As a business owner, you should always be thinking about way to improve the available cash flow, as well as the profitability of your business. For this discussion, we’re going to focus on increasing and enhancing profitability, which, if done properly, will also improve your cash flow.
Our first tip is to cut products or services that are “losers.” Those product or services that produce high profit margins are extremely valuable to our business. At the same time, those that have low profit margins, or even NO profit margin, can be detrimental to the company, and at times, detrimental to the profitable endeavors of the business. You will need to look into whether a product or service should be completely removed from your business, or if areas for improvement exist.
Our next tip seems rather simple, but it’s much easier said than done. Increase your sales by getting new customers. While this seems simple, it is generally an expensive endeavor. New customer acquisition cost varies by industry. However, the average cost to acquire a new customer is eight times that of retaining a current customer. There are many strategies to gain new customers. The most cost effective way is to offer referral incentives to your current customers in order to generate additional “word of mouth” referrals.
To go along with our new customer tip, we mentioned customer retention. Another idea is to attempt to find ways to “cross sell” to existing customers. Cross selling involves reviewing your current customers, and attempting to offer a service or product to them that they are not already purchasing.
Next, it is always appropriate to look at how you are pricing your products or services. Are you competitive in your market? Is there room for marginal increases? It’s generally not a good idea to massively increase prices in “one fell swoop,” as the customer’s emotions can be negatively affected.
Lastly, cost reduction. This strategy is one that takes analysis and the strategies for cutting costs that vary by industry. Sometimes it entails negotiating better purchasing prices for your products; sometimes it is about reducing salaries. Simply put, this is not an exact science.
There are many more ways to improve the profitability of your business, and we simply cannot mention them all in this article. We encourage you to talk to your team, including internal personnel, and your external advisors to look for ways to enhance your business’ profit.