Could improve your performance by 10 per cent and double your profits
Imagine slaving away for years in your own business only to find out that it isn’t worth anything.
I regularly meet with business owners who ask me how much their business is worth and I have to tell them the disappointing news that it’s actually worth very little.
The reason their business isn’t worth anything is often because it’s not making a profit.
While the naysayers of capitalism focus on the fact that some businesses are corrupt in making excess profits, the reality is that 60 per cent of small businesses aren’t profitable or are only marginally profitable.
Would you work in a job where you aren’t being paid or are underpaid?
I doubt it!
In order to be healthy and provide jobs for the economy, invest in their communities and support non-profits with their donations, it’s essential that a business makes a profit. For this to happen, businesses need customers who are willing to buy their product or service. As the customers buy our products, we turn those purchases into profits (after paying our expenses).
If your business isn’t making the profits it needs to stay healthy, the good news is that these focused strategies to improve our business in key areas will result in a substantial improvement in the bottom line:
Contacts, leads and referrals
All businesses need prospective customers, people who might be interested in our product or service. How we identify and reach these prospects is determined in our marketing plan.
There are strategies to help you reach these prospective customers and turn them into paying customers.
The key thing is to understand that prospects are potential customers. Working in this area will increase sales and, if everything else is working, improve your bottom line.
Unless you’re just starting out, all businesses have existing customers. These are the people who are buying your products or services.
As business owners, sometimes we’re so focused on getting new customers that we take our existing customers for granted.
Once you’ve identified what market you want to play in, your existing customers in that market are key to your ongoing success and profitability.
Over time, some of your customers decide not to buy from you. Some die off (literally) or perhaps move away; others choose to buy from your competition, perhaps buy online, or for some other reason aren’t buying from you.
As business owners looking for profits, we need to know why these people aren’t buying from us simply because we don’t want to lose any more customers.
Better yet, we want to transform those past customers into buying customers once again.
How many prospects can we convert into customers?
Online companies are great at considering their conversion rates, but how many brick-and-mortar business owners look at how many customers are coming through their doors but leave without purchasing?
What can we do to improve those rates? What can we do to increase the number of times our customers buy from us in a given year?
There are a number of strategies you can use to improve conversion rates.
What can you do to increase your average sale?
You have the customers buying from your business (which is the hard part). Now think about how you can sell them more of what they want.
This increase in average sales can make a significant difference to your business. You will have concrete ways and ideas to use to increase average sales.
Gross margin is the amount of money you have after paying the cost of the products or services sold. By dividing this number by your total revenue, you get your gross margin percentage (also called gross profit percentage).
This is important because this is the profit you’ve made before your fixed expenses or the expenses you must pay to run the business.
Think about areas where you can increase your margins. A one per cent margin increase on $1 million is $10,000.
Many business owners undervalue what they sell because they don’t believe they’re creating value for their customers.
By increasing your margins, you will increase your profitability – unless you get too greedy and your customers decide to shop elsewhere.
Overhead is what you spend on expenses to run your business. This is an area of focus when we get into trouble or times are tight, but we forget about it when things are good.
Are there areas in your business where you can make some cuts in the near future that will affect your bottom line for the year?
One way of reducing your stress as a business owner is by increasing your profits to the point where you’re sufficiently satisfied with the outcome.
Of course, being human, we won’t ever be fully satisfied with anything in life – and most business owners naturally want more when they achieve a level of success.
However, if business owners improved their performance by 10 per cent in the areas above, they would double their profits.
Work on improving each area simply by 10 per cent and you will double your profits. Let me know how it works out for you. I would love to hear.
By David Fuller
Courtesy of Troy Media.