The 3 secrets to business profit buildingNov 15, 2022
Are you interested in increasing your profits through your company? Who isn’t, right? Maybe you are reaching the end of your fiscal year and wondering where the money went. Maybe you are just trying to figure out how to do better for next year. Regardless of your approach there are essentially 3 ways to build net profits in any business. Without fail, each business model I have found fits into these strategies:
- Reduce costs for units sold while maintaining the retail price. Cutting costs and systematizing is a powerful way to build net profits. The global economy is being leveraged in this way – products purchased from Thailand or China are cheaper than ones made in the USA, labor is being outsourced to India or Venezuela as it's less expensive. Other ways would be to negotiate purchasing in bulk form to cut costs down. Any savings in this regard goes to the bottom line, this applies across the board for all costings (fuel, marketing, materials, etc.)
- Increase the retail gross sales total. This can be done either by raising prices or finding complimentary (bundled) purchases to boost total sales. As examples, we see the impulse purchases available in the retail check out lines, or the loss leader strategies often used. This can be done for convenience – for example I might buy batteries at a gas station where I am fueling up though its twice the price as the hardware store because time is more valuable to me than money (bundling). Not making money on selling hot dogs? Try raising the prices of the buns or condiments as they go together (loss leader).
- Increase the speed of transactions. This is the limited resource that we often tend to forget about. If we can complete more transactions in the same amount of time (all other things being equal or proportionate), this increases net profits. The faster the gears turn, the more cash rolls in.
Some very clever retailers use a combination of these, sometimes employing all three. For example, lets look at Black Friday. The day after Thanksgiving in America is thought to be the official start of the holiday shopping season. The name derives from the notion that retailers supposedly were operating in the red (not profitable) since January 1 of that year and now it is finally time to be in the black (profitable). Savvy retailers will crank up the cost of the merchandise throughout the year while using those profits to negotiate bulk deals (strategy 1) and offer heavy discounts to get customers in the door-touting limited amounts of supply (creating scarcity and demand). Should the retailer run out of the items on special, the purchaser is offered an alternative unit at a higher price (strategy 2) while offering candy and snacks while they are standing in line at the cash register (also strategy 2). Because of the anticipated demand, the retailer employs more temporary labor to handle the increase in transactions (strategy 3).
Not sure which strategy is best for you? Start small and test one by one and build on what works.