Profitability will determine the success and survival of a business. So how do you make your business more profitable?
Profit is one of the most important metrics for a business. Profitability will determine the success and survival of a business. So how do you make your business more profitable? This seems like a simple question. You could increase sales revenue or decrease product and operating costs to save money, hence increasing profits. This is easier said than done. Here we outline several ideas that you can try to increase your business profits.
Product price review
While this is arguably one of the scariest ideas to experiment with, it is also one of the most effective. Remember, a price review does not mean a price hike is necessary. It may even mean a price drop. So, it is probably worth it to start here and see if there is any obvious opportunity for improvements.
As an example, a coffee shop may be selling a cup of black coffee for $1.50 and make a paltry 0.50$ a cup in gross profit. But the coffee shop owner realizes that almost everyone who bought a cup of coffee would also buy a pastry or a slice of cake, that grosses 2$ to 3$ a piece. What if he could drive more people to the coffee shop by lowering the price of a cup of coffee to 1$, with the expectation that 90% of them will add on a pastry or a cake to their total spend. This strategy could end up being able to increase his overall profits in the long run.
This is how a periodic price review can be beneficial to your business.
Product packaging or bundling
An attractive product packaging and bundling is another way to increase sales. This is a proven strategy employed by many leading fast-food chains and restaurants everywhere in the world. If you believe that your products are better consumed with a specific menu, then this a good opportunity to package product together and see if there is increase in demand.
Have your ever walked to a McDonalds and bought ala-carte? How many times have you done that during your visits and how often have you seen people line up to buy ala-carte? It’s rare and probably for a good reason. So, study your product and see if there are any opportunity to package products together. Start experimenting and monitor the results. If things do not go too well, you can always unbundle them later.
This strategy is not only for the food industry. There are many sample cases where smart packaging has improved profits and customer satisfaction in other industry such as finance, property and even healthcare. What examples can you recall? Think about how you don’t even think or even remember about them until now. Successful product packaging works so naturally they don’t even register in our memory. That’s what makes it so powerful for your business.
Review non-performing products and services
In the course of running a business, we tend to accumulate new product and services. This is good because it means we are open to experiment with new ideas. However, this also means there are going to be mistakes along the way, and they should be corrected or removed. Products may become less profitable over time, due to increase in costs, or a reduction in demand. Trends go away after a while, and so our business should adapt.
Unless a loss-making product contributes to your business by bringing in new traffic, or are helping generate more gross profits, or some other benefits, you should consider removing them from your line-up. This way you will have more space and time to work on profitable products.
Improve inventory management
Inventory is one of the biggest chore and time suck of any business. So, any investment you make to improve inventory management will compound over time. It’s probably one of the best business investments you can make! If you are still using pen and paper, or even a spreadsheet, this is a no brainer. Take some time exploring how other business owners in your industry are managing their inventory, and don’t be afraid to try and learn new systems before committing to any. Ideally, the system should be able to integrate well with your billing and accounting system. This will save you a lot of time and pain down the road.
Inventory management system can also help you monitor stock levels. Controlling stock levels will improve your business cash flow. By reducing slow moving inventory and ordering stock more frequently, you can take advantage of seasonal or overstock discounts. In addition, you will reduce potential losses from expiring or damaged stock in storage.
The right inventory system will reduce headache, make life easier and most importantly, increase your profit.
Finding new customers
In general, it is cheaper to retain than to acquire new customers. Finding new customers is difficult and expensive. However, to grow your business, acquiring new customers is essential. Like it or not, business owners must come up with a strategy to acquire new customers while keeping your customer acquisition cost low.
As a rule of thumb, focus on attracting high value customers as opposed to deals seeker (unless this is your main strategy). Steep discounts should be used sparingly to take advantage of trends during a new season or events only.
Sometimes it may be difficult to attract new customers without steep discounts on your main product, especially so if you are in a competitive market. This is where you need to employ cross-selling tactics. Cross selling simply means selling new services or products that serves your existing customer base. This requires you to analyze them and think hard about the kind of services and products that they may be interested in. Combined with steep discounts, you may be able to attract new customers and make a profit from cross selling new products and services.
