8 Smart and Practical Ways To Increase Your Small Business Profits Ross | January 18th, 2016
Every small business owner has a lot to do but little time to accomplish everything. In the long run, successful small businesses find ways to improve their profitability (the amount of money remaining after all business expenses are paid). But short of raising prices and alienating customers, it’s not always easy for a small business owner to take the time to focus on profitability. Unfortunately, failure to do so can doom the business.
Here are eight practical tips that you can implement today to increase the profitability of your small business:
1. Evaluate What’s Working And What Isn’t.
Wasted time could be a small business owner’s worst enemy. Your time – and your employees’ time – is limited but you have a great deal to accomplish every day. It’s fine to have occasional unproductive days, but most successful small businesses figure out what works and what doesn’t – and focus on the things that work for them.
For example, it’s entirely possible that a huge amount of your effort is spent on daily activities that aren’t contributing to building your brand, your sales/profits or accomplishing the other meaningful goals you’ve set for your business. It might be fun to spend two hours daily on Facebook or Twitter hunting for customers, but the more important question you should be asking is whether your prospective customers are looking for you on those social networks.
Here’s another typical example: some small business owners are so protective of their accounting that they will resist the need to bring in a part-time accountant to help them to maintain their financial records. While this appears to be prudent – after all, you’re saving the cost of paying a part-time accountant – such decisions turn out to be very short-sighted for many businesses. If you’re running a solo business, you could be focused on sales during the hours you devote to accounting. Or you can be working to improve your product or service. You should personally do the things you do great and outsource (to your team or vendors) everything else.
How You Can Start Today: Start by listing on a sheet of paper – or in an electronic document – all of the tasks you do on a regular basis (hourly, daily, weekly, monthly). Do your best to break these tasks into logical areas, such as sales, accounting, marketing, inventory, etc. Second, assign times to each task. How long does it take you to pay your bills every week/month? If you have to maintain inventory, how long does it take you to review your inventory and order replacement inventory? Do this for each task to begin to understand the time you are spending on each activity. Third, assess whether each activity is important. You’d be surprised how many things we all do during a normal day that add little value to our business. Once you understand the importance of each activity, rank the activities (or logical areas) to better understand where YOU should be focusing. If you’re like me, you’ll find plenty of activities that are only modestly important – but those activities sometimes take the most amount of time to accomplish. Determine whether those activities are sufficiently important to continue – or whether you need to find someone else (part-time or full-time) to help you with those activities. We all have areas in which we excel. And we all have areas in which we don’t. Focus on the areas where you bring the most value to your business and find the right people to fill the gaps in areas you don’t. If you focus on the things that work, you’ll be more efficient and productive, and you’ll see meaningful impact to your bottom line.
You can also look to see what’s working and what isn’t in specific marketing channels. For example, take a look at Buffer’s 5 Unique Ways to Measure and Evaluate a Social Media Campaign. If your website looks like it was designed in 1999, consider a redesign. More about this in 10 Important Web Design Best Practices and Tips for Small Business Websites. And although it might seem smart to have a huge site selling as many products as possible, the opposite is often true. Here’s a good read from Moz on Pruning Your eCommerce Site: How & Why.
2. Experiment With Hyper-Local Advertising.
Most small business owners don’t know that it’s possible to target prospective customers on Facebook based on the language they speak and where they live/work. This means that a bakery can advertise to people who live within a certain mile radius of the bakery. A language tutor can advertise to families who speak Russian or Chinese – within a 10 mile radius – to target families that may want to hire a tutor for their kids.
How You Can Start Today: Advertising on Facebook is comparatively inexpensive and more importantly, measurable. When you place a print ad in your local newspaper or in a Yellow Pages directory, you are rarely able to determine whether the cost of the ad is justified. However, when you run ads on Facebook, you’ll get reports that will tell you exactly how much it’s costing you and by combining your Facebook advertising with your analytics reports, you’ll be able to measure the effectiveness of this type of advertising. I am not suggesting that hyper-local advertising will work for you – but you should give it a try by setting a small budget and experimenting.
3. Study Your Competitors.
Most small businesses are so focused on their own activities that they never take the time to understand and evaluate their competitors. This is a mistake. While you no doubt are operating your business better than many of your competitors, you’ll always learn from studying your competitors. Sometimes, you’ll learn what you can do better. Other times, you’ll learn about what you should NOT do.
How You Can Start Today: Here are 10 tips to help small businesses evaluate their competitors.
4. Set Meaningful Goals.
Most small businesses – even successful small businesses – fail to grow because the owners don’t take the time to set meaningful goals. I’ve talked to thousands of small business owners. Most want to work for themselves and operate a business that will provide them and their families a good standard of living. But those aren’t the goals I’m talking about. Most small business owners fail to set quarterly or yearly goals for their businesses. They simply operate the business, focusing on day to day activities, without establishing what they hope to accomplish within a certain amount of time. While your overall goal can be to make a ton of money and find enough free time to enjoy other activities, you should establish operating goals for your business. For more on this, read Lean Marketing 101: Setting Goals.
