How to Increase Profits for a Small Business in 2023
Profitability impacts your business in a significant way. When you think about profitability, it's what's next after your expenses.
I'm going to cover three strategies that'll help you reduce your expenses in your business.
So let's dive in!
How to Improve Profitability: Reduce Your Expenses
Reducing your expenses is something I always tell my clients to be aware of. I have prospective clients looking at two different areas. Staffing is one of them because labor costs are one of your highest (probably next to your marketing budget).
When you think about staffing, you need help to run your business. You may need some marketing help, or you may need in-store help. If you have a retail storefront, consider what skill set you need.
Break it down to the lowest level to truly understand what you need.
An intern could help you reduce overall labor costs. It does not eliminate, but it can help reduce overall labor costs. Are there any colleges or universities, tech schools, trade schools, or educational institutions around that provide their students with internships?
So how do you do that?
When decreasing your labor costs, you need to consider the following:
Who can help me?
What is the skill set required of that person?
When you understand this, consider offering an internship instead of hiring full or part-time employees. An internship gives valuable skills and helps students become better acquainted with the business world.
Schools love it because it helps their population. It is added value to their educational offerings by getting them out of the classroom and obtaining real-world experience.
After hiring an intern, it’s not uncommon for employers to say:
"I hired an intern for the summer, and they're coming back to work for me in the fall."
"They're coming back to work for me next summer."
"I've hired them as a full-time employee because it gives them that experience and understanding of that role they will be fulfilling."
Honestly, an internship also gives them a jump start.
When looking at an internship, consider how it can help reduce your overall labor costs and improve your bottom line.
How to Improve Profitability: Minimize Your Expenses
When was the last time you pulled your bank statement and went through it line by line to find recurring subscriptions?
You want to focus on things that you can do right now.
Take the time ASAP to review your bank statements to understand and eliminate some expenses. This is important because any time you remove an expense, such as a subscription, it will go directly to the bottom line.
How to Improve Profitability: Increasing Your Number of Transactions Per Customer
I've got a calculator on my website that will help you increase the number of transactions per customer. It helps me understand the impact because an effortless 10% increase dramatically affects your bottom line.
To increase profitability, consider increasing the number of sales per current customer because your current customers are your best resource. The ability to go out and find new customers will cost you more than existing ones.
How to Improve Profitability: Increase Your Prices
I often ask my clients, “When was the last time you raised your prices?” They usually give me a response like, "Well, I haven't raised them in a while. And the reason I don't raise them is that it scares me to death. I don't want to lose customers."
Let's walk through a simple scenario:
You've got a widget that sells for $100. If you increase that price by 10% to $110, will that impact your current customers?
Will it lead to a loss of customers?
But if you think about those that leave, they're probably price shopping, so maybe those aren't the customers you want to serve anyway.
But when you think about new customers, you are making an additional $10 per widget. That’s pure profit. Your expenses haven’t gone up to produce or buy the widget; you are just increasing your profit by 33%.
Here’s another way to look at it.
To make $1,000 in profit at $100 each, you need to sell 33.3 widgets.
However, when you increase your price by 10%, you only need to sell 25.
And by increasing your price by 10%, you only need to sell 25 widgets. The business would need to lose about 25% of its customers over a 10% price increase to break even. That realistically won’t happen.
With just a $10 increase in price, you can produce less, purchase less, and sell less.
Most people won’t price shop because of a slight price increase. Recently my brother and I noticed that our coffee prices were increasing. We like the coffee and are already happy customers, so will we go elsewhere? No. It’s too much of a hassle to find something new over a slight price increase.
If you are worried about losing customers, test your price increase on a small scale, such as 10 of the 100 items you sell. Evaluate what feedback you get and decide if it’s worth increasing the price on other items.
Remember, any increase goes directly to your bottom line.
At The Pillars Group, our FREE test drive can help you put together a great direct-response marketing plan and get you on your way to heightened success. Contact us today to schedule your test drive.