Increasing profit doesn’t come from one activity or element alone. Generally, it’s about making micro-adjustments across a spectrum of areas that will produce the most significant results. Undoubtedly, the actions you take, will vary from business to business but there are some consistent levers that appear in most instances which can be boosted to increase your profits.
It would be wrong to believe that just by acquiring more customers the problem will be fixed, quite often this isn’t the most efficient way to grow your business. By further engaging with your current customers, you can find out what it is they like about your company/product(s) and if they feel there is room for improvement. If they have been a one-time purchaser, then consider how can you re-engage with them.
Conversion rate in business
Customer lifetime value generally is where the serious potential profit lies. In many businesses, the cost of customer acquisition means that the first sale may have a low margin or even be loss making. The key is to keep re-engaging with the customer to gain additional profit beyond the initial sale.
Have you considered diversify your range of products or services? When thinking about growing profit, it’s worth considering what products your customers purchase at other outlets. By assessing in more detail your core customers’ buying habits you could identify where opportunity for additional profit could be made. Not only could you diversify your products, but could you diversify your customers too?
Should I give a discount?
If a business generates 10% gross profit, and they want to discount products by 5% they would need to be 100% more profitable. However, if that same business increased their prices by 2%, it could afford to lose 17% of their customers and still deliver the same profit. So, when it comes to your business, think carefully as to whether discounting is really beneficial and the affect it’ll have on the bottom line. Cash in the bank might be king, but at what long-term cost?
You should have a detailed breakdown of where your sales and profits are coming from, and an understanding of key components, to enable you to make better business decisions.
Fixed and variable costs
Variable costs can fluctuate and maybe associated with stock or the cost to fulfil a service. Consider what you can do to control or influence this? Are you aware of what processes or systems are in place to help prevent discrepancies and over ordering? Can you reduce waste and shrinkage and, control your staff costs?
Fixed costs are those that don’t fluctuate but remain static no matter how busy you are. For example, rent, insurance, accountancy fees, utilities but have you considered if you could negotiate a better rate? Be clear on what you consider a cost and what you consider an investment. Is marketing a cost or is it an investment? This depends on how successful it is for you, eg if an advert is working and producing results, it’s an investment. If it has not increased footfall, then it could be worth re-directing those funds elsewhere.
Keeping in mind the levers outlined, add you own business profit and loss figures, and you will be amazed at the compound effect they have on your business. You may find that there are considerably higher percentages, than originally thought, which in the current climate certainly should not be ignored.
If you would like to understand more about the profit levers in your own business, contact firstname.lastname@example.org quoting code GCASP02 for a free 90-minute business review and coaching session.