There are many mistakes that businesses often make, but one of the biggest is to confuse making money with making sales. This isn’t a mistake that only new business owners make. Managers think that business is all about being busy and keeping your cash register ringing but it’s much more than that. If a manager fails to take steps to make sure that the business earns enough to cover the daily costs plus be able to bring home a substantial paycheck, then you’re counting the days until the business has to close up shop.
When someone goes into a business, the need to make a profit is stressed but just exactly how to do that gets lost in translation sometimes. Being aware of the numbers is essential so you can find out whether there will be money left in the business after all the bills are paid. Discounts are well and good but if you bring the price down too low, the profits will end up being literally pennies. Freebies and extra services that are given away when they shouldn’t be end up hurting you more than the goodwill you get from your customers.
To maximize your margins, the first thing you have to do is take profitability into account with every sale you make and every policy you have. Next, hire a good accountant who can help you put things into perspective. After that, try and keep your operating costs as low as possible by outsourcing tasks and justifying your expenditures. Remember that for every penny you save, you earn that in profit.
For 5 more simple ways to generate profits from every transaction, read on:
1. Price isn’t everything. Develop it well.
If you’re a start-up, chances are that you think you’ll need to undercut your competitors just to bring in customers. This kind of attitude might spell failure for your business. Don’t look at low prices as your only appeal to your customers. If that’s the case, then your customers are sure to jump ship as soon as they find a competitor that offers a lower price. Having rock-bottom prices also means that you won’t be able to make enough to stay in business.
Developing your pricing is easier than you’d think. Take a look at your current break-even point and costs. After that, find out your competitors’ pricing and pay attention to the one that’s been in business for the longest time. It’s not a bad thing to have the highest prices in the market or to increase your low prices as long as you have a high-quality product or a valid reason to raise rates.
2. Push products and services that provide a higher margin.
The potential to turn a profit varies with each brand or service. Finding out the margin difference between products is important for your plan to shape your profits. If you push to promote a lesser-known product that offers you a higher margin than the more common household name, then you earn more. While the cash value of each sale could be smaller, more money would go into the business that way.
3. Control your discounts.
If you regularly run discounts and promotions on your products, you will also regularly lose profits. Instead of giving discounts, you could give away items that have a high value but cost less. That way, your customers will perceive it as having the same cash value but your business will keep more money. This could be applied in any industry: free clothing items, an hour of service, and etc. These kinds of offers draw in customers and help to close sales but they take a smaller bite out of profits compared to discounts.
4. Take advantage of cross-selling and upselling.
When a customer buys an item or a service from you, make sure you have a list of related add-ons that would benefit them. These kinds of add-ons will help to increase the profitability of the original item because of the higher margins. One other way to go about this is to improve your in-store service warranties so more customers will avail of them.
5. Trim down your product mix.
If you sell an item that takes up a lot of your inventory but doesn’t sell often, get rid of it. These products that are slow-moving only hurt your business and it’ll serve you better to put more money into the items that have a higher turnover. This principle can be applied to service businesses as well. Put more resources into services that get the most appointments so you can be more sure of sales.