Increasing your small business profits doesn’t require drastic measures like upping your prices or laying off employees. Even small changes in just a few areas of your business can give your bottom line a big boost. Check out these 10 tips for improving profits in your small business.
As a small business owner, you know that sales, alone, aren’t an indication of your business success. The true measure of success is your business’s profits. True, increasing your total profit for the year usually requires increasing sales, but here’s the rub: if you’re not careful, the cost of increasing sales could lead to decreased profit margins or even a loss. So how can small businesses increase profits? Here are 10 strategies to fatten up the bottom line.
1. Attract new leads with information marketing
Today’s customers are hungry for information. They want to educate themselves before they talk to a salesperson or make a purchase. Providing them with that information can make your business more profitable because it helps you win the customers’ attention, contact information, and ultimately their orders. Although you could just post informative information on your website or social media accounts, if you want to acquire prospects’ contact information, you should use lead magnets.
These are free, information-packed downloadable special reports, white papers or checklists that can be downloaded for free by filling out a form. The information doesn’t have to be lengthy. It just has to be informative and promoted with an attention-getting headline. Promote the giveaway on your website and through social media and require the downloader, at minimum, to provide an email address to gain access to the information. Be sure the giveaway includes a call to action to turn the lead into a paying customer. And don’t forget to follow up on the leads.
2. Use the leads you already have to get paying customers
No matter how you get your leads, if you’re like many small businesses, you don’t follow up on them as much as you should. In fact, chances are you only follow up on the leads you believe are hot leads, and then you may only follow up once or twice. The problem with that approach is two-fold. First, you waste the marketing dollars you spent to get the lead. Second, it keeps you from having ongoing communications with prospects who could become customers. Those possible customers include individuals who are just starting to research their intended purchase and those who are ready to buy, but who have other more pressing things demanding their attention when you call. Ignore them and you’re likely to lose the sale to a competitor.
To solve the problem — and increase your profits this year — formalize your lead follow-up procedures. Have a plan for following up with the hot leads. List the steps you’ll use to stay in touch, including what to do if you don’t get a response after the first call or two. Plan how you’ll handle leads from customers who don’t appear to be ready to buy. Decide how you’ll keep in touch and what information you’ll send them or point them to. Have everything written and scripted out, and automated as much as possible so you’ll easily be able to start the process for each new lead. If you don’t already have it, develop a monthly or twice-monthly email newsletter that you can send out to all prospects who have asked for information about your products and services. The newsletter will let you stay in touch with and convert lukewarm, not-yet-ready-to-buy prospects into paying customers.
3. Add new, related services to increase profitability
Do your customers need and buy products or services that are related to what you sell now? If so, you may be able to spin out some new revenue streams by offering those related items. Keep track of items or services your customers ask for, and then do enough market research to find out how widespread the need is, and whether or not you could profit by adding them. Don’t skip the market research. You wouldn’t want to stock up on an item and then find that only one or two people really want to buy it.
4. Increase order size
The math on this is simple. If you have 100 customers who each spend $50 within one month, you take in $5,000. If you get those same 100 customers to spend $70 a month, you take in $7000 for the month — which translates to more profit for you without increasing your marketing budget. To get order sizes to increase, learn (and train your employees) to upsell and cross-sell. If you’re a physical therapist, for instance, you might encourage patients to buy stretch bands, ice packs, and other equipment from you so they can continue their exercise program at home. You might also be a reseller for nutritional supplements. Putting flyers in your waiting area and placing posters where patients will see them while doing therapy can all help sell additional services without your therapists having to “sell.” If you sell products through an online shopping cart, add a function that automatically suggests related products to the shopper.
5.Seek repeat sales
You can increase sales and profitability without any major increase in your marketing budget by using email and/or text messaging to stay in touch with your existing customers. Even though they are satisfied with their purchases, if you don’t stay in touch, they may forget about you and seek other sources when they want more of what you sell. Get those customers to stick with your business by sending them reminders to reorder and news about new products. If you sell seasonal merchandise, send them notes about new arrivals and special sales and discounts.
6. Boost operational efficiency
The way you’ve “always done things” isn’t necessarily the best way to be doing them now. And, a change could give your profits a significant boost.
For instance, what actually gets accomplished at those weekly meetings you hold? Try cutting back on them, freeing your time and your staff’s time to spend on other, income-producing tasks. If there’s information all staff needs to get from you, send it to them in email or set it up on a cloud-based document sharing system.
When was the last time you interviewed different vendors to see if you can get better prices or terms on the inventory or raw materials you buy? Or asked your current vendors for better pricing? What about your merchant account provider? Your phone service? (If you’re still using a traditional phone line in an area with good cable or other VOIP services, you could be wasting thousands of dollars a year.) Cutting your costs on recurring expenses without cutting quality gives your bottom line a nice boost.
How about your inventory system? Is it automated? Or is it manual, labor-intensive and prone to mistakes? While putting in inventory and order management software can be a fairly expensive project, if you do significant sales volume, the initial cost will be offset by the longer-term savings in employee time, and inventory accuracy.
What about all those reports your staff is creating, printing out, and handing to you… the same reports your administrative assistant later files in a file cabinet? Do you really need them printed and filed, using up ink/toner, paper, and file cabinet space (and therefore floor space)? Could they be stored on the cloud instead? Or, for that matter, do you really need those reports at all? And what about the orders or emails they’re printing out and saving (in more filing cabinets) “just in case?”
These are just a few of the ways small businesses can increase efficiency. One way to find inefficiencies: write down what you do every day, along with why you do it, the time it takes and the results of doing the task. Ask your employees to do the same thing. Eliminate the activities that aren’t necessary. Another way: ask your employees to suggest better ways of doing the work they do.
7. Keep your employees happy
The process of hiring and training new employees takes time and money. Avoid that cost by doing what you can to retain your existing employees. Over the long run, having engaged, knowledgeable employees will increase your bottom line. You don’t necessarily have to hand out large raises. While you should keep pay competitive, small changes like a coffee machine at work, flex-time hours, a discount, or a bonus for making sales will help your employees to feel valued. If they feel valued and rewarded for their work, they’re more likely to stick around.
8. Offer maintenance contracts
Maintenance contracts and warranties can add a healthy injection of new capital into your business. After someone buys a product, they want to know that it will work. You can reduce some of their worries by offering maintenance contracts or warranties. In addition to bringing in additional revenue for your company, this will also help to create an ongoing relationship with each client that walks into your business. Before you launch a maintenance contract program, carefully work out the numbers to be sure you charge enough for the contract so that providing service or replacements to maintenance contract customers won’t put you in a money hole.
9. Expand to a new area
A small town may only need one cafe or supplement store. If your small business has already reached market saturation in your area, then consider expanding into a new sector. Before you decide to branch out, you’ll need to research the area first. How many similar businesses already exist in the area? What is the population density? Will overhead costs be similar to your current storefront?
If you’re not quite ready to set up shop in a new town, consider setting up an online storefront to sell your merchandise.
10. Talk to your employees and customers
Your employees are your front line and connection to your customers. They have personal insight into what your customers want and current inefficiencies in your business. Ask them to share these insights! They may be able to make suggestions for new products, product changes, or ways to streamline operating processes.
Make sure you personally interact with customers at some point, too. Work a cash register, answer incoming customer calls, and send out surveys to customers. Ask questions to find out if they’re satisfied with your company’s products and services, and also be sure you ask customers to tell you what you could be doing differently and what they’d like to buy from you that you don’t now sell. Their answers will help you see ways to continue to boost your business and your bottom line.
Disclaimer: The content on this page is for informational purposes only, and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.