If you are a business owner, then you are likely always looking for ways to be more profitable. Also, sometimes we are familiar with what needs to be done but less familiar with HOW to do it. Other times we get so consumed with the busy-ness of our business that we forget to carve out time to revisit these tried and true methods of business profitability.
So here are some reminders and action items to get you on track to greater returns:
1. Reduce inventory:
Ordering less product more frequently is better than stocking up and holding onto items long term. When you order less product more frequently, you can keep your eyes out for closeouts and deep discounts and save money on up front costs. You can also eliminate losses from having more on hand than you can sell.
2. Remove products and services that don't sell:
Here's a simple rule - don't offer products and services that your customer base doesn't want. More than that, also evaluate the profit margins on each product and service to determine which are making you the most money and which are making you the least. Also consider - Is the margin worth what you pay in time to provide that service?
I'll give an example of a contractor I know... He stays very busy every single day, sometimes doing small paint jobs and sheet rock repairs, and sometimes building custom homes. He has almost no down time. Some projects may only make him a couple hundred dollars for the same amount of time as others yield him thousands. Eliminating the smaller jobs that yield less profit to focus on more of the higher yield jobs can tackle two things for him - they can help him specialize in what makes him the most money and help him focus ad spend on a more specific target, which statistically yields better results than a broad ad spend. Spreading yourself too thin with products and/or services keeps you less effective and less productive in how you are spending your time and money.
3. Reduce overall direct costs:
It stands to reason that if you can reduce what a product costs you, then your profit margin increases. One way to reduce costs is to be a good shopper. Loyalty to one supplier is only worthwhile if that supplier is also loyal to you in terms of the benefits they offer to you for your loyalty. If you can find the same product at a lower price with a different supplier, loyalty should not be more important to you than your own profitability. If you find the product cheaper and want your current supplier to have the opportunity to keep your business for that order, you can negotiate the rate with your current supplier to see if they want to match or beat that price. If not, you should choose to do what is best for your business. That is, after all, what your supplier is doing as well.
Another way to reduce direct costs is to eliminate unnecessary purchases. Don't allow yourself to get pressured into buying something from B2B salespeople if that product or service is not going to actually make you more profitable. You are not in business to spend money. You're in business to make money. So if you don't HAVE to buy it, don't.
4. Review current pricing structures:
Over time, prices rise. I know. I know. Nobody likes it. And business owners don't like having to do it to their customers, but the bottom line is, if costs have increased for you, they should increase at the same rate to the customer.
For example, maybe the cost to make your specialty t-shirts used to be $10.00, including overhead costs such as advertising, insurances, blank t-shirt, and screen printing cost, among other things. So you charged your customers $15.00 per shirt. That gave you a gross profit of $5.00 minus processing fees. But then your shirt provider increased the costs of their shirts from $3.00 to $5.00, and the cost of your advertising went up from $0.80 per click to $1.80 per click. It now costs you $3.00 more to make the same shirt meaning you'd only make $2.00 minus processing fees. So the question is, do you still keep your price $15 or do you now charge $18 to make the minimum profit per shirt that you were making before? Run an A/B test from time to time to see if as many people would buy the shirt at $18 as those who were buying it for $15. If that's the case, even if your costs haven't gone up, it still stands to reason that it's best for your business to slightly raise prices.
5. Find new customers:
If only, right? Of course you know that you would make more money if you had more customers, but how are you going to get those new customers? Statistics show it costs 8 times more money to get a new customer than it does to keep an old one. Studies also show that the best advertising is word of mouth. Therefore, the most cost effective way to get new customers is to incentivize your existing customers to bring you new business and motivate them to initiate referrals for you. This may be a referral fee offer or a discount that they get when they send a friend in with a coupon and so on.
Also, try to capture your customers' email addresses to send a weekly email newsletter showcasing a product or service. Post these specials offers and new products on social media. Encourage your followers to share with their friends. Having your brand at the top of your clients' minds on a regular basis will get you both new business and more business from your existing customers.
6. Increase your conversion rate:
Getting new leads is very important to every business, but do you know what percent of these leads actually become sales? If you get 100 leads and make no sales, your efforts and time and money expenditures are a complete loss, because your conversion rate is 0%. If you only close 10, you're at 10%. This still isn't good. You need to identify what part of the process from lead to close is not working to convert leads to sales and improve on it. The saying goes, "If it ain't broke, don't fix it." Definitely keep doing what is working, but more importantly evaluate what is not working and make that better.
This ad gets this many people to my landing page, and I'm happy with that number so I keep running that ad.
Once at my landing page, nobody is entering their email address for my free offer. (Evaluate how to make the landing page and free offer more effective to increase number of entries.) Never stop improving on what you have until it is a powerful conversion machine.
In person to person contacts, which part of your pitch has potential clients leaning in and smiling and nodding? Which parts have your client backing away and shutting down? Keep what works. Eliminate and improve on what does not.
7. Reduce overhead costs:
I saved this for last because if you are a business owner who is accepting credit card payments, I can help you make a HUGE difference in your bottom line with one simple switch. Stop paying credit card processing fees. Global Processing Technologies is helping clients save thousands of dollars every month by cutting out their credit card processing fee costs. With the Cash Discount Program, your customers can choose to pay cash or choose to pay the convenience fee on the credit card. It's just like that t-shirt I was talking about earlier. If your cost went up on the t-shirt, then your price goes up to make up for the additional cost to you. If you are charged more for a product or service, it stands to reason the difference is passed on to your customer. And the good news is that they have a choice - pay a convenience fee for using their card or have the fee discounted for using cash. Then your hard earned money isn't flying out the window in a way that's wasted on fees.
Other overhead costs that you can examine include your monthly subscriptions or memberships, ads that you run each month, groups that you've joined that require membership fees, software costs, insurance costs... the more you can reduce these costs, the more you can increase your bottom line. Evaluate if each of your expenditures is making you additional money or just costing you money without a return on your investment. Anything that does not yield a positive return, eliminate. Especially those pesky credit card processing fees. ;)