Seven key areas to focus on to increase profitability

Getting more of your ideal customers is key

David FullerJerry reached out to us because he wanted to get out of his business. The business, he said, was “too stressful,” and he “was tired of struggling.”

During our discussions with Jerry, we discovered that while the business was doing several million dollars in sales, it was only marginally profitable. Jerry had to work extra hours and couldn’t afford to hire the right people and pay them what he needed to keep them.

Because the business wasn’t very profitable, Jerry would have considerable difficulty selling the operations. Who wants to buy a business that isn’t making money?

We got Jerry to admit he had some choices. He could:

  1. do nothing and continue to run the business as it was;
  2. focus on profitability and get the business to the point where it was making enough money to enable him to hire the right staff and prepare the business for sale;
  3. shut the business down.

Jerry decided on No. 2: to focus on increasing profitability so as to could create something valuable. Working with Jerry, we identified the seven areas of a business that one needs to focus on to increase profitability, and we then helped him develop strategies for each area.

Focus on existing customers

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Unless you’re a startup, all businesses have existing customers, the people who are currently buying their product or service.

As business owners, we sometimes become so focused on getting new customers that we take our existing customers for granted. But it is your existing customers who are critical to your ongoing success and profitability. We can sell more to them because we’re already invested in the relationship.

We can focus on the top 20 per cent who are giving us 80 per cent of our revenue and cut our costs. There are plenty of things we can do to improve our profits by focusing on our existing customers.

Focus on past customers

Over time, some of your customers will decide not to buy from you. Some die off (literally) or perhaps move away. Others choose to buy from your competition, are buying online, or for various other reasons.

As a business owner looking for profits, you need to know why these people aren’t buying from you if simply to avoid losing any more customers.

Better yet, you want to transform those past customers into buying customers again.

New customers

You can increase your profitability by increasing the number of customers who reach out to your business. 

Having a strategy to get more of your ideal customers ensures that you’re spending your marketing dollars efficiently. Good marketing ensures a funnel full of the right customers who see value in your offerings.

Improve conversion rates

How many prospects have you converted into customers?

Online companies are fanatical about considering their conversion rates, but how many brick-and-mortar business owners measure the number of customers who come through their doors and leave without purchasing?

What can you do to improve those rates? What can you do to increase the number of times your customers buy from you in a given year?

There are several strategies you can use to improve conversion rates.

Increase your average sale

What can you do to increase your average sale?

You’ve already managed to attract customers to buy from your business (which is the hard part); now, think about how you can sell them more of what they want.

This increase in average sales can make significant differences to your business. Focusing on increasing average sales can have a big impact on the bottom line.

Increase your margins

Gross margin is the amount of money you have left after paying for the cost of the products or services sold. By dividing this number by your total revenue, you get your gross margin percentage (also called gross profit percentage).

This margin is important because this is the profit you’ve made before your fixed expenses (those expenses you must pay to run the business).

Think about areas where you can increase your margins. A one per cent margin increase on $1 million is $10,000. Many business owners undervalue what they sell because they don’t believe that they’re creating value for their customers.

By increasing your margins, you’ll increase your profitability (unless you get too greedy and your customers decide to shop elsewhere).

There are approximately 16 areas you can focus on to increase your margins.

Cut overhead

Overhead – what you spend to run your business – is an area to focus on when you get into trouble or when times are tight. But we often forget about it when things are good.

Friends rarely make the best business partners by Warren Bergen
If you want to keep them as friends, leave them there

Are there areas in your business where you can make some cuts in the near future that will affect your bottom line for the year?

Probably. In my book Profit Yourself Healthy, I list 107 areas you can focus on to reduce expenses.

Conclusion

One way of reducing your stress as a business owner is by increasing your profits to the point where you’re sufficiently satisfied with the outcome. Of course, being human, we won’t ever be fully satisfied with anything in life, and most business owners naturally want more when they achieve one level of success.

However, if you improve your performance by 10 per cent in the above areas, you would double your profits. Yes, I did say double!

As business owners, it’s essential that we don’t attempt to do it all at once. Instead, we need to focus specific time and energy on each area and try to improve that area incrementally. By measuring your results, you will be able to see what happens, what works and what doesn’t.

The key is to understand that incremental changes will lead to significant results over time.

Dave Fuller, MBA, is an award-winning business coach and a partner with Pivotleader Inc. Struggling with your profits? Email dave@pivotleader.com. For interview requests, click here.


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