Profit & Growth – Together Forever

The ability to grow the profits within your business will depend on the goals you set, the specific challenges within your particular industry and the potential of the people you employ – something that is nowadays often referred to as your ‘business strategy’. Beyond this, in simple terms there are five areas which are fundamental to your success:
1. Gaining customers
2. Retaining and getting more business from existing customers
3. Increasing the value of each sale (often referred to as ‘added-value’)
4. Cost reduction including efficient operational systems, processes and logistics which result in time-savings and improved customer fulfilment
Decisions need to be made regarding price, sales volume and the profit made on each transaction. Increasing sales can potentially be done without limit over the long term. Costs can only be reduced so far.

Ways to Increase Profit:

Business Strategy

Look where you stand now and consider your personal ‘vision’ of where you’d like to be in, say, each of the next five years. Try to map out where you are going now and what needs to be changed to achieve your goals. Goals should be written out for both your business and where this impinges on your private life.

They should be: Specific – Measurable – Initially appear ‘awesome’ – Realistic – Timed (so that progress can be monitored)

A few questions need asking first:

1. Do you enjoy your business? If you don’t, you may need to take a different role in the business or fundamentally change the nature or direction of the business itself. Quite drastic, but you need to be motivated to succeed!
2. What are the biggest challenges facing your business today, and perhaps in the future?
3. What would you like to do that would fundamentally change the workings of your business?
4. Do you know how your business compares with both the best and the average in the industry?
5. Can the business operate successfully in your absence – do you run the business or does the business run you?

Businesses that are built on systems and delegated tasks are ultimately usually worth more than working yourself in the business. Indeed, the major ‘multiple retailers’ started life as simple shop-keepers who then replicated the initial success of their ‘business model’ by ‘roll-out’.

Once you’ve come to some satisfactory conclusions you can move on to actively start planning for the future. You might want to start by trying to manage your time more efficiently by prioritisation & delegation. You can then:

1. Focus on your ‘core-business’. Selling a limited number of products can sometimes be better than trying to sell too many different products. On the other hand, there may be new products which have a perfect ‘fit’ with your existing product(s) in terms of similar customer base e.g. the supply of spares and/or accessories is sometimes more profitable than the sale of your ‘flag-ship’ product.
2. Consider ‘Pareto’s law’ (the 80/20 rule). Often 80% of your profits will come from 20% of your customers and 80% of your hassle will come from 20% of your customers.
3. Make sure that your prices are set for maximum profit. Increasing prices may well increase profit and reduce work depending on the behaviour of customers (price-sensitivity within your market). SEE TABLE
Do you use your people’s knowledge, skills and potential to the full? It is important that you:
a) Recruit the right people and empower them to take responsibility
b) Keep your staff up to date with the right training. In-house ‘Tool-Box’ sessions will cost you very little!
c) Communicate with your staff both orally and in writing on a regular basis so that they feel valued
d) You might also run brain storming sessions with your staff and suggestion schemes for staff (they can be paid tax free for suggestions!). Contribution by all staff of one written idea per week/month is one possibility.

Gaining and Retaining Customers
Most research suggests that it costs, on average, 5 times more to gain a new customer than it does to keep an existing customer. Looking after your existing customers is crucial. It is much easier to sell additional products to them than to attract new customers. Businesses can only succeed in the long term by ‘adding value’ to their customers. The customer must perceive that the benefits offered are greater in value than the price they are being invited to pay.

Always try to ‘add value’ when you follow a prospect up. Tell them something that will be of benefit to them. It is normally more successful than cutting prices!

