we want to hire a team, we're able to do so because we've misrepresented the actual cost it takes to have somebody on the team to replace the work you're doing. And all this is baked into your pricing strategy for your product.
This is not something I'm saying you go and slap $10 on top of what you're selling. There is a pricing formula that you need to make sure you have so that it accounts for your raw materials, the labor process incurred to bring your product to life, and the overhead expenses (recurring expenses) that you are accruing or not you sell your product. And those three have to mesh together to create your springboard to profitability. Now, the brand development work is what adds to the profit. Then eventually, you have the final price point we see.
Reason #2: You don't know your numbers
The second reason why it feels so hard to scale is that you don't know your numbers, so you can't get to sales certainty.
There are three ways to grow a product-based business. 1. Get more customers. 2. Get your customers to buy more per order. 3. Get your customers to buy more frequently. Let's put this into practice. Let's assume a business currently has 1,500 customers in 2022. The average order value for this beauty business is 50 bucks, and the number of transactions executed this year is 2,000. So that means customers are buying, on average, one time. On average, every customer who has come into this business, the customer they acquired from the get-go, has bought one time. Now, I want us to think about this.
Three ways to grow a product-based business. 1. Get more customers. 2. Get your customers to buy more per order. 3. Get your customers to buy more frequently.
So this business has 1,500 customers. The average order value is 50. The transactions that have happened so far are 2,000. So the frequency in which the customers are buying is one time. That business has generated 100,000. So what do they need to do to get to 300,000? I want us to think about this because this is how CEOs make decisions. What do they need to do for them to get to 300,000? Let's say they decide Option 1, we're going to focus on getting more customers, but we're not going to change our pricing. We're not going to change the number of times people buy. So what that means is this. They move from 1,500 customers to 1,800 customers.
So the number of customers has increased by 30%. So we're keeping our average price at 50. We're keeping our transactions at what they were before and our frequency at one. Only by increasing the number of customers the business grows to 130K. It has just gotten an additional 30,000 by increasing the number of customers. This is what happens. We tried to solve our scalability issues by adding more marketing. And you can see the jump has only been 30%. But they wanted to get to 300K. Then that year, I realized that by increasing our customers, I could only grow with it by an additional 30,000 or 29,000.
Now, what if I grew and kept my customers at 1,800, but I decided to also increase my average order value. So instead of people paying $50, let them pay $60. Maybe it was an incremental price that the company did. The lever that we have changed from the original is now we've decided new customers at 1,800, an increased price point at $60, average order value at $60, but we're keeping our frequency the same. People are still buying us one time. So we've not changed the frequency of people buying our product. What does that do? It moves our revenue from 100K. Now we're playing at 170 just by pulling these two levers. So now we've been able to grow our business by an additional 69,000, getting us to 169,000.
Now, what if now we decided to do all three together. We decided let's increase our customers, let's increase our order value, but at the same time, let's increase the frequency in which people buy from us. So what does that look like? We shifted our customers from 1,500 when we started to now 1,800. We shift our pricing from an average order value of 50 for your beauty brand to 60. And then now people were buying from us one time. What if we made them come back and buy from us twice. That gets your business to 300,000.
It sounds simplistic, but that's exactly how you grow. I'm demonstrating this example to understand that there's a space and time for each strategy: getting more customers, increasing your average order value, or increasing your frequency. These are the sales strategies that drive the right results without having to rely on any significant paid activity. These are the strategies that big brands use most of the time, especially regarding growth in sales.
…there's a space and time for each of these strategies: getting more customers, increasing your average order value, or increasing your frequency. These are the sales strategies that drive the right results without having to rely on any significant paid activity. These are the strategies that big brands use most of the time when it comes to growth in sales.
When you see big brands marketing, as part of the team, we're usually marketing to remind and prime our audience. But we measure growth, we measure performance, we predict based on sales, these sales strategies that I'm literally articulating to you. And depending on the type of business and the stage, there is a particular lever that you pull harder. Therefore, the biggest thing you can have as a CEO is to be empowered to know when to pull each strategy. That's where I demonstrated the change in sales growth based on each lever to see that you don't need to be doing many things to get to the next place. But you also need the bandwidth to test and see what your audience is resonating with.
The mistake we make is increasing marketing. I'm not shunning down marketing. Marketing is the way to grow, but sometimes you don't need that marketing. Sometimes it's a minor tweak or refinement, then your marketing works. But of course, we all need visibility, but make sure you're investing in marketing when you have certain things in place.
