Increase your profit without increasing sales
Often to increase profit, a small business owner will try and grow sales, get new customers, and focus on opening new markets. But it’s not always that easy, especially if it’s difficult to attract new customers in the current environment.
Instead, look to increase your profit internally.
Lock in your most profitable customers
If your business has a certain threshold of sales, then look to swap poor margin customers with better paying or more profitable customers. Sales may stay the same, but you’ll make more profit. Try;
- Selling more online or through other sales channels that don’t rely on staff, warehousing or other fixed costs, to lower your delivery costs.
- Spend time on customers that are a high percentage of sales and have high profit margins. They are already the ideal customer, so make sure they don’t leave.
- Review those customers with a high percentage of sales but for some reason they have low profit margins. See if you can switch them to higher margin products, or upgrade them to higher margin services.
- You’d be surprised what a very small (1-5%) price increase will do to your profit. First it will increase, second most customers will not notice.
Make sure all your employees understand the importance of profitability and that they know which products and services make the most profit.
Some tactics to help include;
- Placing stickers or marking the price tags of certain products that you know have a higher margin, and then having incentives or bonuses for staff to sell.
- Ask staff for their ideas on how to reduce costs, or complete tasks or processes faster.
- Ask your accountant or financial advisor for help to ensure you’re monitoring the right indicators for your business.
For most small businesses, the easiest way to increase profitability is to reduce costs. Reducing direct costs can dramatically increase the profit on each sale, while eliminating unnecessary business expenses can immediately impact your bottom line.
Identify the steps you can take to minimize your direct costs, such as:
- Negotiating lower prices with your suppliers, or often even better, is to shop around and look for new suppliers to quote to get your business. You’ll be surprised what existing suppliers may do to keep you.
- For on-going subscription or utilities (power, internet) check if you are off contract. Suppliers will often give you deals to re-sign.
- Reviewing processes and systems to minimize waste.
- Implementing additional security to reduce the chance of theft.
- Can you form a strategic alliance with a complementary business or a joint venture to tackle work where you lack sufficient resources? Instead of employing more staff or leasing more equipment, can you borrow/swap with other businesses?
- Contracting sales staff on commission who only get paid if they sell.
- Review your credit limits if sales to a particular customer go up significantly and consider a credit check. For stable and worthwhile customers, consider increasing their limit or finding out what else you can do for them.
- Compare your price and quality with competing products or services. Aim to charge a full price and offer value from the extras you provide, such as after-sales service, installation, training, or bundled extras.