22 Simple Tactics to Increase Profitability
Content was originally published on Inc.com on September 14, 2016.
We all have our reasons why we started the companies we did. For some it was a higher social purpose, for others it was the challenge of creating something new, and for you it might have been a different reason altogether.
One thing we all have in common is the need for our companies to be profitable. Profit is essential to our business’s sustainability, and must be at least one marker of business success. Here are 22 simple ideas to help you increase your company’s operating profit margin (i.e. your pretax profits from the actual work of your business.)
1. Redesign workflows and systems for greater efficiency. Cut steps, reorder processes, reengineer physical workspaces, etc.
2. Eliminate tasks and activities that don’t add value to the company or customer. Every dollar you save by eliminating the cost of things that don’t add value to your company or to your customer drops directly to your bottom line.
3. Give your team a clearer picture on ways they can contribute to profitability. Every team member is an agent to increase profitability. Empower them to be part of this search for ways to increase profitability.
4. Look for ways to increase value to clients and customers. This will help you shorten your sales cycle, increase your closing rate, lengthen your client retention, and perhaps, increase pricing.
5. Increase your “dollars per transaction” and “profit per __x_”. Ask, “How can I get each customer transaction to be for a larger dollar amount?”
6. Beware the steep cost of attrition. Retention is a strategic expense if spent wisely.
7. With all your activities and business parts, live by the precept: Feed your winners; starve your losers. This includes with your marketing activities, your sales force, your general staff, your company initiatives, your reporting, etc. So cut your losers, and feed a portion of the saved time and money into your winners. This will greatly boost your profitability.
8. Audit the “$ value per company generated lead given to a sales person.” If you have two sales people: Fred and Wilma, and each lead you give to Fred leads to $500 of sales, while each lead you give to Wilma leads to $750 of sales, you should think carefully about how you portion out the company generated leads. This is not a time to be “fair”, but to be strategic. Be transparent about this and let it be a spark to help Fred learn how to increase his own dollar value per company lead given to him.
9. If you have sharp differences in the PROFIT per sales person (i.e. if Fred tends to give away too much on pricing and hence each of his sales is lower gross profit) then do the above comparison and tracking relative to “gross profit generated per sales person per company generated lead”. What matters isn’t volume, but ultimately it’s profit.
10. Focus your best efforts, talent, and attention on selling your most profitable products, services, customers, niches, or channels.
11. Strategically map out a pathway to upgrade your top 10-20 percent of clients to “red carpet” or “highest value” offerings. They want this service, will value this service, and will pay for this service.
12. Look for ways to bundle products and or services so that you increase the average ticket price of every sale.
13. Sell your product or service in larger purchase sizes. This could mean that rather than sell a 10 hour package of time you sell in 20 or 50 hour sizes. Think about this as selling a bigger box of your product or service.
14. Strategically consider giving pricing or other incentives to make the purchase and use of your product or service in larger unit sizes compelling.
15. Strategically map out systems to help your customer consume your product or service faster so that they get more value and hence repurchase more frequently. Look for ways to educate them on the ideal use of your product or service.
16. Make buying from your easy and simple. Reduce barriers to entry. Reduce frustrations or hurdles to re-purchase.
17. Shift a cost from a fixed to a variable expense to give yourself greater flexibility. This is a way to protect your cash flow. It is extremely important for unproven tactics and strategies. For example, pay per sale versus a guaranteed amount for an outside sales person.
18. Shift a cost from a variable to a fixed where the value is proven. Make this shift only when you can negotiate a substantial price savings by doing so.
19. Consistently look for ways to lower your fixed overhead. Scrutinize your base expenses to eliminate non-strategic expenses that just don’t add value to the company or to the customer.
20. Stabilize your production systems so that you can reduce need to stock as much inventory and raw materials which are a drag on your cash flow and on your gross profit margins.
21. Use a cash-back business credit card. This is simple way to get 1-2 percent improvement to your profit margin.
22. Negotiate and get competitive pricing on your merchant accounts. This one tactic will likely yield an extra .25-.5 percent to your bottom line with very little effort. (Think of what this means. If you have a 15 percent operating profit margin, an .25-.5 percent increase to your dollars of profit is the equivalent to selling 1.67-3.33 percent more. What does this really mean? If you have $10 million in annual sales with a 15 percent operating profit margin, then a .5 percent decrease in your merchant account fees adds the same profit to your bottom line as selling an additional $330,000! Not bad for what will likely take your controller 10-15 hours of her time to negotiate.
There you have 22 ways to increase your profitability.
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