We often say we have a marketing problem, but sometimes it's more than that. So it could be your product architecture or your product assortment. You probably have so many products that you don't know what sells, what's the best performing, and why your audience buys?
Secondly, it could be your messaging. So you don't even know why you're selling what you're selling. So you put it on your website. It's not converting, but you can't even see that people don't understand what the message is and what product they should actually buy. So you end up confusing your audience.
Then it could be you don't have the right price. So you've priced incorrectly, you're running paid ads, and you don't have money left over because you've not even accounted for what it takes to acquire customers.
What's the root cause of the issues you're seeing in your business now? If you think about it objectively, what would you say is holding you back apart from marketing?
So I want you to ask yourself this question. What's the root cause of the issues you're seeing in your business now? If you think about it objectively, what would you say is holding you back apart from marketing? This is what I think happens. We say we have a marketing issue when things don't work right in our business. It's like when people don't buy from us, we quickly gravitate to my pricing is incorrect. But I honestly feel that price is an excuse why somebody's not going to buy. Pricing is only expensive as long as it's compared to something else. And that's how I feel when it comes to growth and scaling. We often use marketing as an excuse. But I know, even when I ask people, one of the questions I ask when we're doing an enrollment call or a discovery call is what you think has been missing that's making you not achieve your goal? And 99.9% of the time, nobody says marketing because we've had a conversation because they've uncovered something else.
That's why I want you to step back, as you're listening to this, and ask yourself what is stalling my growth if the marketing was not a factor. And I say this because you've already had a few people buy from you. So we know your marketing is working. We're not guesstimating. You've had traction. You've already established that there is a proof of concept. But your marketing is already working. So what's holding you back from moving from 100K to 700K to 500K. It cannot be marketing. There's something else. Think about that critically. And then, if you're open to it, send me a DM, and we can get on a quick call.
That answer is where your scaling and your growth strategy lie. And if you're stuck, that's why people like me exist in the online space to provide you with that clarity, to guide, and give you the blueprint.
And so why that is happening is because growth up until right now has felt like a happy accident. And it's our job to make it certain. You can only make growth sure by understanding your numbers and the levers you need to pull—getting more customers, increasing your price per order, and getting people to buy from you more frequently. That impacts your profit and loss, your cash flow projections, customer retention, consistent profits and revenue, and, more importantly, your production and inventory purchasing. So I don't want you to purchase inventory and make products just by guessing.
At the end of the day, your cash flow and data build the equation for what production should look like, what hiring would look like, and what a new sales strategy would look like. And this is why I do what I do: to reduce the mistakes many of you make as you build your businesses.
You can only make growth sure by understanding your numbers and the levers you need to pull—getting more customers, increasing your price per order, and getting people to buy from you more frequently.
People ask me why I do what I do? The reasons I wake up every single morning are eliminating poverty by helping entrepreneurs build wealth, especially when it comes to our businesses. I'm a product of a small business owner. I know what it means when you get stuck at the growth stage.
I remember my mom not having enough cash flow to pay for my education. She almost shut her business down until she met an advisor who told her what she needed to change. And from then on, everything changed. And if that didn't happen, my brothers and sisters would not have gotten a college degree. So I would not have gotten a master's degree. So I would not be in the US doing what I'm doing. And people ask me why growing, scaling, and helping businesses is important to me. It's because I know it costs a ton when you have the wrong information. It costs stress to the CEO, your spouse, and your children, and it costs stress to your entire family, especially if you're also supporting them.
I grew up in a place where my parents supported our extended family from paying tuition fees, paying their bills, rent, and food. So poverty, for me, is very palpable. My sisters, my brother, and I are able to be where we are today because of the business my mom was able to salvage after she understood what it takes to scale a product-based business.
This is why I want you to do this work. Go and look at your pricing architecture. If you don't have profit, it is because your pricing is incorrect, or you don't have enough cash flow to help you do the required things. And also, evaluate whether your pricing can support multiple channels.
The second thing is to start looking at your numbers. You're looking for sales certainty; you're looking for sales clarity. They lie in your numbers. If you're trying to figure out what is the next best thing I need to do for my business, eliminate marketing. If marketing was not a factor, what would you do? That's what I want you to think about. If marketing was not a factor or a lever I needed to pull to grow my business, what would you do? That's where your creative flow comes in? Going back to the three different ways. Could it be increasing the frequency at which people are buying your product? Could it be increasing your average order value?
