If you are not profitable, your business has a death date. At the very least it is a long trudging journey of survival as you go day to day hoping to have enough money in the bank to pay your bills. That is no way to live, and I’m sure it’s not why you started your business.
It’s time to make healthy profits non-negotiable! Here are three strategies you can implement immediately to boost profits:
- Raise your prices – and if you’re like most business owners, your mind is already throwing up the objections “we won’t be competitive,” “Our customers are price-sensitive,” “We’ll lose our customers, ” and the list goes on. Before you spend too much time buying into your sabotaging beliefs, consider the actual impact of pricing through this example:
If your Gross Margin is currently 30% and you discount prices by 10% to win business, you need to make 50% more in sales to still make the same amount of profit. Versus if you raise your prices by 10%, your sales can decrease by 25% and you will still make the same amount.
And which customers do you think you might lose when you increase your prices? Yes, the pain-in-the-ass customers. And in our experience, most of the time minimal loss in incurred. What you really end up with is more profit.
As a small business, you want to be premium and expensive. And be sure your product or service matches your price point through quality and differentiation. If you are the same or worse than your competition, then forget about pricing, work on making your offering better first.
- Build a profit-first budget. What this means is you develop a conservative business model that sets you up for success in being profitable. Most people plow ahead with rose coloured glasses and ‘hope it will all work ‘ That is not a good strategy.
Here are your four steps to creating a profit-first budget.
- Make a conservative forecast for your sales for the next 12 months
- Decide what level of profits you want. (i.e. 15%)
- Build in your Gross Margin. You should know this. Make it conservative
- Make your overhead fit in the amount left over.
E.G. Sales of $1,000,000, profit of 15%, Gross Margin of 30% = Overhead allowance of $150,000.
This methodology will make you take a hard look at expenses. Click here to view a short video that dives a bit deeper into this point
- Negotiate – all business arrangements should be set up with the intention of win/win. That doesn’t mean you should take the first price someone gives you. There are always ways to find a better deal. Perhaps negotiating payment terms or buying in larger Or of course shopping around.
The underlying principle behind boosting profits and making this strategy work is your own negotiating skills. Most people are inherently bad negotiators. It invokes fear in people to ask for a better deal. To help you with this read “Never Split The Difference” by Chris Voss. It’s a game changer.