Yesterday I was talking with a business coaching client named Will who owns a successful optics company for birdwatchers called Wingspan Optics. During that conversation we identified over $400,000 of easy cuts he could make to his expenses that would be pure profit increases. What about you? As you do your planning for the coming year, what are easy ways you can increase your company's bottom line?
Here is a quick list of the simple things you can do to increase your company's gross and operating profit margins in 2018. (I'll tell you how Will did in just a moment...)
- Speed up your design cycle. One of our business coaching clients, LH Thomson, a manufacture of high end bicycle parts and products, cut their design cycle in half by working with a specialty engineering firm outside their company. This allowed them to develop three times as many products in half the time, increasing their profits over 30 percent.
- Eliminate tasks and activities that don't add value to the company or customer. Every dollar you save by eliminating the cost of things that don't add value to your company or to your customer drops directly to your bottom line.
- Increase pricing. If you bill hourly, review your billing rates and push them higher. If you charge per product, look for ways you can command a higher price. Could you bungle more value into a package? Improve your marketing and sales scripting to effectively sell at a higher price? Or could you just boldly increase your pricing? Most businesses set their prices when their business was first launched, and since they were so hungry for business, they set pricing levels low. Over time, the business likely only made nominal increases to pricing every few years, but rarely did the owner ever sit down and fundamentally rethink his or her pricing model. Well take a close look at your pricing now.
- Regularly review your administrative and operational staff levels closely. Most service and administrative departments can be cut by 1 in 4 with no impact on quality of work. Many can handle 1 in 3 cut with no significant negative impact. I'm not suggesting you cut staff, instead I'm suggesting that you delay hiring admin and operational team as you grow. Let your revenues grow faster than your hiring.
- Shorten your sales cycle. How can you close your sale faster? This will decrease your sales cost per transaction and free up a lot of hidden cash flow that previously was locked up in your sales staff.
- Increase the dollar value of every purchase transaction with your clients. Ask, "How can I get each customer transaction to be for a larger dollar amount?" What upsells, cross sells, or resales could you strategically implement? What package offers could you test and introduce?
- Beware the steep cost of attrition. Customer retention is a strategic expense if spent wisely. How can you increase your customer retention?
- Feed your winning sales people more leads (even if that means you starve your lower performing sales people of leads.) Audit the "$ value per company generated lead given to a sales person." This is not a time to be "fair", but to be strategic. If every lead you give to John is worth $2,100 and every lead you give to Sarah is worth $3,200, then you've got to take this into account when you divide leads. It costs your company $1,100 extra in lost sales for every lead you give to John instead of Sarah. Be transparent about this and let it be a spark to help John learn how to increase his own dollar value per company lead given to him.
- Strategically map out systems to help your customer consume your product or service faster so that they get more value and hence repurchase more frequently. Look for ways to educate them on the ideal use of your product or service.
- Shift a cost from a fixed to a variable expense to give yourself greater flexibility. This is a way to protect your cash flow. It is extremely important for unproven tactics and strategies. For example, pay per sale versus a guaranteed amount for an outside sales person.
- Shift a cost from a variable to a fixed where the value is proven. Make this shift only when you can negotiate a substantial price savings by doing so.
- Consistently look for ways to lower your fixed overhead. Scrutinize your base expenses to eliminate non-strategic expenses that just don't add value to the company or to the customer.
- Negotiate hard. Take the time to plan out your negotiation strategically. Create competition for your dollars. Create a list of concessions you want, with extras for you to trade off. Research the market to better understand the best deal you can expect. Even hire an experienced negotiator to help you make the purchase on the best price and terms you can. If the asset you're buying for your business is large enough, the ROI on your negotiation work can be immense.
- Get clear on all the costs of inventory: cost of capital; storage; insurance; etc. This will help you make informed stocking levels.
- Set optimal inventory levels and stick to them. Constantly be on the lookout for ways to safely reduce your inventory levels. If you have inventory you're unlikely to sell, scrap or donate it so that you can free up the space and write off the inventory.
So there you have a quicklist of 15 ways to increase your business's profitability. How did it work out for Will of Wingspan Optics? He found fat to cut in his pay-per-click and sponsored products budget, branding consulting he wouldn't need in 2018, ways to lower his inventory cost, and a strategy to protect his pricing strength in the market. All of these will likely add $400,000 or more of additional profit to his bottom-line in 2018. Your turn!
Finally, may I suggest that if you want more ideas on growing your business, including a free toolkit with 21 in-depth video trainings to help you scale your business and get your life back, just click here.