1. How do you measure customer satisfaction? If you don’t really know what they think, how can you react to improve their buying experience?
2. How fast and well do you respond to complaints? Remember, bad news travels faster than good news! Look at what your existing customers biggest complaints and frustrations are, work out solutions to these and let everyone in your organisation know how to apply them.
3. Think of all the ways to impress your customers? Go ‘above and beyond’ what might normally be expected:
Handle that first meeting with a prospect in an impressive way, and make sure your premises are tidy
Ensure that your proposal letters are clearly presented and demonstrate your professionalism
Exceed your promises, and remember to thank your customers when they pay or make your life easy
Be very helpful, patient and courteous when responding to both telephone and other enquiries
Reward them for their loyalty through discount schemes, anniversary presents, business awards, etc.
Are your guarantees better than your competitors? Let everybody know!
Keep them up-to-date and well-informed about your business, it’s products and services and your unique selling points, through newsletters, magazines, local and regional media and personal contact if possible
4. Look at what other great and successful businesses in different industries (or different countries) are doing to attract new customers / clients and see if this idea or strategy can be applied to your business.
5. Arrange reciprocal deals with other businesses so they recommend you in return for a commission. By forming associations with other businesses you can both be in a win-win situation. Each other’s customers may buy the other’s products via special offers. Consider who else gains when you increase your sales. Often it is your suppliers. You could get them to promote your products or contribute to your promotional costs. They may also have mailing lists. Conversely, think about whom you could help to grow their business and in return yours will grow. You should have a number of systematised referral methods in place to help gain more customers. These can include the following:
Offer a price reduction in exchange for a referral
Offer referral vouchers to your customers to give to their customers in exchange for a discount on your products
Asking all customers if they are happy with each delivery and at the same time asking for a referral. Written testimonials (from customers) are extremely powerful in gaining new customers / clients. The easiest way to get them is to ask for them.
Always ask for a referral whenever you win or lose a customer.
Asking for referrals in customer satisfaction surveys.
Automatically asking people you meet for referrals and give referrals to other people so they will be encouraged to refer others to you.
6. You should determine how much sales activity, within the limits of your budget, is required to meet your target. For example how many mail-shots you need to send out based on number of leads expected and conversion ratio. You also need to consider all forms of marketing & advertising (paid-for & free) to find the most appropriate.
7. Send press releases to local and trade papers but do not make them look like an advert. Send copies of the same press releases to prospects, even if they do not make the paper. If you do pay for advertising, you might include a free reader offer.
8. Ring competitors listed in the phone book to find any disconnected numbers. If so, ask the phone company to allocate them to you in order to pick up the benefit of their old advertising. Also consider 0800 free-phone numbers.
9. Consider Business Awards. The secret to winning most business awards is to enter them!
10. Are you persistent in chasing new customers? Research suggests that the majority of prospective customers say no 5 times before saying yes. Therefore, those who persist make far more sales. Follow-up systematically!

Getting Customers to Buy More Often
1. Make it simple for customer repeat orders: provide pre-printed order forms, and product codes on the products themselves – not just in your leaflets or catalogues.
2. Run customer contact programmes, including newsletters, and try to ‘add value’ when you do contact them.
3. Offer add-on products / services.
4. Offer other special deals including special offers only available to customers who have not bought for a while.
5. Recommend other people’s products in return for a commission on the sale.

 You might want to consider a completely different approach to selling. Consider, say, selling products under licence as opposed to an outright sale, or introduce a regular service / maintenance fee rather than ‘one-off’ sale.

Increase the Value of Each Sale

1. Look at bundling products together and offering them at a beneficial price. Eg. buying ‘two for the price of one’.
2. Look at increasing the actual physical size or quantity of products, at prices beneficial to your customers.
3. Do you ask the right questions when each sale is made to determine if there is an opportunity to make another sale at the same time? Window of Opportunity (WOO) charts are useful in that they can act as a ‘prompt’ to the sales team if reviewed regularly. Products are listed on one axis with customers on the other. The intersection is highlighted. Unhighlighted items represent opportunities to sell other products to customers. They can be adjusted for introductory commissions on other people’s products and referrals to track who they come from.
4. Look at how you can charge more without loosing any customers. For example offer discounts as customers buy more, offer better guarantees, describe prices as investments rather than costs, explain price rises, charge for extras separate from the headline price, when increasing many prices reduce the prices of a few and highlight these, create a bargain for price reductions by say obtaining a referral.

Some important points to consider with regard to employee and customer incentives

Make sure your staff / employee / other commission schemes offered are designed to generate more profit and not just more sales! Commission paid should be a percentage of the profit and not the sale.

