Profit or growth? Businesses and founders can debate this for long hours, but it’s clear that both go hand in hand.
Getting on the path to profitability is important at the beginning, but it is growth – of market and sales – that is the way to that pathway. Identifying growth opportunities is important as this could be the difference between shutting down and surviving. The shutdown rate of small businesses can be extremely high due to the rising competition, but the probability of survival increases with a firm’s age.
Why do small and medium businesses struggle with profitability? The reasons could be many: extremely low prices, very high expenses, poor customer service and retention, and so on.
Even if the business is burning cash, the goal of every small business owner should be to sustain operations, earn a profit, and over time increase this profit margin.
How can SMEs do this?
1. Streamline operations to decrease operating expenses
A focus on pricing strategies is all well and good, but small businesses also need to streamline business operations to keep expenses down. The best – and easiest – way to do this is by bringing in technology such as teleconference and online payment services, open-source software, and remote desktop applications.
This simplifies work processes and brings down costs significantly. Cutting down on travel expenses, opting for shared workspaces, outsourcing some jobs, and streamlining your marketing will also help significantly. Trim extra staffing and automate repetitive tasks to reduce the time, manpower, and operating expenses.
Most important of all, draw up a budget that details out all expenses and allocations – and stick to it!
2. Focus on your brand to increase your average order value
The best way to boost profits is to increase your sales and size or average order value. How can you attract them to maximise their spend?
Improve your brand’s identity by focusing on the emotional and lifestyle values that your products and services can provide to customers.
This can help create personal and emotional connections – it works particularly well with small businesses that can elevate the lifestyle of clients.
For example, beauty salons and spas, fitness studios, lifestyle stores, and other such businesses. For merchandise, suggestive selling can help – find and group products that are likely to be purchased together.
Recommending relevant items after a user seems ready to buy can increase impulse buys and sales. It also makes sense to retarget people who have already bought from you or used your services – they are more likely to re-spend or spend more.
3. Ensure inventory management to keep stocks rolling
Inventory is the life and soul of any small business, and it’s important that you strike the right balance with it. If you have too much, you may not be able to sell; too little, and your customers may be unhappy.
Having 100% visibility of inventory is one of the easiest ways to maximise profit margins. This can be automated with inventory management software; complementing these with random cycle counts is a good way to keep a check on everything.
Take the ABC approach when you label products inventories- A products are the most valuable, the best-selling items; B are medium when it comes to consumption; while C products rank last and should be the least in your store.
It also makes sense to use an analytics system to track data so that you always know what is in stock, what’s selling, what’s not selling, and what you should be stocking up on. These insights allow you to make informed purchasing, sales, and marketing decisions.
4. Enhance vendor relationships to grow your business
Working with vendors and suppliers can help you optimise relationships and lower costs. How? Asking for discounts or offers is a given – especially when you are buying in bulk.
So don’t shy away from asking. Sometimes, increasing the order size can help bring down the cost of the merchandise, which makes it a good idea to check with your supplier.
Always try and negotiate a better deal, keeping in mind taxes, shipping, and other expenses. This can help reduce the costs of goods and increase profits. You can also work with vendors to help each other become more profitable, reduce supply chain costs and other logistical inefficiencies, and chart out a win-win situation for both sides.
Don’t skip discussions that can help you reinvent your business processes and become profitable in the long run.
Use your resources wisely to augment your presence
Many times, small businesses have awards, certifications, accreditations, and licenses that can set them apart from the competition.
Use your website, social media, and regular posts and updates to keep clients updated on what’s happening with your brand.
You can also join hands with sharing with complementary businesses to use referral selling, and grow business. If you have staff, don’t divide them up into categories.
Everyone has the potential to sell your brand and lead to sales. Ask everyone – the manicurist at the salon, the behind-the-counter salesperson, or your compounder – to spread your company’s message. This can help cut costs and ensure that everyone is involved in increasing sales and profits.
Connecting with your employees – your connection to customers – is vital as they have personal insight into what clients want and current inefficiencies. It’s also important to personally interact with customers regularly to know if they are satisfied with your company’s products/ services.
Happy customers translate into higher sales and a rise in profits. Boost360 can help boost your business and your profit margins.