How to Boost Your Profits
1.) Don’t Compete On Price:
One of the biggest factors contributing to low profit margins is not charging enough. If you are making price your competitive advantage, you will lose in the long run. If you get a customer because you have the lower price, they will go to the next guy that beats you on price. If you continue this cycle, it becomes a race to the bottom. No one wins that race. This includes always offering discounts; it is cutting into your margins.
Here’s an example, you have a $1,000 product. After all expenses, your profit margin is 20%, giving you $200 in profit. If you raised the price of this item to $1,200, just a 20% increase in price for your customer, your profit would be $400 on this sale. Doubling how much you actually make. You could sell one at the higher price and make as much as you do selling two at the lower price point. Isn’t that worth it? Less sales to take home the same amount of money.
2.) Trim Your Offerings:
For this method, you need to take a look at everything you are currently selling. Really dive into the numbers. What is the most popular? What brings in the majority of your profits? On the other side of this, what do you offer that is the least profitable and brings little to no value to your company? Offering too many things can cut into your margins because of the cost to be able to provide all of these is high. Compare this to a narrowed focus where you provide a few core offerings that have high margins. You need to trim the fat in your company, so to speak, and narrow down your offering to what sells and is profitable.
3.) Operate Efficiently:
If the systems that you have in place to operate your company are inefficient, this can cut into your margins significantly. It can limit your capacity with your current expenses. Once you are able to operate more efficiently, your company can handle more business for the same expenses.
Here’s how you can improve efficiency; examine the processes and systems within your business with a magnifying glass. Ask yourself or even the employees, “Is there a better way to do this specific task or process?” If there is, test it out, and see how it compares. You’d be surprised how often there is something that can be improved.
4.) Fire Unprofitable Customers:
Yes, you can stop working with customers and clients that are an absolute headache. We all have a few, and it can be one of the best things to let them go . We’ll call them PITA (pain in the a**) clients. Many times they are the least profitable, yet they end up taking more resources than they should. Once you let these PITA customers go, you are able to focus on getting more of your ideal customers, the ones you love to work with. You’ll be happy with this decision in the long run.
So how do you go about “firing” PITA clients? Complete your current commitment with them, and just simply say this:
“Hi (name), We’ve decided to shift our focus to serve a specific subset of customers looking forward. With that said, we unfortunately will not be able to serve you further. As you look for another provider, I recommend trying (competition). Thank you for your understanding. Below outlines the action steps moving forward. (outline action steps)”
This is more of a soft let down, not directly putting blame on either party; cutting ties cleanly and professionally. Plus it sends your trouble clients to your competition, a nice bonus.