A reasonable Profit is the one thing that is needed to survive & grow a business. Use these techniques to meet the mission of the business that you want.
Profit Topics: Winners & Losers, increasing Value, Focusing on your Top Customers, Don’t Gamble, Bundle, use Incentives, Retention, improve Processes & more.
We all have our reasons why we started the companies we did. For some it was the challenge of creating something new, others higher social purpose – and for you – it might have been a different reason altogether – but profit is needed in all these cases.
Profit is essential to our business’s sustainability, and must be at least one measure of business success. It’s the one thing we all have in common to survive & grow. Here are some simple ideas to help you increase your company’s operating profit margin (ie, your pre-tax profits from the actual work of your business.)
- Feed your Winners; Starve your Losers. With all your business activities, live by this principle. This includes marketing activities, sales force, customer, team, company initiatives, reporting, etc. So cut your losers, then feed a portion of the saved time & money into your winners. This will greatly boost your profit-ability. NOTE: this is a variation of the “80/20” Rule. 80% of your results come from 20% of your efforts – so focus on these.
- Look for ways to increase Value to customers. This will help you shorten your sales cycle, increase your closing rate, lengthen your client “retention” – and perhaps – justify an increase in pricing – increase profit
- Focus on your Top Customers. Strategically map out a pathway to upgrade your top 10-20 & of clients to “red carpet” or “high value” offerings. They want this service, will value this service, and will pay for this service.
- Focus on Selling your most profit-able products, services. Focus your best efforts, talent, & attention on, these customers, niches, or channels.
- Increase your “dollars per transaction” and therefore profit. Ask, “How can I get each customer transaction to be for a larger dollar amount?” (ie, offer additional products or services).
- Bundle. Look for ways to bundle products and/or services so that you increase the average revenue & profit from every sale.
- Have Incentives. Strategically consider giving pricing, bonuses or other incentives to make the purchase & use of your product or service in larger unit sizes compelling.
- Increase Customer use-age. Strategically map out systems to help your customer consume your product or service faster, so that they get more value & hence re-purchase more frequently. Look for ways to educate them on the ideal use of your product or service.
- Make buying from you Easy & Simple. Reduce barriers to entry. Reduce frustrations or hurdles to re-purchase.
- Retention of good Customers. Be aware the steep cost of losing Customer. It costs at least 5x to get a new Customer vs keeping an old one.
- Retention of good Employees. Be aware the steep cost of attrition. It takes a lot of time & expense to find a good employee, then train them. Do almost what ever you can, to retain the best – recognition, time off, bonuses, raises, etc.
- Give your Team the Big Picture on ways they can contribute to profitability. Every team member affect profitability. Include them to empower them to be part of this search for ways to increase profitability.
- Rank your Sales people and portion out you Leads accordingly. Measure the “$ value per company-generated lead given to a sales person.” For example if #1 leads to $500 of sales & #2 leads to $750 of sales, you should think carefully about how you portion out the company generated leads. This is not a time to be “fair”, but to be strategic. Be transparent about this and let it be a spark to help Sales people to learn how to increase their own dollar value per company lead given to him.
- If Profit per Sales persons has sharp differences in the then do the above comparison and tracking relative to “gross profit generated per sales person per company generated lead”. What matters isn’t volume, but ultimately it’s profit.
- Shift a Cost from a Variable to a Fixed where the value is proven. Make this shift only when you can negotiate a substantial price savings by doing so.
- Shift a cost from a fixed to a variable expense to give yourself greater flexibility. This is a way to protect your Cash Flow. It is extremely important for un-proven tactics & strategies. For example, pay per sale vs a guaranteed amount for an outside Sales person.
- Re-Examine Processes, periodically to determine if you can have greater efficiency. Cut steps, re-order processes, re-engineer physical workspaces, provide more info, test tuffer, etc.
- Eliminate Tasks & Activities that don’t add “value” to your company or customer. Every dollar you save by eliminating the cost of things that don’t add value to your company or to your customer add directly to your bottom line.
- Stabilize your Production systems (when you can) so that you can reduce need to stock as much inventory and raw materials – which are a drag on your cash flow and on your gross profit margins. Investigate Just in Time software.
- Lower your “fixed” Overhead. Scrutinize your base expenses to eliminate non-strategic expenses that just don’t add “value” to the company or to the customer.
Comments: Do you know of any other ways to increase Profit-ability
from INC Zine 9/16 enhanced by Peter/CXO Wiz4biz