Simon Ackland - Business Growth Blog

How To Boost Profit Margins In A Tougher Market

Article Written By: Simon Ackland | SMI Business Impact CEO| Business Impact E-Zine # 12

Your profit margin is the money left over after accounting for all your costs. When business is moving fast and the economy is running hot it is easy to lose focus on the all important profit margin.

With changed economic conditions and a bit more focus time, dwelling on profit margins and finding ways to make them bigger is a worthy activity, fuels your motivation and generates excitement...get others involved in the process. In this Business Growth E-Zine, we offer you 7 ideas for enhancing profit margins.

One of the simplest methods of increasing profit margins is across the board price hikes. Before you go saying "That ain't going to happen in this market!" give it some though as a principle to work towards and maybe start changing the thinking in your business. Unless you are the lowest cost producer of quality products or services in your sector, someone else will always gazump you in this area...eventually.

One of our colleagues had a client who owned a construction business that went bankrupt. When asked what happened, he said "I was always the lowest bidder." That meant he worked his fingers to the bone, did more projects than his competitors, but still went bust. His mistake was trying to compete on price. Let the other guy play the "I've got the lowest price." game. You play the "I've got the best profit margin." game.

That means not dwelling on price, but raising prices and then providing quality, excellent customer service, while creating the perception that your price is still very competitive. In selling, perception is everything.

Here are 6 more ideas from our pool of 68 Ways To Boost Profit Margins. Use this to stimulate some thinking for your business.

1. Deal In Higher Margin Products Or Services

 Calculate profit margins on everything you sell. Even a lesser cost item may have a better profit margin than higher cost items. Cut the drag by avoiding very low margin products and putting your time and energy into that which makes you the most cash.
Quick Tips
* If you don't know your profit margin, your working blind
* Low margin products can bring in customers, but you only make it worthwhile if you have a plan to steer those customers to your real profit producers.

2. Innovate

No one says you have to do things the same way all the time, or the same way other businesses in your industry or profession do them. Look outside your industry and see what's being done in other totally unrelated businesses. You may find ideas that could be adopted or adapted to fit your business.

A good example of this is the drive through banking I've seen in the USA...they got the idea from the fast food industry.
Quick Tips
* When you find a new idea, act on it right away. The longer you wait to "perfect it" the less chance you'll have of implementing it and your competition might beat you to the punch.
* Sell your employees on the benefits of providing this new and unique service
* Inform and educate your customers and prospects of your new innovations and let them know how they will benefit from them.

3. Use A Web Page

A website is also a tool that can be used to increase your profit margins,  but jut how to do this can be quite tricky. Since every business has or is thinking about developing a website, no one can afford to ignore this.

It can reduce the cost of client acquisition and conversion, it can make other advertising more efficient and effective, it can automatically build your prospect data base, it can be used for surveys and feedback, it can educate....all without major staff intervention and 24/7.
Quick Tips
* Set up a merchant account onlie and take orders
* Capture more names for your mailing list, you don't have to buy them.
* Integrate with your offline marketing efforts to maximise the value received
* Websites still cost money, they have to be maintained and updated, but relative to other options, they are very cost effective...if done properly and strategically

4. Control Billings & Collections

Allowing customers to get behind in the payment of their bills can create real cash flow problems. Without a constant stream of cashflow into your business, you can't pay your expenses or salaries, and you can't provide the selection of products or level of service your customers want or expect. This is one of the most critic areas of any business, and yet it is often overlooked and one of the easiest to get out of control.
Quick Tips
* Consider requiring payment or part-payment at the time a product or service is rendered or ordered
* Reduce the time between shipping a product or rendering a service and when you send the invoice or bill.
* Include an invoice with the product
* Offer discounts for payment within a certain time period.

5. Create Your Own Label

When you sell other business's products under their label, you don't have as much control over price as you do when you own the label. In most case your supplier is also selling to your competitors which means you have no distinct advantage if you sell under the same brand and label. But when you own the label, you set the price. You can raise the public image of your brand and/or label's quality and get more money for it.
Quick Tips
* You don't necessarily have to create the product yourself - only the label
* Do people pay "just for the name?" All the time! It's the price shopper that wants generic brands, but don't assume that's everyone.

6. Engineer Efficiency

A poorly tuned car wastes a lot of petrol. An inefficient business is certainly losing money it could easily hold onto. Do a top to bottom examination of how efficiently your business or department is running.

You will find that many processes are routine, things you do every day, the basic functions. Take another look at them and see where they can be made to work more efficiently through implementing systemised procedures.
Quick Tips
* Get employee input into how everyone can work smarter, not harder.
* Look at work flow and duplication in different areas.
* Remember the human element. People are not machines, but maybe machines or software can help humans to concentrate on human tasks - especially dealing with customers.