Early settlement discounts are not usually as efficient as ordinary settlement and trade discounts and can eventually erode your ‘normal’ selling price and profit margin.

An alternative to the above is to charge interest on late payment or a finance charge on late payment, but it has its own dangers from a credit control perspective. Vet customers carefully before offering them credit, issue your invoices on time and have a system of debt recovery in place which is ‘visible’ to your customers.

Cost Reduction including Supply-Chain Efficiency & Operational Efficiency

Can you identify any areas within purchasing, production or service delivery and your overall supply-chain where you can reduce your labour costs and overheads? Some things you might consider are:

1. A more efficient purchase order system to ensure all purchasing decisions are accountable, are authorised, the goods fully delivered and the correct amount invoiced.
2. Are you operating (and maintaining!) your plant & equipment to run at its optimal level of performance?
3. Are your employees working on contracts that make best use of them in both busy and quiet periods? Consider also whether employees can be moved on to a sub-contractor basis to save national insurance and avoid the red tape of employment legislation.
4. Are your systems and procedures for storing, moving and ‘shipping’ stock to your customers really well planned?
5. Have you looked for any available grants to help in training your employees or to buy equipment?

Some practical tips include:

1. Never sign up at a first meeting, however good the deal looks. Take time to consider.
2. Offer to settle bills early in exchange for a discount when you buy.
3. Consider taking alternative quotes from other telecommunications, IT and utilities providers.
4. Consider appealing against your rates assessment.
5. Reduce advertising costs by sending camera ready artwork to your publisher with a cheque for say 15-25% of the list price together with a covering letter authorising them to cash the cheque and run the advert whenever they have space left over. Most publications have some and would rather have something than nothing.

There are many sources of start up advice – including the recent initiative from the Yorkshire Enterprise Club. You can register free online at http://www.yorkshireenterpriseclub.org.uk
Further to this, I can advise re: other specialists with whom I have established working relationships.

GUIDE TO PRICE SETTING
If your present gross profit percentage is:        
 

20%

25%

30%

35%

40%

45%

50%

55%

60%

And your prices fall by To increase your profit, your sales volume must increase by more than

2%

11%

9%

7%

6%

5%

5%

4%

4%

3%

4%

25%

19%

15%

13%

11%

10%

9%

8%

7%

6%

43%

32%

25%

21%

18%

15%

14%

12%

11%

8%

67%

47%

36%

30%

25%

22%

19%

17%

15%

10%

100%

67%

50%

40%

33%

29%

25%

22%

20%

12%

150%

92%

67%

52%

43%

36%

32%

28%

25%

14%

233%

127%

88%

67%

54%

45%

39%

34%

30%

16%

400%

178%

114%

84%

67%

55%

47%

41%

36%

18%

900%

257%

150%

106%

82%

67%

56%

49%

43%

20%

          -

400%

200%

133%

100%

80%

67%

57%

50%

25%

          -

          -

500%

250%

167%

125%

100%

83%

71%

If your present gross profit percentage is:        
 

20%

25%

30%

35%

40%

45%

50%

55%

60%

And your prices rise by To increase your profit, your sales volume must not reduce by more than

2%

9%

7%

6%

5%

5%

4%

4%

4%

3%

4%

17%

14%

12%

10%

9%

8%

7%

7%

6%

6%

23%

19%

17%

15%

13%

12%

11%

10%

9%

8%

29%

24%

21%

19%

17%

15%

14%

13%

12%

10%

33%

29%

25%

22%

20%

18%

17%

15%

14%

12%

38%

32%

29%

26%

23%

21%

19%

18%

17%

14%

41%

36%

32%

29%

26%

24%

22%

20%

19%

16%

44%

39%

35%

31%

29%

26%

24%

23%

21%

18%

47%

42%

38%

34%

31%

29%

26%

25%

23%

20%

50%

44%

40%

36%

33%

31%

29%

27%

25%

25%

56%

50%

45%

42%

38%

36%

33%

31%

29%

Contact ADS





© A.D.Smith, 2012