How to Make Business More Profitable
In today’s business environment, the answer to How to Make Business More Profitable always dynamic. Around half of all businesses no longer exist after five years. Only one-third make it past their 10th anniversary. These statistics have been remarkably consistent through the years.
It is essential for Small and Medium Enterprises (SMEs) to be eligible for banking facilities and other supports to increase their profitability. In fact, only 20% of new businesses survive past their first year of operation.
While it is unavoidable for some businesses to go out of business, your business does not have to languish or fade away. Why not activate it by giving a new life – developing new revenue streams or spinning off a new business to increase its profitability.
Understand What Profit Is?
The first factor on How to Make Business More Profitable, businesses need to understand the concepts of profit margins and profit drivers. Profit is not the same as cash or sales and it is not the money in the bank or in hand. Profit is only represented ‘on paper’, in your accounting system. You can develop strategies to increase your profits; that includes ways to increase your sales revenue, your profit on individual products and services and also cost reduction.
Suggested Reading: What Separates the Winners from the Losers
Increase Sales Revenue
As described earlier, profit is made by increasing your revenue at a higher ratio than your costs. While it may not be the best for the customers, the increase of business profits and product markups can be quite advantageous. Use the 3% formula – increase your product prices by 3%. One of the easiest way to do this is by adding some fee to current pricing structure. You may have noticed such pricing strategies implemented in courier companies.
How to Make Business More Profitable – Use the 3% formula
Dig Your Gold Mine
Go through your customer files and create a database of the customers that you have done business with in the past 18 months.
Try to understand :
- Why have some of them left ?
- Were your active customers more than your inactive customers ?
- Are your current active customers generating enough revenue ?
Reactivate Your Inactive Customers
Send a postcard series with the theme, “We want you back”. But do not be disappointed if they call and say, “We thought you went out of business since we had not heard from you in a long time”. Instead, prepare a special come back promotion to give them a reason to purchase from you again.
Revisit the 3% formula: Reduce Cost
As business owners, you know suppliers or creditors are your prime backers. Ask them for a better price; where possible, try to ask for a 3% or better discount in their pricing. In return they may request for cash payment, shorter payment terms or increase in the volume of business. Do plan properly before committing. Now you are making even more profit per sale by implementing 3% up and down formula.
Cooperate with your Competitors
In May 2015, media reported car makers Toyota and Mazda have agreed to form a “long-term partnership” by forming a joint committee to evaluate how best to utilize their respective strengths.
Why do you think arch rivals are willing to cooperate with each other? Why can’t SMEs in Malaysia follow the same steps? Some company may generate more business than their own resources can handle due to their branding strength.
In case you have an unmanageable abundance of orders, do not stop taking new ones; instead, you cooperate with another business in exchange for a cut of the profits. As an example, you may charge a client $5,000 for a product; however, you do not have the additional resources to complete the job on time. You could outsource it by keeping some profit for the company.
Sell 3% more Products
The 3% formula again – suggest to existing consumers to purchase 3% more products or services. Run promotions to get consumers to buy 3% more often.
Referrals From Your Customers
One of the best ways to grow your company is through referrals from happy customers. Generating revenue from clients that already know, like, and trust your brand is much more cost-effective than spending money acquiring new customers. If you provide clients with a superior experience, they’ll want to do business with you in the future and will likely send referrals your way. However, remember asking for referrals can be awkward since there’s a lot at stake when attaching clients’ reputation to someone else’s.
There are many things you can do to generate more referrals. Here are some that have worked for SME businesses:
- Put a statement at the bottom of your invoices, on proposals, and the back of your business cards.
- Utilise Social Media and learn about social selling
- Attend more business networking sessions
- Attend training on how to get more customers through website
- Follow up with the referrals
Putting Hands to Dirt
Business owners and managers are keen onHow to Make Business More Profitable need to put their pen to paper to keep analysing profit potential. Surely, it doesn’t take a lot of painstaking effort, right? It is rare to find profits without hard work. Putting your hands to dirt in executing your weekly and monthly sales goals is an exercise that you may want to start early. By doing this on a regular basis you will always stay focused on marketing. Too often business owners focus on the job at hand and don’t fill their pipeline.
Learn New Skills
It is not enough to be smart — you need to be always getting smarter
Heidi Grant Halvorson, author of the Single Nine Things Successful People Do Differently.
All of us want to be better at something. After all, self-improvement by learning new skills or acquiring fresh knowledge is necessary for us to get ahead at work. In today’s business environment, mastering new skills is not optional. The fast-moving and competitive world offers knowledge and skills at our finger tips.
The wealthy and ultra-successful know that there are always something outside of their job description that can immensely improve their wealth and their lifestyle. So, when you decide to learn new skills, do choose from outside of your daily business routine.
Do Things That Your Customers Will Talk About
What, spend more money? Why not? It is your own business. You can follow simple, easy to implement steps such as :-
- Get customer feedback by creating polls with a few ideas you have been thinking about and send it out via your blog, social media accounts and email. The response will help you improve.
- Help customers to do something they love; tap their passion. Ask your social media followers or fans to tell you about something they are passionate about. Then, create a program or sponsor what they love.
- Give your customers something your competitors are not ready to offer. Definitely, we are not talking discounts here. Think about features, services, resources, or whatever else your customers will place some value on.
Now, enough of reading for today. We have got work to do – improve our business profitability.