With the new financial year just weeks away, entrepreneurs across the?country are busy putting together budgets and business plans and growth? strategies for 2010-11. And after a difficult few years, many will be ?hoping for a big boost to the bottom line.
There are countless ways for business owners to boost profits. Raising prices and cutting costs provide a great starting point, but?entrepreneurs need to think more broadly about strategies for winning?more business and lifting sales.
To help, we’ve assembled 20 tips from?entrepreneurs and experts that will get you thinking about ways to grow your business and your profits.
Align your sales team with profit
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Bevan Slattery, chief executive of PIPE Networks, says businesses often incentivise their sales teams to go after the biggest deals in terms of revenue. Instead, smaller businesses need to focus on having their sales teams deliver deals that are rich in profit.
“The usual trap I see businesses falling into is that they often chase revenue, and forget profit. In our organisation, we are very profit-focused, to the point we don’t pay our sales people for the total revenue of a contract, we pay them based on long-term recurring revenue they provide.”
We align staff interests with company interests. The kind of revenue we’re talking from these deals could be over eight years.”
Slattery says he believes competitors become excited over revenue-heavy deals, but he shuns these contracts in favour of more profitable ventures.
“Our sales people originally just wanted to chase any business, but rather we said, let’s just keep to the products we know and then we’re going to have a price advantage over our competitors. I’d rather have a smaller deal with a bigger profit.”
Rod Young, executive director of DC Strategy, says if your sales people aren’t producing profit then you need to consider replacing them.
“Look at your people, and the poorest performers should probably be replaced. I would encourage people to see their employees and team members as a resource, not a cost.”
Get paid upfront
Sales expert and SmartCompany blogger Trent Leyshan of Boom argues many businesses structure their payment terms in a way that reduces not only cashflow but also profit.
“They have valuable money and resources invested in projects or stock ? and then their customers drag their feet and pay months after their product or service has been delivered.”
He advocates what he calls “positive” cashflow – getting paid upfront.
“In my own business, my fees are paid upfront and in full. This provides my business with not only ‘positive cash’, but also the leverage to deliver my value at the highest level. I’m not cutting corners because I have to, nor am I worried about paying my accounts person to chase payments for months after the fact. This allows my business to grow and move from one client to the next seamlessly.”
Leyshan admits that the theory won’t work for all business, and says customers will need to be convinced that the payment structure delivers them real benefits.
“If ‘positive cash’ is too hard to achieve, I recommend your senior leaders and even sales team members collaborate and brainstorm ways you can add more ‘tangible value’ into the front end of your offer, with payment terms being weighted accordingly.”
Make pricing a priority
SmartCompany blogger Julia Bickerstaff, who advises businesses through her companies Butterfly Coaching and The Business Bakery, says too many businesses take an ad hoc approach to pricing and need to take this process seriously.
“Put a formal pricing review in the diary for each year. This may mean scheduling a regular price increase once or twice a year for service businesses, or at least performing – once or twice a year – a review of your pricing strategy.”
“Pricing makes the quickest impact on profit, and a small percentage increase at the top line can mean a big percentage increase at the bottom.”
Stop your advertising
Rod Young says businesses often have no clue what return on advertising they are getting and need to pay more attention if they want to cut costs and boost profits.
“Half of your advertising is not working, and most people don’t know which half. They throw all this money around and they are not measuring and testing how that advertising dollar is turning up in terms of profit.”
“You need to specifically measure your ROI, how many customers are coming from a particular source and what the cost per customer is. Only when you do that can you determine how large your profits can become.”
Integrate your data
Craig Reardon of technology consultancy firm The E Team has a simple question for SMEs: how many places do you store client contact details in?
“Chances are it’s several. And every time you need to alter a detail it ruins your productivity.”
Reardon argues integration of web and IT systems is critical to increasing productivity, reducing duplication and minimising errors – which will have a direct impact on profit through reduced costs.
“Look for systems that can integrate client and other data requirements seamlessly.”
Lean on local support
Rod Young says working with other businesses and groups in the area can deliver some solid benefits.
“The importance of local area marketing when it comes to profits can’t be underestimated. This is all about doing business with other businesses, local sporting clubs and groups, and building relationships. This is absolutely imperative to building profits.”
“You want to take part in local area marketing to bring people back. If you sponsor a sporting club, and give out an award for best and fairest player, or whatever, you’ll get that kid coming into your store. But next time they’ll bring their parents, and two friends, and so on.”
Young says businesses could also take part in a type of reward system with other businesses, but he warns that loyalty-cards often degrade value for SMEs and could even cost them revenue.
Make your website scalable
Craig Reardon says that providing a professional website is no longer enough for an SME – it’s the underlying website platform that holds the real value by allowing you to add and edit new content, create marketing campaigns, run forms and surveys and sell online.
“When considering what website platform you will use, remember that it must be completely scalable, that is it is able to ‘bolt on’ new functionality and design elements easily and affordably and without having to reinvent the wheel.”
“This capability will save you thousands of dollars in both real dollars and productivity over time.”
Pay often, pay early
Having and maintaining solid cashflow is the key to turning a profit, but Oxford Funding chief executive Rob Lamers says you can work with suppliers to make that cashflow work to your advantage.
“If you have good cashflow, that in itself isn’t enough. You should be going to suppliers and negotiating a discount if you pay earlier. You can save up to 5% by paying a week earlier sometimes.”
“If you have positive cashflow you can buy more stock, generate profit, and pay suppliers earlier and get a discount on that stock. It allows you to take advantage of opportunities you didn’t have before.”