Like cross-selling, upselling is about finding value with your existing customers. This is when you persuade customers to upgrade to a more expensive product in the same category or with an offer to buy additional units for better discount.
Monitoring and analyzing your business conversion rate
While increasing traffic to your business is an essential strategy to increase sales, you should also measure how well your business are converting those visitors into paying customers. Low conversion rates may mean you are attracting the wrong traffic, or there are technical issues in your business preventing customers from buying your products. Issues such as lack of visibility or bad product arrangement. Specific issues within a business will differ according to industries, but the cardinal rule of monitoring and analyzing your traffic conversion remains.
Reviewing your CoGS (Cost of Goods Sold)
CoGS is one of the largest cost components of any business. CoGS includes cost such as product cost, transportation and delivery fees, maintenance cost, storage costs or manpower costs. Review and look for opportunities to lower your CoGS by contacting and negotiating bulk purchase deals with your suppliers or service providers. A lot of business owners loses out on simple costs saving measure just because they got carried away with their day-to-day business activities.
Reviewing your business overhead
As your business grows and evolves, it’s common to pick up goods and services that may later turn out to be ineffective for the business. To optimize business potential, you should always look for ways to redirect these resources to areas that contributes to your business goals and agenda.
Another major source of wasteful overhead is unutilized manpower. Successful businesses understand just how much of a drag such non-productive overhead affects your organization’s culture. Non-productive people tend to influence others in the organization to also become less productive and efficient. To be fair, it’s a desirable place to be in. Less work, less commitment, less stress. However, for a fledgling small business, such culture can kill your business. In much bigger organization, this non-productive culture is one of the biggest causes for downfall. It spreads and it is very damaging to any organization.
One of the easiest and practical ways to prevent such culture from brewing in your organization or business is to conduct periodic job audits and have clear job expectations. Job audits in its simplest form is a simple one to one session where you go through your employees list of tasks and responsibilities to understand how they are doing their work, the amount of workload assigned to them and if there are areas of improvements that could be implemented either in the operational structure of the business, processes or even the functional scope of the employee. Remember, non-productive manpower must be well managed and reallocated to maintain a productive work environment.
In summary, your business overhead is one of the biggest areas of spending for any business and should be constantly reviewed and improved to maintain a profitable business.
Increase efficiency of your business operations by documenting and improving your operating procedure
Mistakes and errors in a business will increase operating cost. Production error, mis delivery, wrong quotes, product returns, are examples that increases the operating cost of your business. By having proper procedures in place, you will reduce operational errors, increase customer satisfaction, and increase overall business profits.
Another benefit of SOPs is cost reduction. Well documented SOPs allows you and your team to analyze any redundancies or inefficiencies in your business procedures, allowing you to improve them while saving time and resources. Successful businesses realize this, and they willingly allocate time and resources to improve the management of their operating procedures.
Instilling the culture of innovation by attracting the right talent
No matter how small your business may be, instilling the culture of innovation, whether in product, marketing, or operations will help your business grow in the long run. The innovative culture ensures that you are attracting people who are passionate and engaged in the industry that you are in. Bringing in the right people to your business is an investment that will pay dividends to your business in the long haul. Ultimately, you don’t want to have a team who are not as passionate about running the business as you do.
Branding and ambience
Investing in branding and the ambience of your business is another way to increase customer retention and profits. Branding is about establishing a brand identity that is recognizable by your target customers. Ideally you want them to recognize what your business is and who you serve from a mile away. It’s a powerful force that can attract the ideal customer to your business. Ambience emphasizes this identity and helps your customers remember you better by differentiating yourself from everyone else.
Remember, ambience doesn’t need to be expensive. It just needs to be thoughtful. There are many ways to establish ambience without splurging money on expensive decorations or renovations. The point is, it is something that you should think about when running your business.
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