The easiest way to increase your Gross Profit per Sale is to simply increase your prices. The lovely part of this strategy is that the increase in price goes straight to the bottom line. A mere 10% increase in prices will double the net profit of most businesses.
Many businesses don’t want to increase their prices is because they are concerned about losing sales, or offending customers. True, if you just increase your prices without any other marketing, you probably will. Your customers’ reaction largely depends on how you announce the change.
So how do you increase your prices?
- Timing a price hike at the beginning of each calendar or financial year can take the sting out of price rises.
- If your business policy requires customers to sign contracts and retainers, be sure to write regular price increases into these documents.
- Give Fair Warning. Loyal customers expect to be informed in advance when a price change is coming. Post the price change on signage and on your website. You can also use the upcoming price change as a marketing tool to encourage last minute sales before prices go up.
- Let Clients know how long prices have been at the current level. Typically, customers will accept a reasonable price increase if they feel they have had a good deal with no increases for a number of years.
- Rather than a straight increase in price, you could introduce new fees. This way, you can keep the regular price on previously offered products or services while offering new services for more money.
- Watch the size of your increase. Making regular price increases that are smaller in size, and where your customers become accustomed to them, is generally a better strategy than a huge price increase every five years. Regardless, to achieve sustainable price increases, you must be able to justify the higher price.
- Support the price rise with marketing. The bigger the price rise you are seeking, the more radical the changes you must make to your marketing.
- Having different product levels is a way of avoiding the price debate with customers. For example, when you have a Silver, Gold and Platinum service or product offering, customers will compare the prices and value at each level. The price conscious will may choose Silver (with less in the box) instead of Gold, but are prepared to pay more than the entry level offering. The key is, don’t discount your Price, discount your Scope; with each level of service equally profitable.
Don’t have time to scratch yourself? Flat out “Like a Lizard Drinking?” Has your previous exponential growth rate has slowed to a crawl? If so, then it’s likely your business is experiencing growing pains.
Chances are you are working longer hours than any of your staff, and are the last to get paid. Your business is a victim of its own success.
If you do take any time off, when your return, you wish you had never left. It’s as if nothing happened at all when you were absent. Sure, work was done, but nothing progressed, and your inbox is full of unanswered enquiries.
Every business, on matter how big or small, goes through growing pains. Small businesses however, typically don’t have the resources that a bigger company does, and as a result, owners often get caught up “in the business” without ever thinking about how to work “on the business.” Growing pains can feature in many businesses that are on a growth path, and pressure can show itself in different aspects of the business – cashflow, staffing, infrastructure etc.
While it feels like a trap, it can also be an opportunity. A business restructure might be what it takes to propel your business into its next stage of growth and profitability.
Restructuring is most commonly associated with major corporations, however, small businesses face exactly the same economic imperatives and have just as much need to periodically shake things up to stay competitive.
How you organize your business is a big deal. A well-executed restructure can have an extraordinarily positive effect on a business, raising staff morale, customer satisfaction and profitability. Even better, instead of constantly having to put out fires, once you have your business running like a well-oiled machine, you can devote far more time to high-value activities such as chasing new clients.
Small businesses evolve. Reviewing your organisational structure on a regular basis helps ensure you continue to be set up for optimal growth well into the future.
The Australian Business Clinic provides business structuring advice, and can work with you to design business structure that will enable you and your teams to perform to potential.
Our team has many years of experience at senior management and board level, has strong business and strategic planning skills and much experience in assisting businesses of all sizes to develop robust and effective plans for the future.
While your Tax Accountant keeps their eye on the “big Picture,” your Bookkeeper should know exactly where you stand financially today. A good bookkeeper will be a huge asset to your business because they have the knowledge and experience on how to accurately manage your business’s financial records. They can also provide insight into potential financial issues in the business.
Of course, they should know who owes you and who you owe. But they should also be able to tell you things like:
- Who is your most profitable client?
- What is your most profitable product line or service?
- How’s the cash flow looking to cover the next BAS payment?
Your bookkeeper should provide regular financial reports: profit and loss, balance sheet, budgets and cash flow forecasts that give you all the information you need to improve the financial performance of your business. They will be able to guide you on what areas need improving, and those that are performing well that can be taken to the next level.
Try to set aside time each week, or worst case, each month, to tap their brain for these pearls of wisdom about your business. Here’s the key information you should be asking your bookkeeper to provide you with regularly:
- Bank and credit card reconciliations. All of your other reports are meaningless unless this is up to date. Keeping a weekly bank rec is also your primary tool for picking up any fraudulent transactions.
- Revenue and Margin Analysis.
- Cash-flow Analysis and Forecasts.
For those of us running a small business, growth is definitely a good thing. It is usually validation that we are doing a good job, and on track, and spurs us on to keep at it.
The issue comes when your growth, particularly fast growth, gets in the way of running your business the right way. There are specific challenges that are especially hard about running a rapidly growing enterprise. It is important to keep an eye out for some of the greatest challenges when managing a fast-growing business so that you can avoid them turning into traps that will stifle your success long-term. Here are 5 key watch-outs:
Not properly understanding your financials.
When your business is smaller, it is easier to be on top of the numbers. But when you are experiencing rapid growth, it is very hard to keep track of your financials in your head. That’s why it’s so important for business owners to get a fresh set of eyes to review the books regularly. As business consultants, we can quickly point out strengths or weaknesses of your business to help you better manage your business.
Thinking it is all about sales growth.
Increasing your top line will not always equate to more profit; another reason to look at your financial data beyond just the revenue line on your income statement and make decisions based on the trends across several metrics.
Hiring the wrong people.
Once a company is really growing quickly, the quality of the people you hire becomes a big issue. The culture of a company is very important, and this is typically what has made you successful. As you grow quickly, you need to keep your culture intact by hiring the right people.
Losing touch with the customer.
When you’re growing quickly, it’s really important to make sure your customers are happy. When sales are up, it’s easier to get sloppy with products and services. Even if you’re winning new customers, your old ones may be becoming dissatisfied. This leads to customer retention issues. The core elements of what makes a company successful usually are customers and products, so, even in times of growth, customer service has to be front of mind.
Allowing receivables to outrun sales growth.
The biggest challenge we see for fast-growth small business is that their accounts receivable run faster than their sales or their ability to collect. There sales are growing, but they’re selling on account rather through than cash transactions.
None of these are issues are related to the competence of the business owner. Rather, it is all about finding the right balance between growth and doing what they know they need to do to grow it the right way. Growth is only good if it is sustainable.
The Australian Business Business helps Brisbane and Gold Coast Small Businesses achieve better business results.
We are experts in assessing the health of a business and developing plans to safeguard its future. We find ways to ensure your business lives up to its potential, and that your true profit is maximised.
We know what it is like to be in small business. Our advice is practical, realistic, and affordable – we can guarantee a return on your “investment” when you act on our recommendations.
Contact us today to discuss how we could help your business achieve stronger results.
Hope Island QLD 4212
ABN: 86 162 946 232