In discussing profitability we are effectively discussing the efficiency of a business to make money. In other words, how can we squeeze a little more money out of the existing establishment? This topic is well worth discussing as most people find themselves in need of small business financial help. There are many effective ways in which this can be done but before doing so you want to make sure your efforts won’t be in vain. The following considerations will help you to identify root issues that may be leading to your initial question of how to increase profits in business.
When to address profitability?
Addressing profitability should be addressed at startup and again after you have passed the survival phase. I discuss the phases of business development in the article; Small Business Volatility. The short of it is there is no point working on your profitability if you are not sitting on a proven business model. If you find that your model is not one that will fly in a small business environment than profitability is not your problem, your premise is. Upon such a discovery you should immediately pivot your focus to an approach that works with small business. If you are sitting on a proven business model than your next concern will be market positioning.
Adjust Your Market Positioning
First things first, be sure you are playing into The Advantages of a Small Business. Small business should already have a fairly healthy profit margin. If this is not the case you may want to look at your market positioning. Make sure you are not using a large business approach in your small business environment. This adjustment alone can turn your company around in record time. Profit per order will see a huge increase, your customers will love you, and you will no longer be pulling out your hair trying to figure out how to pay the bills while pushing tones of product out the door.
As a small business you should not compete on price. Small businesses should be competing on quality and lead time. If you are already positioned to compete on quality and lead time than the hurdle simply becomes acquiring more orders. This is accomplished by letting the market know you exist through various marketing efforts.
Up Your Marketing Efforts
You don’t want to spend much if anything on this so you will need to team up with local organizations and co-sponsor events. In many cases a donated widget or two will buy you a booth for an event that draws in hundreds to thousands of people.
If you are having trouble finding events figure out how to hold one yourself. If you go this direction I strongly suggest you approach a local TV or radio station and ask if they would like to co-sponsor the event with you. If you can get them to bite they will run adds in their dead time promoting themselves and your event at the same time. Once you are able to increase your exposure what you will find is many people already know you exist, they simply were not aware of your current products or promotions. This leads us into one of your greatest pools of potential customers.
Approach Existing Customers
One of the largest pools of untapped income is consistently your existing customer base. Think about it, if they purchased from you once they are highly likely to do so again. Take your customer list, which I know you have, and shoot out a promotional email and see if you get any response. It would be prudent to record which customers purchase, these are your gold mines and will probably continue to buy in the future.
If you don’t have a customer list start putting one together. Most database applications can output this information if you have been using something like QuickBooks. For those of you who may have customer lists but they are small, start gathering potential customer information through free giveaways or on your website. The one that always makes me laugh is the fitness club giveaway that says “Sign up to win a free week at our gym!” you know that they call each and every name entered into the drawing. On top of that they probably already offer a free week to every person who signs up.
Ask For Referrals
Many of your existing customers may not be willing to make another purchase right away but they probably know someone else who will. Ask them if they know someone that could benefit from what you have to offer. Personally I would have no reservation pointing a supplier in someone else’s direction. It gives the supplier another potential lead and allows me to feel like good about myself even though I decided not to purchase anything that day.
Increase Your Baseline
Finally, if you have tried all of the above, the last thing to do is raise your price. I will assume that you price was already acceptable to your market so you will need to justify this increase. The two big areas that will without question justify a price increase are your quality and lead time. Higher quality and faster turnaround times inherently demand higher price tags. An example would be a custom wood worker guaranteeing a finished product in one month at an additional cost. Or, a seamstress could double stich an entire article of clothing for 20 additional dollars. These small incentives will obviously be specific to your situation but you get the idea, added value at a slightly higher price.
I hope that gives you a few ideas on how you can squeeze a little more out of your organization. The hunt for further profitability is one you should never stop pursuing. You will find some products or customer’s seem to be more trouble than they are worth while others are simply a dream. As you identify your cash cows you want to focus your efforts in their direction. You can’t please everyone so you may as well work hard pleasing those that can be pleased.