There are only 5 ways you can increase your profits…and not all of them are created equal!

Here are the only 5 ways you can increase your profits:

1. Raise your prices
2. Lower your direct costs
3. Fix the underperformers
4. Increase volume
5. Lower your overheads

And the winner is…

We looked at each of the five methods of increasing profit, and looked at how effective they each were. In reality, increasing your prices is by far the most effective way of increasing your profits.

Let me give you an example:

If you sell a widget at £100, with a cost of sale of £70, this creates £30 gross profit
However, if you reduce the price by just 10%, and sell it at £90, with the same cost of sale of £70, this only creates £20 gross profit.

Therefore, you would have to sell 50% MORE widgets just to make the same amount of profit you had been previously.

So, raising prices has the opposite effect. Sell at £110, less cost of sale £70 = £40 gross profit. A 33% increase in gross profit.

The counter argument is that, based on the supply and demand curve, you would expect to sell fewer widgets if you are charging a higher price, therefore making less money. The bit about selling fewer is true; the bit about less money depends on the demand curve. There is more profitable flex in this than you might imagine.

Say you sold 100 widgets at £100 making a total gross profit of £3000 (£30 profit on each widget x 100), then increased your prices to £110. You would now only need to sell 75 widgets to make the same profit (£40 profit on each widget x 75 =£3000), resulting in less work (and therefore overheads) for the same amount of money.

In addition, it is likely that your ‘worst’ customers are also the most price sensitive and will take up the majority of your time.

So, let me put it this way…

If you would like to work less, earn the same, and get rid of your least favourite customers… consider putting your prices up!

You can then spend the time you have saved looking for new, higher paying customers. When you have found these new customers and returned to selling 100 widgets, you will now be making £4000 profit instead (an extra £1000).

The only proviso is to be aware of demand sensitivity: if your business’ particular demand curve is very price sensitive (for example, if you were raise to prices by 10%, you would lose over 25% of your customers) you will then end up making less money, not more. That said, this sensitivity may be counteracted by upgrading your branding, customer service, or product/service differentiators to justify the price increase and thereby retain more existing customers. Raising your prices might mean raising your game, but then when has that ever been a bad thing?!

And finally, what about the other 4…?

The other 4 listed above are also very valid. Robert Craven suggests you work down in order, from 1 to 5. Implement each element and then move onto the next. By working in order, you ensure that you start with those that will have the most impact on your business’ profitability.

So, why not consider giving it a go!

I wanted to book a van into the local tip at short notice to dispose of an old fridge whilst I still had the van on hire. Surely not too much to ask on a Friday morning? It wasn’t going to be that busy, was it?

I rang the City Council hotline, only to be told I have to book 24-hours in advance. Any chance of changing the rules just this once? Surely they had spaces left?

“Sorry sir, they print out the booking sheet at the beginning of every day. They won’t pick up your booking until tomorrow.”

A good reason for the 24-hour booking rule? I don’t think so!

A prime example of systems first, customer second. The frustrating thing is, it would be so easy to fix!

A Solution

There are lots of solutions! Solutions aren’t the problem these days with the continued advance of technology. You can get systems to do what you want, when you want. And with an increasing number of technology platforms, you can provide access to them far more easily.

THE CHEAP AND CHEERFUL SOLUTION: The easiest and cheapest solution I came up with was emailing or texting new booking details from the central call centre to a pay as you go mobile located at the entrance to the tip. The booking details are then added to their paper list; job done!

WHAT THE CUSTOMER WOULD REALLY LIKE: However, in the world of business excellence and web technology, what customers expect is probably far beyond that. How about real-time telephone and online booking for your slot; online cancellations; postcode eligibility checking; text message reminders; and (if required for businesses) integrated payment system? And, at the tip, how about a rugged handheld Windows Mobile device with 3G access to check visitors off in real-time and keep up-to-date with bookings?

Worried about the cost? Factoring in the time saved at the call centre, higher tip utilisation, shorter waiting lists, plus the fact that a system like the above wouldn’t actually cost the earth to set up, you might be surprised at the speed with which you get a return on investment. You also have happy customers. And they’re priceless!

You wouldn’t catch us doing that!

It’s easy fall into the trap of making customers work around your systems, rather than the other way round. We get numb to our own systems because we use them all day, every day. Our customers don’t! It will never be possible to delight your customers by making them work around you.

Customer Service First

By working around your customers and exceeding their expectations, you’ll pave the way to increased customer loyalty and positive word of mouth – both highly valuable commodities!

Systems can, and must, come second.

Technology and systems are, after all, adaptable and upgradable. Customers usually are not!

Try exploring your business through the eyes of a customer. What would frustrate you if you were on the receiving end of your business? How much of a difference would it make to you as a customer if the business had put your experience first?

Ask your customers how they experience your business. Ask them if there is anything they feel could be improved. Listen to that feedback.

Find out how much it would cost to make the changes.

Implement the improvements, and watch your customers smile.

It might sound like a strange statement but could it be true? I am not saying that a recession is something to look forward to, nor am I saying that it is not without its considerable uncertainties or risks. However, there may be opportunities available that would normally be out-of-reach in a stable marketplace.

Here are some opportunities to look out for…

1. Increase your market share. If you keep marketing and working on building your business when everyone else is running scared, you could capture a much larger share of the market than would otherwise have been possible.
2. Use the external pressure to develop a highly efficient and effective business. Use the economic pressure as an incentive to re-assess processes and systems thereby cutting out wastage and inefficiencies; this will enable you to cut costs and deliver a more efficient and effective business. However, ensure you continue to build strong customer service into your processes and don’t cut down at the cost of your product or service quality.
3. Look for opportunities to diversify into new markets thereby spreading your risk and increasing your revenue. This doesn’t necessarily mean expensive new product development. Could your product be sold in new markets you haven’t tried before with a little bit of re-positioning? Maybe you have the skills to offer new services with very little effort? It may just add a little stability to your business. Be careful about the more risky moves. I’m not saying they’re not worth considering but don’t jeopardise your existing business for the sake of a riskier alternative.
4. Buy your competitor’s assets if they go into liquidation. Select your competitors carefully, but making an offer for selected assets, such as their customer list or any intellectual property they may own, could be an opportunity that only comes up once in a lifetime. Think about this in advance: pick them now, then keep an eye on them. Companies House offers a monitoring service for £0.50 a year per company so you will get an email about any documents are filed by your competitors. You could also set up Google Alerts.