Product Profile - Office Automator 

SMI Business Impact have a division that focuses on auto-piloting businesses and a key part of this program is Office Automator. This is a system that not only reduces costs permanently but also reduces staff resource requirements thereby producing not only improvements in efficiency but also substantial cost savings and hence return on investment (ROI). Business process automation allows businesses to:

• automate projects and processes
• provide enhanced compliance, control and audit trail
• simplify operations and staff training
• ensure consistency of company presentation
• automate document production, revision, storage and retrieval
• improve customer service
• reduce overheads and increase profit margins; and
• is fully customisable to your business; if you can draw a process on paper, it can be automated

There are amazing opportunities to improve your business, it just needs some focus and attention to work out what the best opportunities are for you in your particular market. Maybe we can help you?

Need Some Professional Help?
Need help to work out how best to grow your business down?

What about a 3rd party view of where your business is today and where it could be? What you could do to avoid or minimise any downside from the economic downturn. What new market opportunities might suit your products and services?

Kick-start 2009 and request a F.ree initial consultation with an SMI Business Development Consultant and discover the upside in your business. Simply click on Apply Now button below and we will contact you or give us a call now on +61893648555.

To your business success.

Simon Ackland

5 Ways To Boost The Size Of Customer Transactions...And Profits

Article Written By: Simon Ackland | SMI Business Impact CEO | Business Impact E-Zine # 9

Would you rather spend an hour of your time with a customer that spends $200 or an hour with a customer that spends $500?

Its a fairly obvious answer isn't it? And you have just uncovered another core strategy to true business success...if you can make more money from each customer contact, you bolster your profits and vastly increase your potential for success, and beyond!
This, of course, is not a new idea and usually when it is trotted out, it comes with suggestions to try up-selling and cross-selling to get customers to buy more...you've been "super-sized" before haven't you (well maybe not you, but you know someone who has)? So while cross and up-selling are essential, for this Business Growth E-Zine, I have put together 5 often over-looked strategies...let's get outside the square for a change.

1. Raise Your Prices
Far too many businesses compete on price. Fair enough if you have pitched your business at the budget conscious as a "price buster"...Red Dot, Price Line, The Good Guys...there is nothing wrong with that and these guys do it well, but it is a very tough market to compete and profit in.

Most businesses will achieve better margins if they focus on delivering value, and interestingly, many so called "price busters" do this as well. There has been heaps of research done that shows consumers are generally more concerned with quality, prestige or convenience than just price...you know, the emotional stuff.

But guess what, if there is nothing else to differentiate your product or service from all your competitors, customers have nothing but price to compare! So that's what they are going to negotiate.

So steer away from price and seek another differentiator such as better service or quality. Ultimately it is the perception of value that is critical. Interestingly, the idea of "you get what you pay for" still has resonance with shoppers.

Even a small increase in price can help your bottom line without dampening sales, but you need to communicate the perception of increased value. You could even target a wealthy niche within your market that is less price sensitive.

Increasing prices is worth investigating and so often overlooked, and by the way, if you feel pressured to reduce prices as a result of all the talk of recessions, try adding extra value instead.

2. Down-sell
"Hang-on" I hear, "didn't you say this topic was about boosting the size of customer transactions?"

Exactly, but sometimes, making a sale that will generate
additional sales down the track or referrals will be better than sending a customer on their way. If you're not making ground on the higher priced model, it's time to suggest the less expensive model. Just because you down-sell doesn't mean you can't back-end or cross-sell at the same time.

Ask the down-sold client for a referral, it may lead to that better sale you were looking for!

3. The Science Of Store Layout
Have you ever studied the layout of the big supermarkets? Its worth having a look and observing what happens...spend an hour doing some research, get some books on the subject or hire a consultant.
A badly laid out store will result in people feeling uncomfortable and they will tend to leave very quickly, often within the first 10 seconds. Also, watch what happens when people enter a store...most people turn right. So you will often see store entrances placed on the left hand side to maximise the impact of this observation...which then leaves plenty of room to place important high margin products in that area.

Product positioning on the shelves and placement at checkouts to capture impulse buys will also help to increase sales...although this is unlikely to work for (say) an accounting practice. Having said that, accountants could strategically place brochures for add-on service or strategic alliance arrangements in much the same way...with a bit of salesmanship to assist....come on, it is worth a try.

4. Service Contracts
But this one can work for an accountant or other professional services organisation, and just about any business.

Develop a pre-paid or monthly service contract which can include some pre-arranged service calls and some included time so that the client can call on you when needed.

