E-Class 5 – Renovating Profit
In this Eclass we are going to show you the simple steps we take to improve a business’s profit.
When you are preparing to actually sell a business, profit is your number one priority because, as you know from the previous Eclasses, business valuations are ultimately based on the PROFIT or the potential for profit. But even if you aren’t looking to sell in the near future, profit should still be a top priority for you because that is why you are in business in the first place – to make a profit! Most business owners, and especially entrepreneurs, love to look ahead at the new sales they can make and opportunities they can grow, but forget to look behind them at the goldmine already sitting in their business. In this Eclass we are going to guide you through a process that can INSTANTLY add thousands of dollars to your business profit and the amount of cash going into your pocket – we hope this is exciting to you because it should be!!
Your 4 Golden Profit Opportunities:
The fastest way to increase your profit is to uncover the opportunities in your business that you are not currently taking advantage of. And the big lesson here is that you DON’T need to spend a whole lot of money on advertising to do this, you just need to pay more attention to your current clients and give them more opportunities to do business with you.
The fastest way to increase profit is to increase your prices, something that we find a lot of business owners are reluctant to do. We understand why – we have been in this situation ourselves, especially in our manufacturing business where margins were being squeezed by competition from China. But you know what? We did it, and our customers kept on buying from us because they were happy to pay more for our fast delivery, the ability to place smaller orders, the secure back-up service and our innovative products. Your customers aren’t buying from you just because of your prices, they buy your service, your guarantee, your innovation, your marketing, your uniqueness, your convenience, your delivery and your communication.
Increase your prices by AT LEAST 10% – especially on items that give you the biggest PIA factor (Pain In the Arse – that’s a technical term by the way!). These are the items that are difficult to deliver, or create the most hassles, returns or complaints – if you have to keep selling them then at least make it worth your while. Also increase the prices of items that you KNOW you are undercharging for. A simple way to do this is to look through your range and just round everything up. If you have an item that is $2.50, make it $2.95. If you have an item that is $7.95, make it $9.95. Something that is $350, make $395… we’re sure you get the idea. The psychological pricing theory suggests that consumers tend to ignore the least significant digits of a price, so their buying behavior will not change whether the item is priced at $160 or $199. So think about that – if you rounded up your prices, how much more money would that put in your pocket each month? $1,000? $10,000? $100,000? Plus raising prices can actually INCREASE sales. We were selling a book online for $29, and when we put the price up to $47, sales actually increased by over 50%. Sometimes as business owners we price low because that’s what we think the market will pay, but that’s a really BAD way to determine your price points! Don’t be afraid to test and measure to find your optimum pricing.
There are 2 simple steps to increasing your sales quickly, and neither of them involve large advertising budgets. This is one of the most OVERLOOKED part of the businesses we see – they are constantly focused on chasing new business, while ignoring the people who already know and trust them. As Jay Abraham says, it’s 8 times less expensive to get an existing customer to buy from you again, than go out and get a new customer.
Step 1: Increase the amount each customer spends when they buy
Have a look at the video below for a great example of how awesome this can be for your business:
Get out your ENTIRE list of products and services (or write it down if you haven’t already) and ask yourself this question:
Do all my customers know that I provide all these products and services?
Then ask yourself:
How can I let them know?
- Next time they make a purchase you or your sales person can simply ask – did you know we also provide ….?
- Can you send a letter or email or brochure explaining your range and how it all fits together?
- Can you bundle together some of your products and services to create a higher priced package – one that will provide a premium experience, that you can charge a premium price for?
- Which products and services compliment each other?
- What is your “sales funnel”? Once your customers have bought once, do you have other products they can buy, can they spend more as they get more involved with you? Are you letting them go because you aren’t following up?
- Are you asking your customers if they can recommend associates or friends that would be interested in your product or service?
Step 2: Increase the number of times they buy
The other way to increase the amount of their customers spend with you is by increasing the number of times they come back to buy. This works especially well in businesses selling consumables or repeat services. So ask yourself the question:
Do I invite my customers to come back?
- Do you have special offers for repeat clients – loyalty cards or a VIP club?
- Do you contact them with special offers or news like Gary did with his SMS campaign?
- Do you leave your contact details with them in an easy to find place? Take repairmen as an example – my washing machine broke down about a year ago and the guy who fixed it was great – really friendly, good price, would definitely use him again, but I have NO IDEA how to find him again! A little sticker on the washing-machine with his contact details would solve all my problems and get him a heap more business.
- Do you run competitions or promotions? Encourage your customers to spend more often by rewarding them and giving them a chance to win all their purchases
Of course the other easy way to increase profits is to reduce your expenses. Here is a list of areas where you can reduce costs – check off each one for your business:
- Can you source same quality stock at lower prices? Or can you negotiate better prices or longer payment terms with your suppliers?
- Are you overstocked? This is a KILLER that we see all the time. If you are putting all your cash-flow into stock that doesn’t sell quickly, you are slowly choking your business of it’s profits. Plus high stock levels are very unattractive to buyers, so start selling off excess stock and only hold enough for “Just In Time” supply.
- Are you holding dead stock? If it’s not going to sell, the get rid of it – cause a new buyer sure doesn’t want it either.
- Are you running a lot of private expenses through the business? We have seen all sorts of things put through businesses – even children’s school fees. It’s great for tax, but when you come to sell it just makes things complicated and can decrease the value of your business.
- Do you have excess or non-productive staff?
- Can you leverage your sales staff better? Are they performing? Can you automate your sales process so you can pay less to sales staff?
- Are you cutting prices to get sales? This will only erode your profits and turnover – NEVER use discounting as a growth strategy!
- Marketing and advertising – can you focus on existing customers and get same turnover with less cost?
4. Cash Profits back on the Books
Many “cash” businesses do not put all the cash-payments through the taxable figures. This is common in retail and food, but can be found in any industry where there are a lot of cash payments made. We understand why you would do this, but in the long term it decreases the value of your business. Most buyers are unwilling to include cash profits in their valuation because it is unproven and illegal. We know entrepreneurs who make hundreds of thousands by buying up cash-based businesses at a discount , putting the cash onto the books and then reselling for a higher price because the business is showing a higher proven profit.
This is an INSTANT way to increase the profit and value of your business
Your Task This Week:
Go through your business and find all the profit you are missing out on. Ask yourself the hard questions and write down at least 3 actions you can take to increase the profit of your business THIS WEEK.
Next weeks class:
We are going to show you how you can really leverage your database and boost your business value and cashflow through contact with your customers. Until then, if you have any questions please feel free to email us at [email protected]. All the best,