A business is created for profit and it is natural that the owner is constantly striving to increase profitability. In this article, we will talk about ways to increase profits. And if you need to earn money in a short time – try playing live dealer online casino.
Ways to increase profits and their combination
Regardless of the size of the business and the sector of the economy, there are three main ways to increase profits:
- increase in sales volumes;
- cost reduction;
- price increase.
When planning a development strategy and a margin strategy, the owner or top manager of the company must consider all three ways and look for a balanced solution, although, for example, increasing the price and increasing unit sales may not always work at the same time.
Work on increasing marginality necessarily correlates with the company’s development strategy. For example, if the strategy is based on entering new markets, then, first of all, the emphasis will be on increasing sales volumes. If the goal, while maintaining market share, is to switch to another segment of consumers, then the focus of attention can be directed to raising prices or optimizing costs.
Mistakes of owners
Often the decision to increase profits lies on the surface. Due to stereotypes, companies miss out on profits due to the fact that:
- do not optimize marketing costs;
- do not work on USP and do not respond flexibly to market demands;
- pay little attention to performance marketing – analysis and achievement of specific indicators;
- insufficient attention is paid to analytics.
As a result, the company does not have a clear strategy, and the work of the marketing department may be more like solving current problems.
Another mistake is the desire of the manager to “treat” profit issues with fashionable “chips” that relate to both management and the use of tools. For example, a company orders a large Internet portal in order to sell its goods and services through it, but in practice it turns out that a detailed landing page and high-quality contact center work are enough for online sales.
Or, for example, everyone is addicted to transferring employees to KPIs, although these KPIs do not affect profit growth in any way. There is nothing wrong with tools and solutions. But it is bad if they are applied without a comprehensive analysis of the situation.
How to increase sales
One of the easiest ways is to increase prices, while increasing the price by 3-5% with the same level of costs allows you to increase the overall turnover and profitability quite quickly. The fears of the owners that some of the customers will stop buying, and this will affect the volume of sales, are quite natural. But here it is worth calculating the critical point of losing the base, after which the price increase becomes unreasonable.
Here is a hypothetical example. The company was selling a $100 product that was bought 100 times a month for a total turnover of $10,000. From each client, the company earned $20 in net profit, or $2,000 per month.
If the price rises to $105, the turnover will increase to $10,500. With the same costs, the profit is $2,500. But if 2 clients refuse to cooperate due to a price increase, then the remaining 98 clients will still bring the company $ 25 in net profit. That is, the total profit at the end of the period will be – 2450. Thus, the price increase in any case allowed to increase profit. And while focusing on quality service to existing customers, which will alleviate the discomfort of new prices.
Additional sales or repeat sales
Think about what other products you can offer the client? For example, an optics salon, when ordering regular glasses with diopters, offers to purchase sunglasses at a discount. When buying a phone, an electronics store offers to immediately buy a case and protective glass, as well as insurance against non-warranty breakage of the gadget. This works to increase sales and increase the average check.
It is important to carry out work aimed at returning the client and increasing LTV (customer life cycle). If this is retail, then bonus programs and secret promotions, special discounts work well. If this is a product that requires regular repeat purchases (for example, coffee capsules), then the task here is the same – to invite the client to come to this point again and again. For businesses in the health and beauty industry, a good solution is to book a client right away for a repeat procedure in a month or two.
Thus, the company does not spend money on attracting new customers, but provides loading and profit from the existing base. Additionally, it is worth returning to “sleeping” customers who have not made a purchase for more than 6-12 months. A compliment, a small discount, a special offer will help attract a person who already knew you, which means they will be much more willing to agree to a second visit / purchase.
Advertising optimization and conversion work
One of the ways to optimize ads is to work on increasing the conversion of an ad into a purchase. So you significantly reduce the cost of each client and save your marketing budget, leaving yourself more profit.
To work on the conversion, you need to create a user journey map that helps you evaluate how customers come, at what stages they meet with the company’s advertising, and how they decide on the next step.
For example, let’s say you’re running targeted social media ads and you expect a single campaign to get you 100 potential customers who are ready to visit your site and 10 of them place an order. But to get 100 people to your site, you first need to show your ad to 2,000 people. If you work well on the ad, then 150 people will go to the site, not 100. Of these 150 people, 15 will make an order, not 10. Thus, for the same advertising costs, you get more orders and a lower cost per lead.