How to increase profits in your business
If you are an entrepreneur, then you simply have to constantly ask yourself the same question – how to increase profits? Profit – this is business. The whole point of the business is to increase profits. I don’t know other reasons for doing business. Whoever says anything. There are only five ways to increase profit in business, according to business expert Paul Lambert (the so-called Formula Five). Further we will consider them.
5 ways to increase profits
1. Increase Margin
The same Paul Lambert said that business is not to sell more, but to earn more for yourself. And the more you can get from your business, the more successful your business is. And vice versa. As you understand, there are two ways to increase margins and, accordingly, increase profits: either sell more expensive, or buy and / or produce cheaper.
If you are lucky, you can find a supplier of the same product cheaper. But finding cheaper suppliers ad infinitum fails, you know. If you are a manufacturer or provide services, you can try to reduce the cost of goods and / or services. But here you are also limited, of course. Any cost of goods and services will still be.
It turns out, best of all, to sell more expensive. Not that it is possible to raise prices to infinity, of course, but some kind of “physical” border is still missing. Limitations can be (and will be, of course) only in the minds of people. But this is something you can influence. Increase the value of your offer, expose your product in a more favorable light for the consumer, add additional services and bonuses to purchase, improve the terms of service, speed up delivery and extend the warranty period … In general, you understand – do everything that may be the reason to sell at a higher price, than competitors. Then you will increase your own profit.
Some will say – but all these bonuses and additional services also cost money. Yes they are. Naturally, you will first consider your benefits. You will not give gifts worth 300 rubles, raising the price by 200, right? Or will you? Well, then … how can I tell you … Although this can be done, but within the framework of some actions and events for image purposes.
2. Increase the number of potential customers
In fact, this is an increase in audience reach or an extension of the entrance to the sales funnel. This was discussed in an article about ways to increase sales with an emphasis on the sales funnel. The principle is based on using as many channels as possible to attract potential buyers. The channels for attracting an audience are different – from Internet marketing, promotions and materials to telemarketing and personal sales. Most importantly, use effective, thoughtful advertising.
3. Increase conversion
That is, to maximize the ratio of real buyers and potential consumers. This means that you must take measures so that the maximum number of those who have heard about your business and are interested in your products, really come and buy something. This was also discussed in more detail in the aforementioned article on the sales funnel and its effect on increasing sales and, in fact, increasing profits.
4. Increase repeat sales
A huge number of businesses do not pay enough attention to a very powerful tool to increase profits – repeat sales. It’s all really simple – let your customers out of the office, store or wherever they are, happy. Satisfied customers come back again, and already for free. Attract a new client for free, you will not succeed. If this, of course, is not a wife or husband :-).
5. Improve the efficiency of doing business or “turbo button”
This means that your business processes should be as productive as possible in terms of increasing profits. This does not mean to work anymore, I emphasize. It means more efficient and useful for business to use people, and time, and resources, and technology – everything that is available to you to conduct your own business.
How much will profit increase?
Above, we have listed five methods for increasing profits. How much profit will increase depends on how efficiently we implement all the changes in the business and how much we are able to “work” them together. Let’s look at a specific example of how much we can increase profits if we improve each of the 5 indicators by 10%. At the same time, of course, it will be difficult to do this, but it can be done gradually and in turn.
So, we are analyzing not a real, but a fictional, but still a concrete example, with numbers. Let’s see what we get, how much profit will increase.
Our initial figures are as follows: 500,000 rubles revenue, 1,000 potential customers, 10% conversion (100 real buyers), 25% repeat sales (i.e. 25 additional sales to old customers), we sell goods with a margin of 100%. It’s easy to calculate