Businesses tend to define growth as growing turnover. Revenue growth becomes the most important measure of success.
We say: forget that.
What matters is increasing your profits. Revenue growth might be part of how you do that – or it might not if you grow less profitable parts of your business or rely on discounting.
So here are some tips for how to improve margins and earn more for what you do.
Pricing
Pricing models are typically ‘cost plus target margin’ or ‘whatever the competition is charging.’ Few businesses seem brave enough to ask: ‘what’s it worth to a customer?’
Cost plus pricing relies on you really knowing your unit costs of production and how these might be affected by a greater volume of sales. You can avoid a lot of guesswork with accurate and detailed financial data.
Targeted pricing experiments might give you some profitable answers.
Let’s return to value and pricing dynamics. Once you start thinking value rather than cost you inevitably ponder how you can add more value, promote it well, and charge more.
Could you also adjust prices based on factors like demand, seasonality, or customer segments? Some targeted pricing experiments might give you some profitable answers.
Profitable Customers And What They Value
In a mature business it’s easy to get stuck in a cycle of selling the wrong things to the wrong customers. Generating revenue rather than profit.
Market research can reveal how to expand your product or service portfolio to meet different customer needs and tap into new, more profitable markets.
Invest in innovation: stay ahead of the competition by researching and developing better solutions.
In a crowded market value is often about the how rather than the what. Personalise and improve your customer experience and fine tune it to customer expectations.
You might find that price becomes much less important in winning business. You’ll reduce customer churn and benefit from more ‘word of mouth’ marketing (which is highly cost efficient).
Efficiency
All businesses waste money, but only some work out exactly where they’re wasting money and do something about it.
Areas to investigate:
- Supplier costs and terms
- Process waste
- Inefficient workflows
- Resource utilisation and time spent ‘waiting for something or someone’
- Automation to release staff to do higher value work
“There is nothing so useless as doing efficiently that which should not be done at all.” Peter F Drucker
Sales
We’ve deliberately left sales until last, partly because it’s the most obvious tactic. But in all probability you’ll need more sales and more customers. For one thing, more sales will effectively spread your fixed costs more thinly.
You can also sell more to existing customers through upselling and cross-selling to increase average order values.
Make your numbers make sense. Contact Rosy Jeffery Chartered Accountants on 01297 639 457.
