Profit is vital to any business undertaking, whether large or small. Like a human pumping blood to survive and live, a business has to pump profit to survive and thrive. For small businesses, profit-taking is difficult because often there are so many similar competitors. Raise your prices at your peril. Let’s just take dry-cleaning services. I mean, I can think of, in the town where I am, at least five dry-cleaning operations, all hole-in-the-wall type outfits, tiny little places, and prices are pretty much all the same. It’s a bit like a small monopoly, where if the one charges R150 a kilo for washing, then they all do. The first mover in the dry-cleaning scenario will earn a bit more profit for a while, but the others will quickly catch up. By then, costs would have risen, and everybody will be the same.
I want to look at a few ways for the entrepreneur to increase their profitability. We know that entrepreneurs have to be nimble, they have to be tight-fisted, and they have to be sharp. So the obvious way to increase your profit is to raise your prices. But that, as I mentioned above, is difficult because you have competitors. Customers, or potential customers, will go to your competitors if you raise your prices, and you’re the only one doing so.
However, it depends on the type of product or service you have, whether you can raise your prices or not. If it’s a specialist product that no one else is making or importing, then the world is your oyster because you can jack up your price and score extra profit. With a consulting service, you can differentiate yourself from your competitors, which means that you can increase your price because of the value that you bring to customers.
Okay, now for the first one: to increase your profits simply cut your costs. For every Rand that you can cut your cost, you will have a profit increase. An entrepreneur needs to look at the cost of doing business and find out where costs can be cut. Can you cut your cost of packaging, for instance? Can you cut your overhead costs, like employees? Why do you need so many people? What are they doing for your business? Are they productive? Are they making your business more competitive? If they’re not, well, the obvious answer is to get them out of the way. What about your rental? Can you negotiate with your landlord? Are there other ways of handling your transport costs? Can someone do it for you cheaper? So the point here is that by looking at all your costs, maybe there’s an opportunity for you to increase your profits.
The second way to increase your profit is to squeeze better deals from your suppliers. Can you do this? When last did you negotiate with your supplier? When last did you drive a hard bargain with them? Suppliers need your business. Try to get the best possible deal. Every cent you can extract from your suppliers can bring you additional profit. Don’t worry too much about suppliers unless they have an exclusive line that your customers demand. In most cases you can find substitute products from other suppliers. So get ready to sit down with your suppliers and coax, persuade, or demand better prices from them or tell them to go to blazes.
The third way to increase your profits is to cross-sell. Now I don’t blame you for thinking this one is boring, but wow, it does have a lot of potential. We’re not talking here about selling a toothbrush with toothpaste. We are talking about creative ways to get customers to buy more than they would have when they walked in your door or went to your online site. Sometimes it’s not just a tie-in with one product, but it can be a tie-in with several products. Imagine if you are painting your house. There’s all sorts of cross-merchandising. It’s the paint, the masking tape, the brushes, the cleaning materials, the solvents, the clothing required, the drop sheets, and on and on and on. When the customer walks out, your bank account will explode with extra profit. So it pays to bundle as much as you can together so that you can increase the purchase size where possible, not only by double, but by triple or quadruple or even in a glorious way ten times.
Those are the three tips that I’ll leave you with on profit. Please don’t get the idea here that I’m advocating greed. I’m not at all. Profit is essential. If you don’t have it, it’s like not having cash flow. What’s the point? What truly is the point of having a business that isn’t making profit, unless you are doing some sort of tax dodge? If you don’t make profit, your creditors won’t be paid, your employees will have to be let go, and you might have to throw in the towel. Watching your profit is something you need to constantly do. Be like the constant gardener, continually gardening for profit. ?
