Challenges facing small businesses
Profitability is without a doubt crucial to any business’s survivability. Without adequate financial resources, failure is imminent. There are two important ways to increase profit margins — reduce operational costs or increase sales revenue. Most business theorists claim that the simplest way for small businesses to improve their profit margin is to reduce operational costs. While reducing costs can improve your bottom line, the best way to improve profit margins is to increase your turnover. Let’s dive a little deeper and look at 10 other ways small business owners can get more profits out of their businesses.
1. Grow your customer base
New customers can help grow your small business. But this can sometimes be the most costly way of improving your net margin. According to research, it costs a business 8 times the amount of cash to get a new client as it does to maintain an existing one. The easiest way to acquire new customers is to give the existing ones incentives and encourage them to refer more customers to you.
2. Increase brand awareness
Give your business an instantaneous presence through online platforms such as Facebook, Twitter, LinkedIn and YouTube. Set up sales presentations, group meetings and special promotions through webinars. You can also promote your business using conventional methods. While the use of print media might be declining, many customers still read newspapers.
3. Engage your employees
Realize that your employees know your business inside-out and they possibly even spend more time with your clientèle than you do. As such, it makes perfect sense to have them actively engage with your brand online. Most social media marketing campaigns are more successful with staff buy–in than without. So, rather than preventing your employees from using social media at work, empower them to spread the word.
4. Reduce overhead costs
Reducing overhead can effectively improve a business’ profits. For most businesses, overhead costs can creep up if not tracked carefully. Be sure to review overhead expenses regularly to determine if the costs are reasonable. Benchmarking your business to other businesses in your field may pinpoint areas that require improvement.
5. Expand your market
Think for a minute about big companies. A double or triple-figure revenue increase is likely the result of a new product/service launch or an expansion to a new geographical area. So why not tap into a new market? The added costs must be taken into account, but the long-term bonuses are hard to ignore.
6. Purchase low and sell high
Yes, I know this is not the most original way. But it can be quite beneficial. Buying products at a low price and selling them at a high price is one of the best models for your business profit-wise. Do it correctly and you will tap into an undiscovered profit centre. Don’t overprice products! This can be detrimental since the customer is going to compare prices.
7. Get your pricing right
Pricing is a key profit driver, but most businesses get it wrong. They usually base their prices on the costs of the product or their competitor’s benchmarks. While both of these should affect the pricing decision, they shouldn’t be the primary factors. Studies over the last few years have shown that value-based pricing is the only approach that results in higher profits.
8. Speed is of great significance
The quicker your turnaround time, the lower your overhead expense per unit produced. This in turn means an improved bottom line. So go back to your main systems from order to delivery and see how you can expedite the process. Determine which steps you should eliminate and how to shorten parts of the process. Remember, the quicker you make this process, the better your net margins will be.
9. Prove your skills
If you want to build trust with your clients, you need to prove that you are an expert in your field. This can be accomplished by sending out newsletters, posting content on noteworthy blogs, creating informative how-to videos and participating in interviews. This may seem like a no-brainer, but it can be difficult to achieve by yourself. Again, ask your employees to help you with these.
10. Avoid Theft
Businesses lose money for all sorts of reasons, but 30% to 40% of losses annually are because of theft. If left unchecked, theft can take cash directly from the business profits, which means less cash to spend on expanding the business. Even worse, if theft eats deeply enough into your profit margins, you may close down. To avoid theft, be sure to have theft prevention and anti-shoplifting systems in place.
There you have it, 10 ways small businesses can improve their bottom line. If you are a small business owner, use these tips to improve your profit margins. Running a small business is a challenge, but with a good strategy, you will come out on top.
