7 Key Areas to Focus On To Increase Profitability


Jerry reached out to us because he wanted to get out of his business. In his words, the business was "too stressful and he was tired of struggling". In our discussion with Jerry, we discovered that while the business was doing several million dollars in sales, his business was just marginally profitable. As a result, Jerry was having to work extra hours, and couldn’t afford to hire the right people and pay them what they needed to keep them. Additionally, because the business wasn’t very profitable Jerry would have considerable difficulty selling the operations. Who wants to buy a business that isn’t making money?


In our discussions with Jerry we got him to admit that he had some choices. He could:

1. Do nothing and continue to run the business as it was.

2. Focus on profitability and get the business to the point where it was making

enough money to enable him to hire the right staff and prepare the business for sale.

3. Shut the business down.


Jerry decided to focus on increasing the profitability of the business so that he could create something valuable. Working with Jerry we identified the 7 areas of a business that one needs to focus on to increase profitability and helped him come up with strategies for each area.


Focus on Existing Customers: Unless you are a startup, all businesses have existing customers. These are the people that are currently buying your product or service. As business owners, sometimes we are so focused on getting new customers that we take

our existing customers for granted. Your existing customers are key to your ongoing

success and profitability. We can sell more to these customers because we have already invested in our relationships with them. We can supply those products and services that they are willing to pay a premium for. We can focus on the top 20 % who are giving us 80% of our revenue and cut our costs. There are plenty of things we can do to improve our profits by focusing on our existing customers.


Focus on Past Customers: Over time, some of your customers will decide not to buy from you. Some do die off (literally) or perhaps move away. Others choose to buy from your competition, are buying online, or for some reason are not buying from you . As a business owner looking for profits, we need to know why these people are not buying from us, if simply for the fact that we don’t want to lose any more customers. Better yet, we want to transform those past customers into buying customers once again.


New Customers: We can increase our profitability by increasing the number of customers that reach out to our business. This is of course if the business is profitable and if you are making money by serving customers. Having a strategy to get more of your ideal customers is key to ensuring that you are spending your marketing dollars efficiently. Good marketing ensures that you have a funnel full of the right customers who see value in your offerings.


Improve Conversion Rates: How many prospects have you converted into customers? Online companies are fanatical about considering their conversion rates, but how many brick and mortar business owners measure the number of customers who come through their doors and leave without purchasing? What can we do to improve those rates? What can we do to increase the number of times that our customers buy from us in a given year? There are a number of strategies you can use to improve conversion rates.


Increase your Average Sale: What can you do to increase your average sale? You already have managed to attract customers to buy from your business (which is the hard part); now, think about how you can sell them more of what they want. This increase in average sales can make significant differences to your business. Focusing on increasing that average sale can significantly affect the bottom line.


Increase your Margins: Gross margin is the amount of money that you have left after paying for the cost of the products or services sold. By dividing this number by your total revenue, you get your gross margin percentage (also called gross profit percentage). This is important because this is the profit you have made before your fixed expenses or those expenses you must pay to run the business. Think about areas where you can increase your margins. A 1% margin increase on 1 million dollars is $10,000. Many business owners undervalue what they sell because they don’t believe that they are creating value for their customers. By increasing your margins, you will increase your profitability (unless of course you get too greedy and your customers decide to shop elsewhere). There are approximately 16 different areas you can focus on to increase your margins.


Cut Overhead: Overhead is what you spend on expenses to run your business. This is an area of focus when we get into trouble or when times are tight, but we forget about it when things are good. Are there areas in your business where you can make some cuts in the near future that will affect your bottom line for the year? Probably! In my book I list 107 areas you can focus on to reduce expenses.


Conclusion:


One way of reducing your stress as a business owner is by increasing your profits to the point where you are sufficiently satisfied with the outcome. Of course, being human, we will not ever be fully satisfied with anything in life, and most business owners naturally want more when they achieve a level of success. However, if business owners improved their performance by 10% in the areas above, they would double their profits!


Yes, I did say double!


Work on improving each area simply by 10%, and you will double your profits. As business owners, it is important that we don’t try to do it all at once. Instead, we need to focus specific time and energy on each area and try to improve that area incrementally. By measuring your results, you will be able to see what happens, what works, and what doesn’t. The key is to understand that incremental changes will lead to significant results over time.


Dave Fuller MBA is an Award Winning Business Coach and the author of the book “Profit Yourself Healthy.” Struggling with your profits email dave@pivotleader.com

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