5 Proven Strategies To Increase Your Profits

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Running a business is akin to steering a ship; without a clear direction and continuous adjustments, you risk veering off course. Profitability is not a destination but a journey that requires ongoing evaluation and strategic planning. In this guide, we explore five practical and impactful methods to boost your business’s profitability. Whether it’s through the meticulous implementation of KPIs, a profound understanding of your financials, choosing your customers wisely, capitalizing on repeat business, or refining your pricing strategy, these steps will empower you to drive your business towards greater success. Let’s delve into each of these areas to uncover actionable insights and strategies.

1 – INTRODUCING KPI’S.

When a Key Performance Indicator is implemented, it should be something you can consistently measure, and it must be something that does not end at some set point. For example, could you always count and improve the number of leads you acquire through marketing? The answer is yes. This can be a KPI. On the other hand, implementing a new marketing campaign cannot be a KPI as it is a finite goal, and once it has been actioned or implemented, it is over and done with. The value gained from having a KPI comes when the KPI is reported on consistently. A KPI is only a KPI once it produces a number that can be compared daily, week by week, month by month, rolling three months, etc. The value of having a KPI is gained when you can see a visible improvement in the vital indicator and you can see what decisions to make when the trend is looked at over time.

Decide who is accountable to the KPI and its measure. We recommend always beginning with a companywide KPI before implementing individual KPIs for your team. Suppose individual KPIs are introduced before a company KPI. In that case, people’s behaviour tends to be unique, and communication and teamwork break down because people are concerned about their results. Introducing a company KPI first and then a department KPI next provides employees with the learning that you, as the leader, are taking accountability seriously and that they need to work together to achieve the KPI target. One of the most powerful motivators is peer accountability. Just as happens in a sports team, if people know that their evaluation is based on the team’s performance, they will either bring other team members up to new standards or make low- performing team members uncomfortable. Healthy pressure is a powerful motivator for teams and releases the burden from a traditional top-down approach. Contact us at [email protected] for more information on developing KPIs through a short and powerful template.

2 – UNDERSTAND YOUR FINANCIALS

How many of you would be happy to leave a favourite sports match, not knowing for 2 or 3 weeks whether your team won? No one, we’ll bet. And yet, many business owners won’t know where they are up to financially for weeks after the end of a month or the financial year. That would be like someone trying to fly a plane without understanding the cockpit instrumentation. It would be just a matter of time before they got into strife. If you are not a skilled pilot flying a plane or you are not watching your financials running a business, might you be heading for trouble? Know your financial information.

Business or entrepreneurship is an intellectual sport or, if you prefer, a sport for the intellect! The financials are the scorecards. Would you watch a footy game if you knew that no one was keeping the score and had no idea how long was left to play? Anyone who chooses to play the ‘game’ that is a business based upon their GUT (Gave Up Thinking) will crash and burn sooner or later. It’s just a matter of time. Running a business using your GUT feels like operating on “Hopium,” and this can be hairy sometimes!

By understanding your financials, you can focus on the products or services that make money and eliminate the ones that don’t. Generally, the 80/20 rule applies in that 20% of products, services, or customers produce 80% of the profits. Often business owners put a tremendous amount of time and effort into things that suck time and effort with no profits to show for it. If we focus this effort on the business’s profit-making areas, we produce better results with less effort.

3 – CHOOSE YOUR CUSTOMERS WISELY

Don’t just service everyone.

Most business owners will supply their goods or services to anyone who puts their hand up. This is understandable because saying NO seems unnatural and wrong for business; after all, aren’t we here to increase our sales? Not necessarily. We want to increase sales in the areas and with the customers that help us be profitable enough. Let’s spend time serving customers who are difficult to please, complain, and don’t pay their bills on time or at all. We are creating a burden for ourselves that is wasting our precious resources, affecting our mood and mindset and that of the team and not producing any profits consistently.

Applying the “ABCD” Model.

The ABCD model gives us a great tool to distinguish the customers we want to attract and, just as significantly, the customers we want to deter! CHOOSE YOUR CUSTOMERS WISELY 03 Don’t just service everyone. Applying the “ABCD” Model. A = Awesome B = Basic C

We use a customised one-page spreadsheet that captures all the essential financial information of your business (over 60 items!) with only three input areas: sales, cost of sales, and fixed costs. This fantastic tool has been tried and tested with hundreds of clients over a decade and is still, by far, the most powerful financial tool in our arsenal. Even the financially illiterate learn to love it and wonder how they ever did without it!

Consider this: using the 80/20 principle, you can say that your A’s and B’s are the 20% of customers delivering you 80% of profits while the ‘C’s and ‘D’s are the 80% of customers only contributing 20% to profits. Another way of looking at it is that the ‘C’s & ‘D’s give you 80% of all the headaches doing business! We can start nurturing the customers who contribute positively to our business and offload our ‘bad’ customers to the competition so they can waste their time and deal with them instead. That seems like a good idea, right? This means we can make more money with less effort rather than just running on a hamster wheel and constantly putting out fires. This has got to be an exciting prospect for every business owner!

