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Focus on Profitability, Not Just Sales

Tuesday, May 31st, 2016

Sometimes it’s all too easy to get caught up in selling more and forget that sales aren’t directly related to profit. We’re always focused on improving sales numbers, but perhaps an easier way make more money is by increasing your margin on each transaction. An Entrepreneur.com article, “Find Ways to Lift Profit Margin Without Much Effort,” discusses some strategies you can use to improve your margins without investing much time or money.

First, you need to approach it the right way. Your metrics and goals should be based around profitability, not just sales. All the sales in the world aren’t doing you any good if you’re not making a decent margin. So, reward your employees for making sales that generate the most profit.

At surface level, profit margin is about buying price and selling price, but there’s really much more to it. Everything you can do to reduce costs will improve your margin. Think about retention: You usually have to spend money to gain new customers, but if you can improve your customer retention, you’re really improving your profit margin because for every customer you don’t lose, you’re saving X dollars that it costs to get a new one to buy. Things like absenteeism, theft, employee turnover, and commoditization of products and services are also factors.

If you want to focus on pricing, you’ll have to do more than just jack up your rates. You’ll have a tough time improving margins if you offer the same services and products as the competition – if you charge more, people can just go get the same thing elsewhere. But if you’re able to differentiate yourself with unique services, equipment options, and products, you can charge a premium because you’re the only option. Besides that you can think about different ways to package your offerings that leads to greater margins. For instance, there’s no reason to ever cut prices when you could add value instead. For instance, particularly when most of your costs are fixed, offering a BOGO is always better than offering half off because you ensure the sale of the additional unit.

So, rather than thinking about increasing profits holistically, take a look at these strategies from consultant Andrew Miller and consider which areas provide the greatest opportunities for increasing margins.

1. Identify ways to leverage the goods and services they are buying to increase value.
2. Create an emotional connection with customers.
3. Reduce the number of touch points in getting the product or service into the hands of the customer.
4. Identify new pricing strategies.
5. Ensure success metrics are focused on profitability, not just revenue.

Click here for the article from Entrepreneur.com.


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