The small business owner’s elusive goal — how to increase revenues, how to increase the value of their business and then, how to find sources of recurring revenue and apply that in their business. We have established that these are indeed tough times to remain in business. Stiff competition, amongst other things, have made revenue-making channels a tough one for many businesses. Your sales revenue can be a key profit driver in your business. To increase your profitability, you should develop a strategy to grow your sales. You can look at things like:
- Increasing your prices
- Finding new customers
- Selling more to existing customers
- Offering sales promotions to boost the volume of sales
- Developing new product or service lines
- Selling in new markets
You should examine the products and services you offer, your target market and your pricing strategy to see if you can make improvements.
Review your product or service pricing
It’s a good idea to review your prices often. Changes in your marketplace could mean that you can increase prices without losing sales. However, you should test any price rises before you make them permanent.
Use the Pareto principle to target the right customers
It’s not just your prices that affect your profits, the type of customers you’re selling to can have a big impact. To find out the most profitable customers, you can apply the Pareto principle.
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Often known as the 80/20 rule, the Pareto principle proposes that around 80 per cent of your profit is gained from 20 per cent of your products or services. Similarly, 80 per cent of profit is often also gained from 20 per cent of customers. You may be able to increase your profit margins by targeting your most profitable customers, even if you lose the less profitable ones.
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Review your product and service offering
If you offer a range of products and services, examine the profit margins of each. You can work out what individual products cost you using activity-based costing. When you look at your current offering, you may find that some products do not deliver good returns. Consider concentrating your efforts on your more profitable offerings. Your products or services with the highest gross profit margin are the most important to your business, as they generate more money. Once you have identified your most profitable items you should concentrate on achieving higher sales targets for them. This may require you to rethink aspects of your business or to devise strategies for improvement.
Carry out regular market research to identify products and services that are in demand. Keep up to date with market trends, as this will help you identify new opportunities to generate profits.
What more can you consider?
- Identify areas in your business that you could improve or make more efficient, e.g. production or administration.
- Use key performance indicators (KPIs) to discover your weaknesses and problem areas, such as rising costs or falling sales, and address these.
- Find ways to reduce your business waste, e.g. power supply costs.
- Regularly review how you price your products, and test new prices before making them permanent.
- Group your customers into sales categories based on the volume of sales and profits generated, and adjust your pricing and marketing efforts accordingly.
- Sell more to your most profitable customers. Use up-selling, cross-selling and diversifying techniques to improve your profit margins.
- Negotiate better deals with your suppliers — long-term deals might offer better value for money.
- Look out for new business opportunities to expand into new markets. Research potential new customers and how to target them.
- Routinely measure the efficiency of your operations and put monitoring systems and processes in place.
- Streamline all business processes where possible.
- Increase productivity of your staff— Recognize and reward staff contributions with staff performance reviews, and teach them sales skills and how to upsell products so customers make multiple purchases at one time
- Customer service — Improve your customer service and develop a staff training program
- Increase your prices — Check if you have priced your goods and services correctly and if you can increase prices without reducing sales
- Price discounts — Consider price discounts and promotions to increase your customer base (e.g. 2-for-1 deals or happy hour)
- Retail displays — Use effective retail displays to increase your sales.
- Look for more and implement strategies to decrease costs.
- Decrease inventory — Stock control is a good way to streamline your business.
- Decrease direct costs — Make sure you have the right suppliers for your business and negotiate for better prices or discounts for buying in bulk.
- Decrease indirect costs — For example, try to minimize waste and errors in your business by training staff, or reduce marketing costs by using low-cost marketing techniques.
- Decrease overheads — For example, save energy wherever possible or try find a cheaper energy supply company.
- Benchmark key financials — Benchmarking your business helps you compare your costs (like rent and utilities etc.) to similar businesses in your industry to see if you are paying too much.
Prioritize these strategies
Once you have chosen strategies to make your business more profitable, you should prioritize them in order of importance. It’s a good idea to write down your goals and the corresponding strategies to achieve them, and also how you plan to implement your strategies.
Growing a small business is really challenging, and it is easy to find your business caught in a flat growth cycle. It is possible that your current customers can provide an excellent source of revenue and profit growth for your company so don’t neglect the gold nuggets sitting inside your customer base, it’s the key on how to increase revenues, and then, the value of your business.