Promoting or demoting current customers

In time, an ‘A’ customer can become a ‘B’, ‘C’, or even ‘D’ customer, and conversely, a ‘C’ customer might be promoted to the ‘B’ category. For instance, a customer who hasn’t been paying on time might start paying their bills on time with some effort and re-education, making them more desirable to deal with again.

Attracting the right prospects

Now that we have clarity around the type of clients we want to service, we can actively start looking for them in a very focused way. This might mean we only promote ourselves in a particular area of the city, market to a specific age group, etc. We are now attracting a better clientele and can also deter the people who will be bad for business before they can come on board as customers.

Applying the model to team members

Just as we can group our prospects and customers into the ABCD Model, we can use the same model and similarly categorise our team (however, we won’t elaborate on this here as it falls outside the scope of this eBook). Contact us at [email protected] for more information on using the ABCD Model for YOUR business.

4 – THE POWER OF REPEAT BUSINESS

First, some facts.

Once acquired, a customer is your business’s biggest asset – a potentially endless stream of dollars

The bottom line on increased customer retention is increased profits

Retention strategies cost far less than conventional marketing, advertising, and direct field selling costs…. And they produce a proportionately higher return on investment.

Too many businesses ‘churn and burn’ their customers. The motto is (not intentionally) to overpromise and underdeliver. They will spend time, effort, and often substantial marketing dollars converting a prospect into a customer only to deliver a mediocre or downright awful experience and lose the newly acquired customer as quickly as they came on board. This is expensive, wasteful, and frustrating. In addition, it often leads to negative reviews and a battered reputation, which leads to more expense and effort in bringing new customers on board and so on! Instead, we want to take a step back.

Assess what we are doing. Where are the bottlenecks? Do we have solid systems and processes to ensure the customer’s experience is not dictated by the enormous peaks and troughs of whether we are experiencing a good or bad day?

Good or bad days will always happen, but refined processes ensure that the wheels don’t simply fall off and that the peaks and troughs are smoothened out, so there is no significant adverse impact on the result of what we deliver.

Customer retention pays…. Big time. Contact us at [email protected] for more information on this topic and how to refine your processes.

5 – SETTING YOUR PRICING

Should you discount your prices? Discounting prices to win customers is overrated. Many business problems are caused by discounting. The pressure of needing more customers leads to discounting. This is because we think that it will increase sales volumes. It may increase volumes but squeezes the profit on each sale, so we need increased volumes to cover the lost profit. The reality is that the practice of discounting has the most significant negative impact on the profitability of a business.

Many businesspeople and sales teams will argue that they need to give discounts, or they will lose customers, or they will only win that new customer with the ability to discount the price. In Pricing for Profit, Peter Hill argues that suggesting they get better selling skills is the correct response to such an argument, and we agree with him. Once again, the evidence rarely supports the claims that discounting will win customers. Mainly we will give away more money in the value of the discounts offered than we get back in increased profits from the extra sales to existing customers or in sales won from new clients.

There are only two valid reasons for discounting.

  • Use it as a marketing tool to present the price attractively (and set your prices initially to be able to do this)
  • adjust your prices because they are wrong and need to reflect the accurate market value. Here is an interesting fact: if your present margin is 40% and you discount your prices by 10%, your sales will need to increase by 33% in volume to keep the same dollar margin!

    Contact us at [email protected] for a full table that shows how discounting affects your margin.

    Don’t discount; add value instead. Another way of avoiding discounting is to add value instead. When you give something away, the perceived value is often more significant than the actual cost. For instance, instead of giving a $500 discount on an outdoor furniture set, giving away a $500 umbrella, which only costs the business $150, may achieve the same result at far less cost.

    Another example is a free VIP membership with a perceived value of little to no cost to the business. Should you increase your prices? It’s a myth – increasing prices doesn’t AUTOMATICALLY mean losing customers. In Pricing for Profit, Peter Hill argues that customers don’t always want the cheapest. If you are serious about profit improvement, you must consider implementing a price increase at some stage. Chances are you will be resistant to increasing your prices, and it will take the impetus from someone (a business coach or trusted advisor) or something (impending bankruptcy) outside your business before you take such a step.

    Almost every time we broach the question of raising prices with a client, we will be told: “I can’t put the price up. It is the only thing my customers care about, and I will lose them if I do…” The evidence never supports those claims. Customers are rarely THAT price- sensitive. Mostly, it’s just that you haven’t been trained in pricing issues. The right pricing strategy can also deter the ‘C’ and ‘D’ prospects (as previously discussed above) from becoming customers in the first place, which is a good thing!

    Today, consider your pricing strategy and execute a simple strategy that will boost your profits easily and quickly.” We hope you enjoyed reading this short ‘taste tester’ on some ways to start thinking outside the box and have you drive your business rather than your business driving you.’

“If the business can’t create a great lifestyle for you, you may as well go work for someone.”

Business Coach Mark has been coaching business owners since 2007 and is passionate about creating businesses that can run without you. You can contact us through businesscoachmark.com.au for an initial confidential, no-obligation chat.

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