Discovering ways to increase profit, is in fact, no secret. In the short term, there are only 3 ways:
- Increase average sales for current customers
- Increase the buying frequency of current customers
- Acquire new customers
Actually, you should preferably do all of these at the same time.
The secret, in fact, lies in how to implement these 3 ways to increase profit.
So, based on all this, you need to get to know your customer in depth. In order to deliver the services and products that they need and want.
Then add a high perceived value to your market offerings.
But there’s another point: it’s no use delivering a high perceived value to your customer, even if they are willing to pay a fair price if the costs of your processes are excessive and don’t give you the profit margins your business needs to be sustainable over of time.
So before we unveil the 3 ways to increase profit, let’s understand that high revenue does not necessarily mean profit.
High sales don’t mean profit
Of course, even if you earn a lot, if your expenses are higher than your revenue, your company won’t make a profit.
But you must pay attention to another fact, the difference between net profit and gross profit.
A company that sells, 1 million in a given period, but spends 500 thousand on inventory, has a gross profit of 500 thousand.
Sounds good, doesn’t it?
Yes, but there’s more to it.
You need to calculate net profit, where you take out operating expenses, taxes, interest and other expenses.
Thus, if this company had operating expenses of 350 thousand, the market interest rate was 10%, which corresponds to 100 thousand, and there’s still 100 thousand in deferred taxes to pay, in fact, they will have a net loss, or negative net income, of 50 thousand.
In other words, if that million had been applied in the financial market, it would have yielded 100,000 in interest.
But, after subtracting all expenses (500 thousand in inventory, 350 thousand for operations and 100 thousand in tax), only 50 thousand remains.
Therefore, even with an apparent profit of 50 thousand, if the revenue had simply been invested in an interest bearing investment, profit would have been 100 thousand. Meaning, the business produced a profit of 50 thousand less than simply investing it would have done.
3 ways to increase profit in companies
Properly designing production or service delivery processes is an important step, both in order to spend less and produce efficiently, as well as, to deliver to the consumer what they want the most.
And it’s this second point that we want to emphasize. Regardless of whether you choose to sell more items or more times to current customers, or to gain more customers, you need to know their needs and desires, to serve them in the best way possible.
For this, there are 2 practical ways:
- Market Research
- CRM Systems
To see more details about these 2 marketing tools, visit these other blog posts:
- Lead Management Systems: ERP, CRM or Marketing Automation?
- Customer Satisfaction Survey Questions: What to consider
Let’s see now how to use this information to:
1- Sell more items to existing customers:
The most commonly used tactics in this regard are additional sales, impulse buying and promotions.
It’s necessary to take care of promotions, as simply lowering prices, without margin, leads to many sales but little profit.
So if you really know your audience, you can create additional sales leads by adding what your CRM systems and market research have detected as a real, proven desire for your consumer.
This is one way to increase a company’s profit, as your customers see value in combos. For example, they add on something else that they weren’t initially going to buy.
Impulse buying is often used at checkouts. This is where chocolates, batteries, magazines, and even medicines (always low-value items with high margins) are displayed. Conveniently, at the time the customer is holding their wallet, leading them to buy one more ‘little thing’, ‘on impulse’.
These two tactics can be transported to virtual stores.
2- Sell more times to current customers
There are those recurring purchases that your customers always make with a certain regularity. And there are others, which are triggered by 2 things:
- Events in their lives (marriage, graduation, job change etc.)
- Seasonal dates (Christmas, Easter, Valentine’s Day, etc.)
But it’s not just about creating deals on those special days, but creating the right offerings for the right customers at the right price, all thanks to the information your CRM systems and market research gives you.
The key is to segment your base and use, for example, email marketing campaigns offering different products or services to different audiences, divided by age, sex, profession, etc.
The results are much more assertive, customers perceive much more value in offers, and end up buying at times that they wouldn’t normally do.
3- Acquire new customers
Another way to increase a company’s revenue is to gain customers with an ideal customer profile gained through CRM and research, and attract these people to your business.
By focusing your efforts on attracting these ideal, more profitable customers, you know they have the profile suitable for your business, so the possibility of them buying from your company is much greater.
These are the 3 surest ways to increase your profit:
So, get to know your customers, offer exactly what they want, and begin to see profit increases in every sale!