Rarely do any business strategies involve staying the same instead of trying to grow. So what do you do when your profit and loss sheets indicate little or even negative change? Paying attention to your profit and loss statements can help you find new ways to improve. When you get an idea of where you are, you can identify the most promising opportunities to get ahead.
In our last article, we reviewed where to focus on your financial reports and how to measure your business’s profitability effectively. Now, we will show you how to pick areas for improvement and design approaches to increase your profitability. Your approach doesn’t have to be the same as Walmart or Amazon, but you can use your own strands to carve out a niche in your industry.
Reviewing your progress
You can’t plan a route to your destination before you know where you are. Before looking at ways to improve, collect data on your finances for several months to get a baseline view of your progress. You want to take and look at documents including:
- Balance sheets
- Income statements
- Statements of shareholders’ equity
- Cash flow statements
See first if these numbers meet your current key performance indicators and then understand why. For more depth on these numbers, get in touch with the specific departments that determine the results. For example, talk to your sales department if your income for a given quarter was not what you expected.
As mentioned in our previous article, these kinds of reviews should happen weekly, monthly, quarterly, and yearly to keep your goals on track. Now that you have a context for your operations, start looking at the performance of other businesses within your industry. This will depend on which sector you’re in and your geographical area: the more data you have when comparing your numbers, the better.
According to Vend, profit margins were the highest in beverage manufacturing (65.74%), jewelry (62.53%), and cosmetics (58.14%). The lowest numbers were seen in alcoholic beverages (35.64%), sporting goods stores (41.46%), and electronics (43.29%). Once you have the numbers for your specific industry, plan to outperform them within a reasonable margin. Be careful to measure out small, progressive improvements in favor of larger overhauls.
How can you do this? Take a look at your biggest assets as an organization. You can see more here about the different methods you can use to evaluate your business’s strengths and weaknesses. Once you’ve identified what makes you stand out, bring a strategic adviser to help you understand the most practical ways to use your strengths to increase your overall profitability.
And outside hand can help you ensure that all of your efforts are well placed. However, a good business advisor will help you understand your options and lead you to the right choice. Let’s take a look at ten methods that a business advisor might suggest for helping you improve your profit margin.
7 Tips to Improve Your Business’s Profitability
Now that you understand your place within your industry, your team and advisor can look at your next steps. These tips will Leverage the resources you already have at hand, such as your website, your branding, or the knowledge within your team. Take some time to think about how each of these strategies would look when applied to your business. With some preliminary reading, you can come to your conversations prepared with new ideas and strategies to discuss.
1. Get specific with your audience
It’s harder to decide when faced with too many choices. Instead of covering all the possible products you could offer your customer, narrow your selection to a few high-quality choices. This way, your customers can not only make their choice faster but be more satisfied with their decision and return for more business. If you offer several similar products, provide your customers with detailed, easy-to-read information for their choice. One of the ways to avoid confusing your customers what’s similar options is by giving them enough information to understand why they’re different and how this applies to their choice.
You can collect information from your current website users in the form of analytics and surveys to understand what parts of your online shopping experience do and don’t work. For example, you can see which pages your users view last before navigating off your website. Or, you can create a survey to send out by an email with a small incentive to tell you what they think of your current products. Once you have enough data to see the impact that a closely targeted product line would make on your return on investment, you can design your exact plan of action.
2. Prioritize your current projects
Take a close look at the current projects within your company. Which of these add the most value to your business? Every project that your team completes should have a clear dollar value attached to it. This could be a program that helps your employees develop, which increases retention and time lost getting them up to speed. It could also be a website redesign that helps your customers find relevant pages faster and increases searchability. While you don’t necessarily have to give up on a project unless you can’t define any profitability from it, prioritize projects that show a higher return on investment to increase your business’s overall numbers.
Before making your choice, identify and write down your reasoning. Come up with reasons for and against your choice and check it next to alternatives. Sometimes, the overall value of a project may not be immediately obvious, but cutting it mainly into unexpected results. Talk to those working directly with the projects to make sure you’ve got the full picture. Then, discuss the plan and have those in the department help you with the transition. Be sure to inform them how the new approach will redirect their department’s efforts in the impact that they will have.
