5 Sure-Fire Ways to Increase Your Profitability
Content was originally published on Inc.com on March 9, 2016.
Brian owned a successful online business with sales of $4 million per year. He was one of the industry leaders in his field and had grown his company from nothing to a niche leader over a ten year period.
In the course of our conversation it became clear that Brian was also so close to his business that lens through which he say it was distorting the picture. He’s own biases and beliefs were costing him several hundred thousand dollars of profit.
How about you? Is it possible that you’ve been looking at your business with your “insider’s eyes” for so long that you simply aren’t seeing the simple, easy ways you could quickly increase profitability?
Here is a quick list of my favorite 5 ways to increase your business’s profitability. I’ve developed them over the past decade in the work I and my team does with our business coaching clients. Essentially, this is my “go to” list for rapidly increasing profitability when working with a business coaching client.
- Raise pricing.
While I generally get push back from business owners on this one, I can tell you that 7 times out of 10, a small business owner (sales under $10 million/year) can increase profitability by strategically mapping out a price increase on its products and services.Now you have to be smart about this. For example, you may want to do a quick “margin analysis” and see profitability by key break down (e.g. by customer, by product type, by niche, etc.) and start with one client type or group, or with a few of your less profitable service or product offerings.Pick a date at which time you’ll raise pricing on all new clients coming in. Consider planning out a sales campaign to “sell into” that price increase.
Then go back to your existing clients and raise pricing in a thought out way. Often this means breaking a large customer group into smaller sub groups and rolling out the price increase in wave to each group giving you time to fix any glaring errors in your thinking without going straight to all your clients.
The bottom line is that too many business owners are scared to adjust pricing because they think customers will balk. I encourage you to look at your pricing with fresh eyes.
- Improve collections:
After pricing, revisiting your collections system is the second easiest place to immediately increase profitability for most companies. Most companies collect too slowly, and lose out on a concrete percentage of their due money along the way. Often this is caused by sluggishness in invoicing clients; or poor tracking systems to accurately track and invoice for all that’s owed, including materials or other expenses; or simply a discomfort talking about money with clients and so ignoring this critical part of the business for long stretches of time.This part of your business is too important for you not to get a solid grip on now.
- Feed your winners; starve your losers.
One of the fastest ways to boost cash flow is to immediately redirect money from your bottom marketing performers to your top 10-20 percent performers. Same marketing spend of time and money, but you’ll get a fast and predictable boost to your sales. (More on this here.)Same thing is true with your key strategic relationships. There are a small subset of these relationships that out produce the other relationships by a wide margin. By narrowing your focus to support your winners with more attention (and in some cases money) you’ll get a dramatic increase to your sales results.
- Control your single greatest cost – Staffing Level.
Your single greatest expense is likely your team. Are your staffing levels at the optimum place?For example, one medical practice we worked with determined it was overstaffed by 20-25% on its clinical staff. That equates to a loss of $250-300,000 per year. Same patient load, same overhead, same revenue being generated, just lowered clinical staffing costs.It would be a smart move to make an hour of time to sit and think through on paper if you’re staffing levels are optimal for your business.
- Increase your sales team’s “Direct Sales Time”.
“Direct Sales Time” (or “DST” for short) is the measure of the actual number of hours per week that your sales team members are engaged in direct sales activities with actual prospective buyers.Having had the opportunity to be the business coach for several hundred companies one thing I can tell you is that most sales people make their most convincing sale on themselves. They sell themselves on how hard they work and how effectively they use their time to sell.The reality is that most sales people engage in too much avoidant behavior, but do it in a way that they can rationalize it to themselves.
By having your sales team TRACK and report daily on their DST, they’ll often start increasing their best sales behaviors by 25-50% or more on a consistent basis. This one simple KPI is one of my favorites when I’m helping a client fix a lagging sales team’s performance.
So there you have my top 5 “quick list” of ways to increase your company’s profitability.
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