Global competition is fierce. And, for new businesses, it can be intimidating.
Whether your business succeeds or fails comes down to profitability (the amount of money remaining after all business expenses are paid). That’s the only way to build a sustainable business.
Here are five practical tips you can implement today to increase the profitability of your business:
1. Evaluate what isn’t working.
It’s OK to have occasional unproductive days, but most successful businesses figure out what works and what doesn’t – and focus on the things that work for them.
Existing businesses can do this already. If you’re starting a new business, don’t delay this type of assessment until you’ve been in business for several years. Work it into your quarterly strategy.
Apple became successful only after eliminating most products and focused on a few strategic products that formed a foundation for their brand. This important change also helped Apple build a global brand and not just a niche brand popular primarily in the U.S.
Are you and your team spending a considerable effort on daily activities that aren’t contributing to building your brand, sales, and profits? Are those daily activities connected to the goals you’ve set for the business?
It might be fun to spend two hours daily on Facebook or Twitter hunting for customers. Still, the more critical question is whether your prospective customers are looking for your business on those social networks.
How you can start today: Start by listing all of the tasks you do regularly (hourly, daily, weekly, monthly). Do your best to break these tasks into logical areas, such as sales, accounting, marketing, inventory, etc.
Next, consider how long it takes you to do each task and assess whether each task is essential. You’d be surprised how many things we all do during a typical day that add little value to our business. Once you understand the importance of each activity, rank the activities (or logical areas) to understand better where you should be focusing.
Focus on the areas where you bring the most value to your business and find the right people to fill the gaps in areas you don’t.
2. Find time to develop a strategy.
Most successful business owners develop intelligent strategies and execute those strategies. Yet, many confuse decisions and strategy.
Every business owner makes decisions about their business. For example, they decide where to market, how to market, how much money to spend on marketing and sales, what types of products and services to market and sell, etc.
These decisions are important – but they are not a strategy.
These day-to-day decisions are like the moves we make in a game of chess. Knowing how to make a move lets you play the game.
It takes strategy and execution to win, especially on a global scale.
For example, it’s impossible to match supply to customer demand unless you build a strategy and predictive models to evaluate how to better model consumer behavior. Both over and under-supplying hurts profits.
How you can start today: Ensure that you set aside sufficient time every month or quarter to assess and develop a strategy.
When you develop a strategy, you’ll want to focus on your goals (it’s impossible to create a strategy if you don’t understand your goals). Assess your product/service offerings and determine whether you need to expand or reduce the number of products/services you offer. Some questions you might ask about your business:
-What is my current strategy?
-What is happening in my industry or with my competitors?
-What are my growth, sales, and profitability goals?
-What products and services do I currently offer?
-What products and services do I want to offer in the next X months?
-What will I need to do to sell these new products/services?
-How will I compete against X, Y, Z competitors?
3. Market to your existing customer base.
It’s 5 to 25 times cheaper to market to your existing customers than to find new customers.
How you can start today: Look at how your customers are using your products or services. Are they staying with your products/services for a long time or using them for a short time and leaving (this is called “churn”).
A churn rate is the percent of customers who terminate their relationships with your company in a specific period (a month, for example).
Once you establish a baseline churn rate for your business, evaluate why customers are leaving. And then build models that can help predict which customers are more likely to leave or stop using your products or services.
Remember that churn rates may vary in different countries and markets, so assess your churn rate on a market-by-market basis.
Churn rates can offer many interesting insights into your business. For example, a high churn rate could mean that you need to focus on improving your company’s products or services. It can also mean that you’re simply marketing to the wrong customers and using your marketing budget unwisely.
4. Audit your expenses.
Take a close look at your expenses and ask your leads to do the same thing for their teams.
It’s not uncommon for business owners to sign up for services and then stop using them or reduce usage.
Sometimes, a cheaper plan is perfectly sufficient, saving you hundreds of dollars per month in fees.
Other times, you’ll find you no longer need the product you tried using six months ago and then promptly forgot to cancel.
I regularly audit our vendors and find that we can save from hundreds to thousands of dollars every month by reducing specific monthly plans and eliminating other products that we no longer need.
When it comes to outsourcing things like custom graphic design services, for example, don’t assume that you’re getting the best value. Look for pricing sweet spots. Use this cost of design guide to understand better what custom logo design, website design, and other custom design services should cost.
The significant advantage of cutting expenses is that for every dollar you save by eliminating a cost, you gain an extra dollar in profits.
How you can start today: Look at the paid products and services you use and eliminate those you do not need.
Don’t hesitate to negotiate with vendors if you’re paying for certain recurring products every month – many vendors will entertain a discount if the alternative is to lose you as a customer.
Also, take a close look at your employees to be sure they’re correctly trained. It’s not uncommon to have extra expenses because your staff is incorrectly trained and is doing certain things that could be done differently and for less money.
5. Ask your employees for ideas.
Your employees sometimes know your business better than you know it.
Chances are they’ve been talking with customers and have their ideas to cut costs or to increase revenue. But they’ve stayed silent because they’re busy doing the jobs for which you hired them, and nobody asked them for their opinion.
Leverage your team – ask!
We have only one weekly meeting at crowdspring. It’s our “roadmap” meeting, where we discuss and evaluate suggestions from our team. We’ve done this for 13 years, and it’s one of the reasons we continue to innovate and lead the market.
How you can start today: Make sure to acknowledge employees who offer suggestions – even if you ultimately decide not to use those suggestions.
It’s crucial that employees feel you are listening to them – not just asking for ideas. Otherwise, they’ll hesitate to offer suggestions the next time you ask.
And if you implement an employee’s idea, make a big deal out of the fact that they suggested that idea. And importantly – find a way to track all suggestions and what you’re doing with them. A simple spreadsheet or document is sufficient (we use Asana to track ideas we generate internally and Basecamp to discuss those ideas asynchronously).
Ultimately, the only guarantee that you’ll be in business five years from now is for you to build a sustainable business. Start by applying the five tips we shared in this article to your business.