How do you make more money?
Work Smart Not Hard Tip No. 2 in a series written for Indie Cambs
In the last Work Smart Not Hard tip we talked about why most small business owners would love to have more time and how to get it. By concentrating on making more money and using it to outsource, delegate, buy systems and install processes, your business can be more profitable and not just about you swapping your time for money.
Not only does this mean that your business will be able to run without you and continue to make money when you take time off but it makes it a lot more valuable if you decide to sell it.
There are lots of ways to increase revenue and turnover but what we really need is more profit.
The most obvious way to increase profits is to increase prices.
Every time I suggest this to business owners they put up a strong resistance and give me all sorts of reasons why it’s not a good idea. However, unless your business is built to compete on price (not a good idea for any small business as that only works for high volume sales), those who try it report that most customers either don’t notice or accept it without a qualm. Even if you lose a few customers, the overall effect can still be an increase in profits.
Look at how this works:
Number of products sold = 100. Sale price = £100. Total revenue = £10,000
Profit on each sale = £10. Total Profit £1,000
Increase prices by 10%.
Let’s assume 80% of customers still buy from you (in reality it will probably be at least that).
Number of products sold = 80. Sale price = £110. Total revenue = £8,800
Profit on each sale is now £20. Total Profit = £1,600
In this case your revenue drops but your profit has increased significantly!
Discounting can have the opposite effect, increasing turnover but reducing profits so discounting should be avoided unless some real economies of scale can be made.
The most important thing to remember about price is that it is a perception that gives the impression of value. Businesses lose as much trade by being perceived as too cheap as they do by being perceived as too expensive.
There are lots of other ways to increase profits including increasing order values and order frequency from existing customers rather than always chasing new ones – but more of that next time!
Do you have a favourite tip to increase profits that has worked in your business?
If you’d like to talk this through and find out what would work for you, get in touch and let’s chat.