Now that I'm talking about this, my friends, you're a small business. You guys have seen how the cost and inflation rates have increased. If you haven't revised your pricing, friend, please do. You're still running a business. This is not a nonprofit. This ain't charity. Your vendors have probably transferred the cost to you. Have you transferred those costs to your customer, or are you absorbing them? You don't have the cash flow to absorb those costs. The same thing I say with shipping. You don't have the cash flow to absorb your shipping costs. So, you also don't have the cash flow to absorb inflation.
If you're trying to figure out what is the next best thing I need to do for my business, eliminate marketing. If marketing was not a factor, what would you do?
So revise your pricing and evaluate because things are getting more expensive. If you're also considering doing some marketing and hiring it out soon, in Q3, your rates in 2021 are not the same direct rates right now. So make sure you have created that cushion for your business.
Reason #3: You don't have a system for scale
How will you scale if you're already working like crazy, burning candles at both ends? You're already burned out, stuck, and overwhelmed. Your house, your kitchen, everything, all your living spaces are already occupied by how you're producing. You cannot scale. How are you going to scale in that situation?
Creating a system for scale—Step #1
The first thing you need to do to scale is start figuring out your cash flow. The first recipe right now is to figure out your cash flow. Ask yourself, Do I have enough cash flow.
Here's the thing. If cash is not flowing at a small scale, it will not flow at a large scale. So I'm just going to say that again, my friend. If cash doesn't flow at small scale, small revenue numbers, it won't flow at scale.
If cash doesn't flow at small scale, small revenue numbers, it won't flow at scale.
So you have to make sure you have the right cash equation dialed in to purchase the inventory you need when the big orders come in. I see people getting scared and fearful of, Oh, my God, what happens if I'm told to make 10,000 of this. You'll be like, I can't do it. And now that's where fear of success comes in. To address that fear of success from a strategic standpoint, not from a mindset or a therapy standpoint, is looking at your cash flow. If it's flowing at a small scale, it will flow at a large scale. If it's not flowing at a small scale, it will not flow at a large scale. So you need to make sure you dial in that cash equation.
Creating a system for scale—Step#2
The second system that needs to be in place is your production equation. What does your production equation look like? First, you need to understand who you need on your team to help you produce your product. You need to understand when this person is going to be hired. You need to understand how they are going to support you. And then eventually, you need to think about a system to train them and equip them to help you produce at scale.
Right now, as a solopreneur, we do this. We're doing everything in our business. And so, sometimes, it can sound irrelevant. But when you're constantly scaling, you have to get somebody to support you to do what you're doing. But this person you're getting needs to be trained and equipped by you, and you need to have this clarity first. So that's your production equation, and your production equation, how to think about this is your processes. So what are the steps you're taking? And have you taken into account the steps in your product making and pricing? That's what I want you to think about. Because if you haven't, that's it. The pricing architecture is wrong. No profit, no cash flow.
Creating a system for scale—Step #3
The third and final thing when it comes to a system is you need to start thinking about a super sharp marketing and sales plan that can get you to grow your business sustainably. You need to think about a super simple, highly precise marketing plan that will allow your business to grow sustainably. The funny thing is many of us spend 90% of our time thinking about our sales and marketing plan. But I want you to understand it is an ecosystem. You can't think about one and ignore the other. You can't think about sales and marketing while ignoring the production, inventory, and cash equation. So that business will not run like a well-oiled machine.
You need to think about a super simple, highly precise marketing plan that will allow your business to grow sustainably.
At the end of the day, when you're in this growth stage, when you're getting traction, what you're trying to do is make your business run like a well-oiled machine. So you're trying to free up more time, get time to go on vacation and increase your impact. And basically, you're trying to answer this question: how can many people get to know me without me dying in the process?
I will not be teaching you things that I'm not doing. And that's why you should think about this. Think about your cash equation. Cash is everything. Cash is king. And as an entrepreneur, you need that cash because that cash allows you to do so many things. So you want to get into Target, Sephora, Ulta, you name it. So they're going to ask about your numbers. So they're going to ask about your profitability. So think about Shark Tank, too. The first thing they ask is what's your profit margin. They're trying to figure out if the business has cash or is just trying to break even and survive.
You build it; we help scale it.
Those are the three things that you definitely need to think about. So if you're feeling stuck and need a blueprint to move from the hustle and overwhelm to having the infrastructure to scale without working more hours, I invite you to book a call with me. Use the link in my bio on Instagram or this thread on Facebook. That way, you can become a market leader, but more importantly, get consistent revenue and profits in your business. So let's have a conversation. Let's talk about where you are and where you want to go, identify the gaps, and chat from there. That's all we need to do because we are here to make business growth easy.
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