3 simple strategies to increase your bottom line
When I first started my business, I used to feel a bit embarrassed about making a profit. Then at an industry meeting, I met a business coach who changed the way I thought about profit for ever.
He told me that, “As a director of a company, it is your responsibility to make a profit”. He went on to say “If you aren’t running a profitable business, then you aren’t doing your job”. He finished off with “The only reason to have a business is to make a profit”. That was a great lesson for me, a rookie business owner.
From that day forward, making the business successful and profitable became my goal. I went on to build a business which had one of the highest profits margins in the industry. It became a valuable asset and I sold it 15 years later for millions of dollars.
Here are 3 strategies I used to do this:
Always Mind Your Profit Margin:
It’s not hard to get to know what the best profit margin is in your industry. Make a note of it and strive to beat it. I had a service business. Over time I learnt that, if you are selling a service (your time), your profit margin should be about one third of sales:
1. One third goes to salary
2. One third to expenses to make those sales
3. One third to be retained as profit- all or part can be used as working capital or taken as drawings.
As soon as I learnt that, I started to monitor our profitability monthly. I was aiming for that magical 33%. It became the first number we looked at in our monthly reviews. If it wasn’t 33% (which we never did quite achieve), we made a plan to adjust underperforming areas of the business to improve our bottom line the following month.
Nurture your Profitable Existing Customers:
I soon learnt another good lesson. I learnt that the business cost of acquiring a new customer is 7 times more than re-servicing an existing customer. We made it our mission to nurture our most profitable customers. To find those, we looked for customers that:
1. Accepted that our fees were fair and didn’t continually ask for discounts.
2. Paid their bills on time, every time.
3. Were big enough to require our services more than once a year.
We trained ourselves to listen to our customers very carefully. We developed a set of questions to find out exactly what they wanted. Then our goal was to provide them with exactly that. Near enough wasn’t good enough. We under-promised and over-delivered. We provided customers with ‘World Class Service’ so that they would come back to us time and time again. And they did.
Would You Like Fries With That?
Selling more to the same customers is a good way to make bigger profits. We learn to do that too. My business was a highly-niched specialist recruitment company. Customers approached us to find a new permanent staff member for their team. It sometimes took several week of searching to find the right fit for our customer’s existing team.
While the search was underway, we offered our customer an experienced ‘temporary’ or ‘interim’ staff member. Someone who was available for work immediately and who could slot in and do an effective job but who might not want that full-time position. By offering that service, we were easing our customers’ workload while a new staff member was found. The win-win was that while we were doing that, we developed another stream of income for our business at the same time. What else could you cost-effectively offer your existing customer base to provide additional services to your customer and improve your bottom line?
Remember the wise words of the business coach. The only reason to have a business is to make a profit. As a director, it’s your job to make your business into a valuable asset to leave as a legacy or to sell to fund your retirement. If other businesses in your industry are making good profits then it is possible. It’s just a matter of how.
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About the contributor:
Jan Reeves has a passion for getting customers to pay invoices on time and ultimately improving cash flow in small businesses. Jan’s small business experience started in the early 90's when she founded a specialist recruitment agency, before selling it in 2006. She now happily follows the sun between Australia and South West France. Website: http://www.yoursmallbusinesscoach.com