5 Easy Ways to Boost Business Profitability
I hear it almost everyday, "Sherese, can you help me come up with some great ideas to make more money?" Making more money is wonderful, but what about making a profit? Maybe this is what entrepreneurs are really thinking but the word profit is not used very often so I'm not convinced. It's time to change your mindset from making money to making profits! Listed below are some quick ways to boost your profitability which will definitely lead to more money.
1. Set the Right Price
I know a lot of entrepreneurs out there who are undercutting their prices significantly in order to close deals or get clients. This is a mistake if you're not selling at the right price. Let me give you an example of a basic calculation: Company A sells Service B at a retail cost of $130 per hour. The cost of services performed (the raw cost) is $60 per hour. Company A adds 30% on top of that cost which gives them raw cost + 30% cushion profit at $78 per hour (they round this number to $80). The company decides they will sell at a 50% profit margin for this service through the end of the year to achieve their revenue goals. Now, in order to maintain their profit margin of 50% based on selling at least 10 of these services a year, they mark their raw cost + cushion up by 50% . This gives them a retail cost (client cost) of $120 per hour.
So what does this mean? In a negotiation situation the company has about $40 wiggle room. Meaning, their raw + cushion cost is $80/hr and their retail cost is $120 per hour; therefore if they need to offer a deal to get the contract they will never fall below $80/hr. This will ensure they will maintain some profitability.
I know, it's a lot to understand. But it's important for you to understand it now before you lose money by not setting the right price. If your not sure what to do send me your questions.
2. Upgrade and/or Revamp Your Target Market
I say this all the time, your target market is the CORE of your business, without them you have no business. I've had to upgrade my target market at least twice over the last five years. Not necessarily because I had the wrong target market but mostly because the market mindset and availability of resources changed. All of a sudden there were 10-15 new competitors in the marketplace! This suddenly changed the marketing landscape and it also changed my target markets access to good resources.
I'm not saying you need to change who you target but maybe you do. Sometimes you can sell a great product but to the wrong target market. To begin the process, start with a simple survey to your current client and prospect database. It may reveal more than you bargained for.
3. Streamline and Focus Your Efforts
I suffered from work overload my first 3 years in business. I'm sure you can relate. As entrepreneurs, we get engrossed in the day to day tasks of running the business. Not only that, we have to secure clients so we can keep our doors open. Sometimes you're running in circles and not sure where you will land. In my fourth year of business I think I had created at least 5 new services and 4 new products. Guess what? Not one of them made me any profit. I made enough money to sustain the business but I was pulling my hair out in the process. Sometimes taking the time to focus only on one or two items and making it the best it can be can increase profits instantly. I suggest taking some time to think about the one or two services or products that you offer that bring in the most revenue. Take those and make them even better, after they've been updated you can raise the price!
4. Update Your Prospect List
This is a big one. When's the last time you purged your prospect database? I did this last year and it resulted in 3 new clients in just 5 days! The size of your database will determine how long this will take. Start by just cleaning up: go through your list and update contact information. The quickest way to do this is by sending out a nice group message asking for updated information and include a question about staying on your distribution list. It will look something like this:
Hi (prospect/client name), I have your company information on my VIP contact list. I wanted to send a quick note to make sure our products and services are of interest to your company. Please take a few moments to answer the following two questions:
1. Would you like to remain on our list? If not, please let us know why.
2. Do you currently have a resource for (your solution here)?
Thanks for your continued support,
Regards,
Name Here
*****
This is just a rough version but you get the point. You can add more fluff and more praise if you like; I personally like to just get to the point. As you add new prospects to your database make sure to schedule them for your yearly clean up notice.
5. Use Your Intellectual Capital and Offer a Free Telecourse
Telecourses are a great way to promote your business and increase your newsletter subscribers as well. Not sure what a Telecourse is, click here. So how do you create a program? For example: let's say you sell widgets and your client base loves using the widget. You can offer a free Telecourse on how to get the most out of your widget. Sounds to easy, but it is. Not sure what I'm talking about? Take a look at http://www.teleclass.com. They have many courses on a wide range of subjects. I use this service to promote Efficio's Telecourses. It's inexpensive and it can bring your target market to your doorstep. **If you do this make sure to promote your course to your updated prospect list and post on your homepage.
These are just a few ways you can boost profitability. Try and think of others based on your business and target market. All you have to do is change your words from make more money to make more profits!