When you say, “Business is good,” do you mean you have a lot of customers or that you’re making great money? Many companies are generating lots of revenue and paying the bills, but they are still not netting much profit. In fact, some owners might not even be aware of how short they’re falling until they review the books at year-end.
A number of factors contribute to killing a business’s profit margin, and reversing them can make the difference between just meeting payroll and making a profit. Use these five tips to find ways to increase your company’s profits.
1. Know where you’re winning.
Quick: name your most profitable product or service. What about your top three? Keeping real-time track of your business’s offerings and their rates of profitability will enable you to focus your efforts on the biggest winners of the moment. When market demands shift or stabilize, you’ll be able to redirect sales resources to where the biggest payoffs will be.
2. Minimize unprofitable items.
Certain products may not reap a profit but they serve other purposes for your business. Some loss leaders attract customers who then make more lucrative purchases. Others are nice add-ons that keep customers coming back. Know the difference between the unprofitable items that bring an alternative benefit and the ones you simply lose money on. Minimize your offerings in the latter category.
3. Keep an eye on cost creep.
Expenses have a way of adding up. To run profitably, keep a laser focus on costs and commit to keeping them low. Negotiate the best possible prices, take early payment discounts when you can, sign longer-term contracts to get better deals, and look for other ways to keep your cash close.
4. Raise prices.
Sometimes the math won’t work if prices don’t increase. If costs have risen but your prices haven’t, it could be time for an adjustment. Take steps to minimize customer backlash when you do this. For instance, high-value items can withstand price hikes better than commodities can. Let your loyal shoppers know that a change is coming and remind them of your added value.
5. Keep your best customers happy.
You will always spend more time and resources to win a new customer than to keep a current one. Happy repeat customers are key to running a profitable business. Rethink policies that reward new customers over loyal ones. Frequent shopper cards, sneak peeks at new product lines, birthday discounts for regulars, rewards for customers who refer new ones, and other VIP treatments let your current customers know you appreciate them and remind them to keep coming.