Right under your nose! 2 ways to increase profits that don’t involve new business
Often when business owners plan to increase profits, cutting operating costs is the first instinct. It makes perfect sense on paper but the reality many cases is that costs can only be reduced minimally before the quality of your offering starts to suffer. When value is reduced your customers lose out.
On the flip side, when value for the customer is increased, business costs tend to go up and better products and services don’t come cheap. Not to worry, though. Here are two ways to increase profits that could be right under your nose:
INCREASE YOUR AVERAGE SALE
“Would you like fries with that?” - Up selling has everything to do with McDonald’s success and it can work for other businesses too.
The strategy used by many business owners to increase turnover is to attract more customers. This is all well and good, but that takes time and money.
Often overlooked is the opportunity to increase turnover by upselling to the customers you already have. Why? Because it is 6 times more expensive to get a new customer over the line than to upsell to an existing one.
Questions you should ask yourself include:
- What is my average sale? If you don’t know, find out.
- Is there scope to bundle my products and services in a bid to increase this sale?
- Could I proactively tell my customers about my special offers before they ask?
- Are my customers aware of all the products and services I offer? They may not be. Tell them what else you can do for them.
- How do I sell to my good customers that I could start doing to customers I only make smaller sales to?
FOCUS ON HIGHER-VALUE CUSTOMERS
Many businesses make the mistake of letting just anyone become a customer. It seems rude to turn away perfectly good business, right? Not necessarily.
Every business owner knows that some clients are more trouble than they’re worth.
- There are those who want everything done yesterday.
- There are those who only pay you months later (after much cajoling).
- And then there are those who are just plain difficult to deal with.
- Profits suffer because of these customers and they are typically much more labour-intensive to service.
There is a better way.
You can start by classifying all your customers and clients according to the value they bring your business. The customers who fit into the categories above should be classified ‘D’ and either re-educated or let go.
Re-education essentially means letting them know (in the nicest possible way) that you are finding it tough to look after them as well as you would like. Tell them what they can do to meet you halfway so that your business relationship to become a ‘win/win’.
As for the ones you decide to let go, draft a ‘Dear John’ communication where you politely advise them of a change in terms (whether that be C.O.D, 50% advance payable upon receipt of order, or another remedy to address the pain point they create for you). Ensure your staff know to reinforce these terms and hold firm on them prior to accepting any new business.
With the noise reduced from these customers, you will create capacity to concentrate energies and ideas on your star-performing (A++) customers!
Take extra-special care of these winners. Stay in regular contact and make them regular offers. That way, you can deepen your relationship, upsell to them where appropriate and ask for referrals. Provide a premium service and look at all of the opportunities there will be for them to help increase your turnover.
The best thing about this is that they can refer friends and colleagues who are just like them - A++ clients!
Raising profits is not always about slashing overheads or attracting more customers at any cost. Sometimes it’s about making the most of what you have.
Your Hanrick Curran advisor has the skills and expertise to help you assess your position in the market and develop or review your business plan to take your business to the next level. For assistance please speak with your usual Hanrick Curran advisor or call 07 3218 3900 and speak with Angela Winton, Matthew Beasley, Stephen Brake or Robert Pitt.
Please note that this publication is intended to provide a general summary and should not be relied upon as a substitute for personal advice.