So, you’ve decided that you want to grow your business. Will you do it by increasing sales; increasing profits; or both?
Only you can thoroughly assess your situation and decide which strategies are best for you or create unique ones based on you and your business, but here are some ideas.
If you want to increase profits…
Here are five common strategies you may want to consider:
1. Reduce overhead costs and operating expenses
This means more profit for the same amount of effort and sales.
This is a group of expenses that are necessary for your business to stay functioning, but cannot be directly associated with any one product or service (like rent, utilities, accounting fees, advertising, insurance, interest, supplies, taxes, telephone bills, travel costs, and so on).
2. Reduce direct costs
Direct costs are those that can be linked directly to your product or a service, such as materials that go into your product.
You may be able to reduce your direct costs by negotiating better terms with your suppliers, especially if you propose the reduced fee-per-item based on an anticipated increase in sales as you grow.
Try to negotiate rates based on certain threshold amounts.
3. Nurture your best customers and say no to your worst
Do you know who your best and worst customers are?
You’ve surely heard that 80% of revenues come from 20% of clients – but also remember: 20% of your clients create 80% of your problems!
Good customers know that your products and services provide value for their money. They become a great sales force for you by referring others.
You want to nurture these clients because they add more profit than new clients who cost you time and resources to attract and win.
On the other hand, you may not want the business of some customers, and it is OK to hold your ground on your terms and conditions. As women, we often have trouble saying no. But it’s not true that the customer is always right.
4. Eliminate lower margin products or services
It may not seem possible to grow your business by selling less, but it is.
Products or services that have lower profit margins take up the time and resources that you could be channeling into higher-profit areas.
You may find that you are actually losing money by carrying certain products and services, so by eliminating them you may actually increase profits!
5. Increase the price of your products and services
If demand for your product outstrips supply, consider increasing your price to increase profits. If you keep your costs and production the same, you should make a bigger profit.
You may want to increase the quality or features of your products and services so customers see more value to match a higher price.
A word of warning: Make sure increased price doesn’t reduce your sales so much that your overhead costs are now higher per-product or service, thereby eliminating any profit – or, worse, even reducing it.
Check out the next blog on this topic: How to Increase Sales: Questions to Find Your Strategy!
This is an adapted excerpt from the free downloadable Growing Your Business Guide by Women’s Enterprise Centre. View the guide >>