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Increase Note Business Profitability

For every note business and entrepreneur, profit is a crucial part of being successful in the note business, or for that matter, any business. Fortunately, there are some strategies that you can implement to set yourself apart, create more value, and generate more transactions. 

Before I share some strategies to increase profits in your business, I would like to point out the difference between making a profit and being profitable. When talking about profits, what might come to mind are the differences between income and expenses. However, as a business owner you should care not only about how much your business makes in profits, but also its profitability. As an example:

Business Name Profits Invested Capital Profitability

Business A           $500,000      $5 million      10%

Business B           $250,000     $1 million     25%

Business C           $120,000     $3 million       4%

When we look at the profits of the companies above, it might seem that Business A is doing the best. However, when we consider how much was invested in each business and calculate their profitability (Profits/Invested Capital), we will see completely different numbers. 

Now, one can realize that Business A is not doing as great as we originally thought. Surprisingly, the company that had the least money invested in it, Business B, made the most use of their invested capital. This business definitely knows what it is doing because it multiplied their money more. At the same time, if you do not increase your profits, your profitability will not be increasing either. Thus, profits play an important role in your profitability. 

Knowing that, how then do you increase your business profitability? In general, you cannot increase your profits directly, only indirectly. Nor can you do it without a specific strategy. Let’s look at some simple ways you can increase the amount of money your business makes. Although these strategies are not complicated, they should be easier to implement and to achieve good results.

Marketing. This might be obvious for some, while others might consider marketing as just another expense. Businesses, though, especially note businesses, need to analyze their marketing strategies and get note holders to understand why they need and should use your service. If 3 out of 100 people who contact your business sell you their note and you attract 200 people instead of 100, you will increase the number of note holders who will actually sell their note to you. I say over and over again, the note business is a huge numbers game.

Efficiency. It is not just about cutting costs to increase your profits. It is about efficiency in the way that you spend money as well as your productivity and time management. Thus, you need to look for ways to stimulate better productivity and motivate yourself. This will allow you to cut costs per closed transaction and increase your profits. Even a small improvement can make a big difference.

Note Holders. A note holder (or customer) is the main source of income for most note businesses. Thus, dedicate yourself to serving your note holders in the best possible way and your closed transactions will take care of themselves. If you can convert contacts and visitors into note holders that sell you their note, you have effective marketing efforts. To achieve this, you need to have a marketing and business plan for yourself and anyone else who interreacts with the note holder. 

Transactions. Besides attracting new note holders, you should focus on increasing the number of closed transactions. If you closed 5 transactions instead of 3 for every 100 note holders that contact you, you would increase your revenue and profits accordingly. Either way, you will probably need to also increase your marketing budget to do so. 

Referrals. You can raise your profits by setting up a referral program. A referral is the act of an existing note holder recommending or vouching for the value of your services to another. This takes some time to develop and is great for the long term. If you have a truly valuable proposition and your note holders walk away satisfied, you won’t even need a special program to get referrals because the good word will spread on its own.  

Costly services. You can also eliminate expensive services (unnecessary subscriptions, software, vendors, etc.) that you really do not need. Evaluate the costly services and see if there are any that you can discontinue without making your business suffer. Even small things can slowly eat up your profits without giving back much. 

Slippage. Profits are sometimes eaten away by what is termed slippage. This is the difference between what you have estimated the costs of a transaction might be and what the actual costs are. Start digging into the expenses of a closed transaction to better identify exactly where the overruns are happening and make adjustments to your costs and expenses in your pricing. 

Break-even point. You can reduce your break-even point, which is the point where the gains equal losses and the investment will start generating a positive return. In fact, look at all expenses that you incur to make more money as an investment with an expected rate of return that is greater than what you invest. Look at your activities and purchases and if they do not help you generate profit, eliminate or minimize them. 

Prices. You might think that you cannot lower what you offer to the note holder in the note market. However, if you know that you offer a good-quality, worthy service and you are friendly and helpful, try to lower the price just a couple of percentage points at a time. Your note holders might not even notice it. 

Volume. If you are truly at the top of the market with your price, then you can increase the volume that you are producing to deliver the dollars needed. This means getting more note holders to accept your prices which in turn gives you the chance to close more transactions. This references back to the numbers game I mentioned previously.

There are many factors that influence the profitability of your note business. Increasing your profits is possible by changing the variable(s) you have control over. You might need to take just one of these strategies and it will make all the difference in your business. For others, it might be a little bit of each of these. Whichever path you choose remember that you can build a business that can deliver a fabulous future, but it is not going to happen by itself. It is up to you to make it happen. I hope these tips I have shared will help you guide it in the right direction. Be kind, keep safe and stay healthy. Remember success demands action, keep on marketing, it’s going to work! TWITA! (That’s What I’m Talkin’ About!)

Jeff Armstrong of Armstrong Capital has been a note investor and broker specializing in the performing seller financed note industry since 1991. For more updated and current information on how he can help you with your note business, note investments, note appraisals or to request pricing options on a note visit www.armstrongcapital.com to email him and subscribe to Jeff’s Weekly Training & Tips Newsletter.

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