Once you have the basics in place and you start seeing more sales, you can try these 5 additional strategies to increase profitability.
1. Know your most profitable customers
Usually, about 80% of your revenue comes from 20 percent of your customers. This is called the Pareto Principle.
If you know who these customers are, you can focus your attention on them. There are two ways to deal with this:
- start selling more products or services to these customers. Do this by studying them to understand their needs and to see how best you can add more value to their lives.
- streamline your marketing efforts to start attracting more of these customers. If you can bring in more of these customers, your profitability will increase while the effort you need to put in will be less.
You can go one step further to determine your most profitable customers. These are not just the customers that bring in the most money, they are the customers that bring in the highest profits to your business.
At the same time, about 20% of your customers will cause 80% of your problems. With some of the time you are saving on marketing, focus your attention on identifying them and find ways to get rid of them.
2. Encourage customers to keep coming back
One of the best ways to encourage customers to keep coming back is to make sure they don’t forget about you.
There are many ways to do this. Here are three examples:
- if you have their email address, you can keep in touch through newsletters or business updates that contain a discount to encourage them to buy
- you can keep in touch through social media – Messenger, Whatsapp, Facebook etc – by sending discounts, organising raffles, or posting updates about your business. You can even tailor your social media marketing to target a particular group of customers. For example, those who have not bought from you for more than one month.
- You can send a physcial communication – a newsletter or business insights update – to your most profitable customers on a regular basis.
Many businesses focus most of their attention on attracting new customers. But your existing customers – those that have bought from you before – are the ones you should cherish.
Not only are they willing to spend more money on your products, they are also more likely to buy from you than a new customer.
3. Partner with other businesses
This is one of the more advanced strategies to increase profitability, but the results can be very, very good.
If you want to use this strategy, look for businesses that are similar to you but that offer different products. The idea is to find businesses that serve a different need to similar customers.
For example, an office supplies business selling to business clients might decide to partner with a high-end furniture business or with a clothing store selling business attire.
The partnership itself can take on various forms.
You can decide to start with a very basic approach, maybe by promoting each other’s business by placing your flyers in the showrooms.
You can also decide to choose a more advanced strategy and sell each other’s products.
A business partnership can be a good way to increase your upselling and cross-selling without spending huge amounts of money.
For example, as a sports trainer, you can increase the perceived value of your services by entering into an exclusive partnership with a well-known sports business. They supply the products and you deliver the customers. At the same time, they refer customers to you who are looking for a trainer.
Whichever approach you choose, it is important to first make sure that the partnership is a good fit ==partnerships== for your business. Secondly, before you start, have a written agreement in place regarding efforts, profit sharing and cost sharing to avoid misunderstanding.
4. Listen closely to your customers
It is often said that satisfied customers are the best way to grow your business.
This is because satisfied customers keep coming back to buy from you, are willing to try new products or services and act as ambassadors for your business.
In other words, satisfied customers help you gain higher sales and profits without you having to spend money.
The best way to find out how your customers feel about your business is to ask them.
Note that some customers may not feel comfortable telling you how they feel about your business. But, if you tell them that you are looking for ways to improve your business so that you can continue to better serve them and then ask them for suggestions, they may be more willing to share ideas.
When you are engaging your customers, don’t forget to ask them what products or services you should consider adding.
Their answers are free advice about products or services that already have customers waiting to buy. Just don’t forget to determine whether the new product/service is profitable for you before you add it.
5. Keep improving your business
It is easy to get used to doing business a certain way.
- Maybe you have a two-hour employee meeting every week
- Maybe you have been buying from the same suppliers for the past five years
- Maybe your inventory system is still manual, the same way you used to do it when you started
- Maybe you print and archive all the documents that you receive via email, whether orders, invoices or reports.
The problem is that the way you are used to do business may not be the best way today.
Making a change could increase your productivity. And a higher productivity – especially if you also have employees – will lead to a higher profitability.
Where can you improve your business?
- Your meetings: try to reduce the number of meetings so that you can spend more time on what is profitable
- Your suppliers: find out if you can get a better price or if there are other suppliers who offer better products.
- Your expenses: analyse them to see which ones you can reduce or eliminate
- Your business systems and workflows: analyse them to see where they can be made more efficient.
- Your filing and archiving: look for ways to reduce paper use. This could be by reducing the number of items that are printed or filed, or by using cloud services as an archive.
Continuous business improvement can bring great rewards. The Japanese call this Kaizen.
It is a business philosophy that has brought them much success, especially in their manufacturing industry.
In today’s world, it is important to find creative ways to maintain profitability. Knowing who your most profitable customers are and encouraging them to keep coming back to your business are some strategies to increase profitability.
Some other ways are through partnerships with other businesses and using feedback from customers to grow your business at little or no cost.
And finally, Kaizen, or continuous improvement, will help you run an efficient business.