What if we told you a business sold $10 million of goods last year? Would you say that it sounds like a successful enterprise? Probably. However, what if we revealed the fact that, in this process, it lost $11 million? Now, your opinion is probably the opposite.
Why?
The fact that they sold so many products means their reach was huge, the demand for their products was considerable, and they probably did a decent enough job. Many people would have to work really hard for months to make this happen. So, why is this business a failure?
It’s simple – a business’s purpose is to generate profit!
If you fail to do so, if you fail to remain profitable, your business is a failure, no matter what other metric you choose to brag about.
Sure, most businesses are not profitable from the start, but if you’re still struggling to make a profit a year in (just make a profit, not reach your break-even point), you’re doing something wrong.
With all of this in mind and to avoid this nightmare scenario, here’s how to increase the profitability of your business in the most straightforward manner possible.
Reduce expenses
Reducing expenses sounds good on paper but always causes problems in practice. Why? Well, there are several reasons. First, it’s hard to reduce costs and not reduce your quality of service.
You could switch to a cheaper supplier but get an inferior supply. In the short run, this will save you a massive amount, but what happens when the customers realize your product is inferior? In the long run, you deteriorate trust with your customers and make compromises that will cost you more.
One of the great (and safe) ways to reduce expenses is to outsource. You don’t want to outsource your core services. Money-making tasks should be handled in-house. However, everything else, like your HR, customer support, IT, and marketing, can be outsourced. You can even outsource tasks to virtual assistants to free up some of your own free time. This way, you pay less and get a higher quality of service.
Budgeting is another great idea. You can download a specialized app to help curtail your spending when going on a business trip.
Another idea worth trying is sending some employees to work from home. You don’t have to go fully remote; even a hybrid workplace is considerably cheaper.
Increase the prices
If you can’t make money by selling the product at its current price, only two options are available. You can raise the price or quit while your losses remain relatively low.
Still, this is not an easy decision to make. There’s always uncertainty about how your audience will respond. Sometimes, if the price jump is too steep, you’ll see a massive abandonment and even outrage. So, you need to be strategic about it.
First, evaluate the market conditions and see what others are charging. If your product is far below the price, you can raise the cost without offering too much justification. Everyone will assume that the initial price was just there to allow you to break into the market.
If you have the time, you should gradually increase the price while simultaneously increasing value. A new feature can be a great justification for the price increase. It’s this type of PR move that you should make.
Lastly, you can always launch a more expensive product/package and offer some customers to retain the old one.
Expand your market
There’s only so much value you can draw from each market. You see, not everyone will become a paying customer. If you sell hair-growth products, you’ll never appeal to people without this issue.
Sometimes, to maximize your profits, you need to unlock a new market or expand your current one. So, how do you do this?
You need to start by researching the market and identifying new market segments. Who are you not reaching but would like to?
Another great idea is to build strategic partnerships. This creates amazing opportunities for bundles, cross-selling, and upselling. In other words, you can access another market more easily by tying your product to another.
You can also make yourself more easily discoverable in these new markets. So, you should make a great website and employ SEO services to increase your visibility. This way, you’ll generate far more traffic than you originally intended.
Make return customers
Have you ever heard of the 80/20 rule? According to this rule, about 80% of your profit is generated by just 20% of your return customers. To make it even better, they say you need to spend five times as much to make a first-time visitor (compared to convincing an old buyer to return).
In other words, return customers are cheap (low expenses) and generous (highest order value and highest overall customer lifetime value).
Still, how do you make customers return?
There are many methods to achieve this. First, you could personalize your approach. If someone buys from you several times, you have so much information about them. You know which categories they’re interested in, what made them abandon the shopping cart the last time, etc. So, you can make a personalized offer (give them an offer they can’t refuse).
You can also start a loyalty program. This way, they gain points every time they make a purchase. The idea of these points going to waste (no matter how low their cumulative value) will be too much for many people to bear.
All in all, you need strong incentives and even stronger post-sale follow-up.
Conclusion
As we’ve mentioned, if you can’t run a profitable business, you shouldn’t run a business at all. This is not one of those “at least you tried” scenarios – running a business that loses money is not better than not running a business at all. With the help of the above-listed four tips, you stand a shot at making it. Still, optimizing your profitability would take a lot of hard work and adjustment. In the end, it will be worth it. After all, this is what you’re working for.