3. Maximize how you use technology
If your operations are struggling in an area such as customer support or their internal organization, there are technological options that you can help with. Using technology does not mean replacing your company’s human touch. In fact, it’s imperative to make sure you don’t over-rely on technology. First, clearly identify the problem that you’re experiencing with a department. For example, your customer support staff may be overwhelmed with tickets that could be easily answered another way. If you notice that your team gets frequent questions about shipping and return policies, you could explore how an automated chat or easy-to-use help articles could show them the answers instead of being routed to your support cue.
Remember to test before and after you make the change so you can properly measure its results. If the campaign isn’t performing as expected, get more information from your staff and customers to figure out why. Frequent adjustments help you stay in tune with your customers and their expectations.
4. Boost your brand
Your products and tech aren’t all your clients see. The methods you use to convey the values and mission of your brand bear heavy weight on your customers’ choices. Putting extra work into your brand increases the perceived value of products from your company. They want to interact with your products and the part of your mission that speaks to them as an individual. Make sure that you place your mission statement clearly on your website and participate as an active voice in the causes that you represent. Be authentic with your words and follow through on promises.
If this is the first time you’re seriously considering an overhaul for your branding, tie in your marketing and sales teams to design an approach. Since they work closely with your customers and your branding, their insights will come from direct experience. In terms of your upper management, look for speaking opportunities and other means of building authority in your industry. This is a subtle but potent way to build your brand value without directly changing your product.
5. Increase your efficiency
Your business’s growth depends not only on its outside environment but the framework with which your stunt operates. Clear, coherent processes help your team stay organized and reduce wasted time and resources. First, have your team document the current way that they do things. Have them test these steps by repeating them exactly as designed to see what’s missing. More often than not, steps get forgotten because they’re performed habitually and not thought of each time someone goes about the task. Next, have them document them and put them in a publicly available system.
Once your procedures have been documented, set them up for regular updates and ensure that your team follows them. Your procedures are only half of the equation. The other half is compliance. See more about setting up solid process management within your company in our series of blog articles.
6. Sell more by with each purchase
Sometimes, prompts to sell customers items that help them get more out of what they’re already buying can add a significant boost to your profit margin. Take, for example, a shoe retailer who prompts their customers to buy new leases and socks after adding a pair of shoes to their cart. Or, a company could offer a camera bag, lens wipes, and a strap to someone who purchased a new digital camera. These are items that your customers will likely need regardless. If you can encourage them to purchase them in the same place, then you can get an extra sale instead of risking losing them to a competitor.
These kinds of prompts also improve your customers’ overall experience with your brand. When done right, highly relevant prompts like these leave your customer feeling more satisfied and like you added an individual touch to the process.
7. Give smart discounts
Discounts encourage customers to spend more because they perceive the savings before the overall value of their purchase. However, offering too many discounts can hurt your bottom line. Instead of offering blanketed discounts such as a 30% off sale on everything in the store, consider who you can target and which departments of your store need increased sales. For example, if you are an electronics retailer, consider what electronics kids will need for school and offer a slight discount on them in late summer and early fall.
When offering discounts, use your marketing and sales teams to spread the word and generate more business in anticipation of the sale. You can also incorporate referral discounts for those that bring new customers and options for feedback on how you’re performing. Take fast-food restaurants that offer a slight discount or free item in exchange for filling out a survey. Take time to write out how you can use discounts to increase sales and overall revenue while also collecting information to tailor your approach.
These are only seven examples of how you can increase your retail business’s profitability. When you sit down with an experienced advisor who can design your plan, you’ll find many extra ways to leverage your business’s best traits. Take time when choosing the individual who will guide your decisions. You may be fortunate enough to have experienced in-house talent, or you might get extra value out of bringing in an external consultant or fractional c-suite professional.
Whoever you choose and whatever path you take, do your homework, be sure in your decision, and most of all, act. The biggest risk to your profit is resistance to change. If you’re willing to take a realistic look at your state of operations and do what it takes to improve, you’ll set yourself up for success despite changing surroundings.
Still curious about who can help design your plan? You’ll have plenty of professionals to choose from who can help you improve your profitability. A fractional CMO or a fractional COO can help you plan a strategic approach from an executive level with more flexibility than an in-house staff member. Fractional CMOs have a special focus on the marketing and sales aspects of your company, while a fractional COO looks internally at your processes first. Take a look at our article about the differences between hiring a fractional COO or an in-house COO.