These contact points create great opportunities to further build the relationship with the client plus make future sales. You will also be in a better position to know when the client is ready to buy a new product or service.

Be efficient and helpful. When you help the customer to get full value from whatever else you sold them, you increase customer loyalty and satisfaction. Of course, it also creates another valuable and recurring revenue stream and while some will never use it fully, you are still paid. A side benefit is that recurring and contracted revenue streams can add a lot to your business value.

5. Introduce Choice
Because people will often push you on price, create 2 or 3 levels of service or product otpions for customers to choose from.

This allows your sales team to offer a choice to a customer with price for each option related to a varied service level, or different included accessories, or quality enhancements. This works with both service and product sales organisations and allows you to reduce the value you deliver for a reduced price rather than simply discounting the price and accepting a lower margin. Once again, selling value rather than price.

So, here are 5 strategies to get customers to buy more that you can use in your business. Are you using any of them? Are you using different ones? Why not try something different or extra?

Remember, while early stage businesses may have to spend time building market share with new clients, it is still an expensive exercise. A captured client is bought and paid for, so to speak. The importance of generating repeat sales, more sales per customer, and getting more money out of each transaction is absolutely key and essential to business and selling success.

And of course, if you use some of these strategies along with the conversion ideas outlined in the last Business Growth E-Zine #8 you stand to improve sales and profits even further...there is an exponential effect over time.

To your business success.

Is Your Business Ticking?

Article Written By: Simon Ackland | SMI Business Impact CEO

Hopefully it isn't a time bomb!

In my last blog entry the subject of non-debt leverage was discussed. Marketing and innovation can provide all the leverage and cash flow a business needs to achieve sustainable growth.

Sure debt can help (especially in a growth market), but that depends on the cost and availability of debt...let alone the risk that the business owner is prepared to take on.

October saw further stock market negativity with the debt laden companies marked down substantially. With borrowing costs higher and the risk of a recession, investors recognise that debt leverages down as well as up. Cash is going to be king for some time to come.

So lets get back to marketing and innovation as leverage...just because there is negativity around, that doesn't mean you should adopt a negative attitude with your business. Its time to get back to basics and discover what makes your business tick...discover this and you discover the formula for growth and leverage in your business.

Oh, and by the way, it doesn't matter how big and sophisticated your business is or how small and unsophisticated, knowing your numbers is equally important...sorry, essential...and just having a marketing department doesn't mean you will be covered! This might seem basic, but sometimes it is the simple stuff that can really work.

Let's start with the numbers or ratios:

1. How many new customer leads come to your business each day/week/month?...and where do they come from? How can you get more?
2. Of those leads, how many are converted to clients?
3. How many transactions do your customers make each year?
4. What is the average transaction value for each new and existing client?
5. What is the margin on each product or service you offer? How can it be increased?
6. How often do they buy? Can frequency be increased?
7. Do you have a continuity program to keep your customers involved and spending money with you over the long haul?

I can't believe how few businesses know their 'numbers'! If you don't know what makes your business tick, then it is just like a time bomb waiting to 'go off'.

By knowing these ratios, you can work out how to increase each one. For example, if your business converts 1 in 10 leads to clients, why is that? How could the ratio be improved? It may seem obvious, but do you realise that by increasing your conversion rate from 1:10 to 2:10 will DOUBLE your initial sales? Wouldn't it be much easier to focus your efforts on figuring out how to increase conversions and training staff than to be lumbered with a goal to double sales?

It is goal setting 101...break the big goal down into smaller parts and work on each part to achieve the big picture.

What if you 'tweaked' each ratio in your business...imagine the leverage that would achieve. Imagine the protection it would also provide in a recession!

When it comes to planning and strategy, it is easy for the Board to ask the CEO or head of marketing and sales what increase they are going to achieve for the year. But where do these guestimates come from? Today, for conservatism sake we are hearing people saying "well, we did 15% (20%, 50% or whatever it was) last year; the markets are not looking too promising...it might be hard to achieve 10% this year or anything!" How do you really know what you could be capable of, especially if you don't honestly know your statistics?

If your competitors know their numbers better than you...watch out because they will be gunning for your turf. In weaker markets, it is the smart, savy marketers that will win the day. There is no reason why you can't continue growing your business.

Another benefit of understanding your numbers is that you will discover that there are many low cost ways to make improvements without having to increase advertising budgets (for example). Breaking things down to the lowest common denominator creates clarity and focus.

In fact, in the next Business Growth Blog entry, I will give you some examples of low cost strategies to increase conversions of leads to customers; as this is one of the most overlooked areas for quick fix improvements in sales.

Until then...get some statistics (preferably for your business) and develop a reporting system to understand what makes your business tick.