The key purpose of a small business is to maximise profits for its owner. Some conventional wisdom says increasing sales is the most effective way to increase profits. But there’s more that goes into how you increase the profitability of your business. In this guide, we’ll look at 10 proven ways to boost your sales and grow your profit margins.
Go digital with your physical business
It’s crucial that customers can find your business online. You don’t need a website to achieve this. Simply create a Google My Business profile, and local customers will see your business when they do a local search on the web. Research from Google found that 76% of customers who are searching for a local business on a mobile device either visit or call the business within 24 hours.
If you want to go a step further, consider creating an eCommerce website. That may seem like a detailed and time-consuming process. But you can always start small and expand later when you have enough resources. Even a simple but intuitive eCommerce shop will remove geographical barriers, increase your brand awareness and create a second sales channel.
Create a price-cutting strategy that works
When competitors lower prices, it’s only natural to follow suit to beat them at their own game. Lowering prices can attract more customers. But if you drop your prices, you also lower the profit margin of your business. So price reduction should be done strategically to not affect your business’s ability to make a profit.
Lower your operating costs
These are expenses required for the day-to-day running of your business. To increase profits, your business must reduce these expenses without sacrificing the quality of your products or services. There are several ways to achieve this. For example, you can invest in energy-efficient office equipment, cut unnecessary employee perks, hire interns instead of standard workers, automate time-consuming tasks, and so forth.
Buy seasonal products early
Seasonal products are those whose quantities and prices fluctuate depending on the season. For example, beach umbrellas and tents sell more during the summer, while sweaters, socks and sweatshirts sell more during the fall. You can buy these products from your suppliers at a lower cost price during off-seasons when the demand is low. Wait for the next pick season when the demand is high to sell at a higher price.
Focus on existing customers
New customers are as crucial to business growth and profitability as existing ones. But studies show that acquiring a new customer is five times costlier than retaining an existing one. If it takes £50 to convert a prospect to a buyer, you need to spend that amount for you to break even. Bain & Company found that a business needs to keep a new customer for at least 12 to 18 months to break even their investment. New customers also don’t spend as much money as loyal, repeat customers, making it difficult for a business to grow.
Add new related products and services
Your customers may be craving something different or new. For example, suppose you sell a line of coats and jackets in your business, you can add related products like socks, mittens, gloves, scarves, and so forth. If you are a hairdresser, you might encourage customers to buy shampoos, styling gels, and colouring products.
In addition to achieving high profitability, expanding your product line attracts new customers and increases sales.
Before adding new products, do market research to base your decision on facts – not just instincts. You want some kind of assurance that the product will sell.
Study your competition
Researching your competitors is an effective strategy to win over customers and boost profitability. Without studying your competition, you’ll not be able to spot gaps and opportunities. For example, if your competitor offers customer incentives, draw inspiration from it without infringing on their intellectual property rights.
Invest in inventory management software
A sale is not the only way a business makes money. Making profits and losses depend on how you manage inventory stock. Poor inventory management is one of the main reasons small businesses fail. Overstocking can result in higher storage costs, deterioration of products, and expiration of products. If the products don’t sell according to plan, you can find your profit margin on a downward spiral. Great software can help you automate your business systems to provide auditable records and minimise errors.
Address customer reviews
Every review that makes its way online can affect sales. Research shows that customers are 1.7 times more likely to visit your store if your business responds to reviews, especially negative ones. Also, share positive reviews on your site.
Increase your advertising
Advertising is what gives a business an edge over competitors. You may have excellent products or services, but it will be hard for customers to find your business if you don’t promote them. Online advertising, including Facebook, Twitter, Instagram, Google and others, is crucial for new customer acquisition.
For more information and advice about how to increase the profitability of your small business, get in touch with DPOM today!