It doesn't matter if you have a one-person consulting company or a Fortune 500 corporation, because the principals are the same. Businesses need customers who are willing to buy our product or service and as the customers buy our products we turn those customer purchases into profits (after paying our expenses).
The total value of the profits depends, however, on what transpires in the business, from marketing strategies to management decisions. To make healthy profits we need to understand how business works and make changes that maximize our return. The changes do not necessarily need to be substantial, as we will see later.
However, focused strategies that 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 that might be interested in your product or service. How you identify and reach these prospects is determined in your marketing plan. Go over strategies to help you reach these prospective customers and turn them into paying customers.
The key thing here 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
Existing customers: Unless you are just starting out, all businesses have existing customers. These are the people that are currently buying your product or service.
As business owners, sometimes we are so focused on getting new customers that we take our existing customers for granted.
Once you have identified what market you want to play in, your existing customers in that market are key to your ongoing success and profitability.
Past customers: Over time some of your customers decide not to buy from you.
Some do die off (literally) or perhaps move away, others choose to buy from competition, perhaps are buying online, or for some reason are not buying from you. As a business owner looking for profits you need to know why these people are not buying from you if simply for the fact that we don't want to lose any more customers. Better yet you want to transform those past customers into buying customers once again.
Conversion rates: How many prospects can convert into customers? Online companies are great about considering their conversion rates, but how many brick and mortar business owners look at how many customers are coming through their doors and leave without purchasing? What can you do to improve those rates? What can you do to increase the number of times that your customers buy from you in a given year? There are a number of strategies you can use to improve conversion rates.
Average sales: 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 sale can make significant differences to your business and you will have concrete ways and ideas that you can use to increase average sales.
Margins: Gross margin is the amount of money that you have left after paying for 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 have made before your fixed expenses or those ones 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 that they are creating value for their customers. By increasing your margins, you will increase your profitability, unless of course you get too greedy and your customers decide to shop elsewhere.
Cutting overhead: Overhead is what you spend on expenses to run your business.
This is an area of focus when you get into trouble or when times are tight, but forget about 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? Probably.
One way of reducing your stress as a business owner is by increasing your profits to the point where you are sufficiently satisfied with the outcome. Of course, being human, we will not ever be fully satisfied with anything in life, and most business owners naturally want more when they achieve a level of success. Work on improving each area simply by 10 per cent and you will double your profits.
Dave Fuller is a certified professional business coach with over 30 years of business experience. You contact him if you would like help with your business [email protected].
