Keep in mind that a profit increase doesn’t always have to focus on driving sales. Often improving a number of things a little better has more impact than making one large change.
Consider implementing the following tactics all at the same time to achieve an accumulative effect on your profit.
The rule of 10%
If you can increase or decrease ten percent of your business that links to profit (or even five percent), then possibly customers will either not notice (unless you are in a very price sensitive market) or be fine with the changes.
Increase prices
Raising prices can lift profit but take care to check with customers how they’d react to a price rise. If it lowers your demand and you lose customers, your profit margin may go up (as you’re charging more) but your overall profit may drop. To reduce a drop of sales volume while increasing prices try:
- Increasing prices on those items where customers are less price sensitive.
- Not increasing prices on items that you know customers compare with competitors.
- Gradually phasing in a price increase. To get to a 10% rise, you could try 1% each month for ten months.
Always monitor the effect of a price rise to detect any unhappy customers.
Increase revenue
A simple increase in sales (without discounting) should increase your profit. Some ideas to help you increase turnover include:
- Look to add new markets and distribution channels to your sales strategy. Identify any partners or ways to sell more.
- Use tactics that cost very little (if nothing) to increase sales such as asking for referrals, visiting existing customers, calling potential customers on their phone (yes, even in the digital age, selling on the phone can still work).
- See if there are any digital market places who will re-sell what you do.
- Form strategic alliances with complementary businesses or joint venture to tackle work you don’t have the resources to handle on your own.
- Increase the value of your sales by moving upmarket and providing a premium product or service. Customers just may say yes when asked if they’d like the more expensive option. Add features if the perceived value to customers is greater than the cost to you.
- It could be possible to extend your product range by asking suppliers to provide you inventory and only pay for it when it’s sold. If you are the supplier and have excess stock, then you could do the same.
Reduce costs
Identify the steps you can take to limit your direct costs, such as:
- Negotiating lower prices with your suppliers.
- Reviewing processes and systems to reduce waste.
- Implementing additional security to reduce the chance of theft.
- Make sure you get paid by putting systems in place to ensure that invoices are sent and paid promptly.
- Review fixed business costs such as insurance, power, and telecommunications and check if there are newer cheaper providers.
- Check any on-going subscription services (often via the internet) in case they are no longer being used, or you’re paying for more capacity than you need.
Arrange your customers
Divide your customers into four categories and put different effort and resources into selling to them depending on their value. For example, customers that have a:
- High percentage of sales and high profit margins – nurture these customers and put most of your sales effort into them. Put in place customer loyalty programs so there is less chance they will get lured away by the competition.
- High percentage of sales but low profit margins – seek to raise the margin they return to you such as a price increase or examine how you can cut costs. It could be something simple like charging for freight when in the past it’s been free. Remember these customers are getting a good deal already.
- Low percentage of sales but high profit margins – consider a sales push to try and get them to buy more regularly, as for some reason they’re not buying as much as they could.
- Low percentage of sales and low profit margins – consider nurturing them to buy more or pay more, so you can move them up the profit scale.
Consider any possible effects of increasing profits before making decisions. For example, a low-profit product might be the one that brings other business from a major, highly profitable customer.
Have staff focused on profitability
Focusing staff on profitability can have also a dramatic impact if they are aware that small savings can benefit everyone. Develop incentives if they assist with:
- Reducing power costs by switching off equipment or items that have a heavy power drain when not in use.
- Finding causes of waste and eliminating to increase overall margins.
- Referring and supporting new and existing profitable customers even if they are not in a sales role.
- Manage to exceed any sales targets.
- Sell items or services that have the highest margins while delivering a great customer experience.
Summary
Operating efficiently is essential to a sustainable, profitable business. From negotiating better terms with suppliers to nurturing your most profitable customers, your efforts can pay off.
Consider changing a number of things in your business all at once, to gain that cumulative effect on your profit.
Get started today for a more profitable bottom line by reviewing every part of your business in detail to gain every cent of savings that you can. Find an external advisor to help you identify ways to build profit and consider gathering like-minded small business owners to brain-storm ideas for building profits.