How You Can Start Today: You can start by asking yourself where you want your business to be six months from today? One year from today? If you are the sole owner/employee, do you want to have five employees in one year? If you have five clients, is your goal to have 15 in six months? If your revenues are $30,000 this year, do you want to have revenues of $75,000 next year?
For example, when we evaluated whether to participate on social networks, we looked at five goals: lead generation, building a community, building brand awareness with a new audience, managing brand perception, and customer service. You can read more in Can Social Media Help My Company?
You can also leverage goal setting in the products you use. For example, if you use Google AdWords, you might not know that they have a “smart goals” feature that can help you meet your marketing goals. Wordstream recently wrote a good post about this: You Might Hate It, But AdWords’ Smart Goals Are Pretty Cool for Certain Advertisers.
5. Find Time To Develop Strategy.
Most successful small businesses are successful because they develop smart strategy and execute on that strategy. Yet many small business owners often confuse decisions and strategy.
Every small business owner makes decisions about their business. For example, they decide where to market, how to market, how much money to spend on marketing and sales, what types of products and services to market and sell, etc. These decisions are important – but they are not strategy. These day-to-day decisions are like the moves we make in a game of chess. Knowing how to make a move lets you play the game. It takes strategy and execution to win.
How You Can Start Today: You can start by making sure that you set aside sufficient time every month or quarter to assess and develop your strategy. We made a mistake when we first launched crowdSPRING by focusing on day-to-day activities. Because we were extremely busy, we didn’t set aside sufficient time to develop strategy. We mistakenly assumed that our day-to-day decisions were the execution of our strategy (but we later determined that they were not).
During the time that you develop strategy, you’ll want to focus on your goals (it’s impossible to develop strategy if you don’t understand your goals). Assess your product/service offerings and determine whether you need to expand or reduce the number of products/services you offer. Some questions you might ask about your business:
- What is my current strategy?
- What is happening in my industry or with my competitors?
- What are my growth, sales and profitability goals?
- What products and services do I currently offer?
- What products and services do I want to offer in the next X months?
- What will I need to do to sell these new products/services?
- How will I compete against X, Y, Z competitors?
6. Market to your existing customer base.
It’s substantially cheaper to market to your existing customer base than to find new customers. In fact, some experts estimate that it costs between 5 to 25 times more to acquire a new customer than it does to keep an existing one.
How You Can Start Today: Look at how your customers are using your products or services. Are they staying with your products/services for a long time or using for a short time and leaving (this is called “churn”). A churn rate is the percent of customers who terminate their relationships with your company in a specific period (a month, for example). Once you establish a baseline churn rate for your business, you can start assessing why customers are leaving and which customers are more likely to leave or stop using your products or services. The mistake many business owners make is to think of churn as a given, rather than as an opportunity to improve. Churn rates can offer many interesting insights into your business. For example, a high churn rate could mean that you need to focus on improving your company’s products or services. It can also mean that you’re simply marketing to the wrong customers and using your marketing budget unwisely.
7. Audit Your Expenses.
Take a close look at your expenses. For example, it’s not uncommon for business owners to sign up for online services and then stop using them or to reduce usage. Sometimes, a cheaper plan is perfectly sufficient, saving you hundreds of dollars per month in fees. Other times, you’ll find you no longer need the product you tried using six months ago and then promptly forgot to continue using. For example, I recently audited our vendors and found that we can save thousands of dollars every month by reducing certain monthly plans and eliminating other products that we no longer needed to use.
The big advantage of cutting expenses is that for every dollar you save by eliminating an expense, you gain an extra dollar in profits.
How You Can Start Today: Look at the paid products and services you use and eliminate those you do not need. Don’t hesitate to negotiate with vendors if you’re paying for certain recurring products every month – many vendors will entertain a discount if the alternative is to lose you as a customer. Also take a close look at your employees to be sure they’re correctly trained. It’s not uncommon to have extra expenses because your staff is incorrectly trained and is doing certain things that could be done differently and for less money.
8. Ask Your Employees For Ideas.
Your employees sometimes know your business better than you know it. Chances are they’ve been talking with customers and have their own ideas to cut costs or to increase revenue. But they’ve stayed silent because they’re busy doing the jobs for which you hired them and nobody asked them for their opinion. Leverage your team – ask! And when it comes to listening – we can learn a lot from babies!
How You Can Start Today: Make sure to acknowledge employees who offer suggestions – even if you ultimately decide not to use those suggestions. It’s important that employees feel you are really listening to them – not just asking for ideas. Otherwise, they’ll hesitate to offer suggestions the next time you ask. And if you implement an employee’s idea, make a big deal out of the fact that they suggested that idea. And importantly – find a way to track all suggestions and what you’re doing with them. A simple spreadsheet or document is sufficient (we use Google Docs and Basecamp to track ideas we generate internally).
Do you have any suggestions about what else small businesses should do today to increase sales and profits? Or do you have a comment or story to share about the suggestions I’ve written about? Please take a few minutes and leave a comment.
image credit: jakerust