Raising prices, cutting fixed costs, eliminating less popular products and services and catering to upper income customers are just some of the ways small businesses can further boost their profits. With 2010 looking to deliver better economic results than 2009, now is the time for businesses to consider how they can maximize profitability. See the following article from The Street for more on this.
Now that we’ve hit the year’s halfway point, it’s a good time to assess where your business is and where you want it to be.
So far, 2010 is shaping up to be an improvement on 2009. To make it even better, take these steps to pump up your bottom line.
Step one: raise prices
It sounds obvious: to make more money, you have to charge more. Last year, as shoppers searched relentlessly for bargains, businesses cut prices to the bone, sometimes even forgoing their own salaries to keep the doors open.
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But that’s no way to survive long-term. You can raise prices and keep your customers; the key is to make a good case for what you charge. Maybe your products are biodegradable or otherwise environmentally friendly, or you have credentials and experience your competitors don’t. Whatever differentiates your business — whether it’s free premium coffee in your office or a customer-loyalty program — can be used to justify slightly higher prices.
Step two: go upscale
A recent Gallup poll found that Americans making $90,000 or more a year spent 33% more in May than they did in April, while spending by middle- and lower-income Americans remained unchanged. The increase was credited to “frugality fatigue,” as families with disposable income got tired of pinching pennies.
That’s great news for any business that markets to upper-income customers. The only caveat is that they can also be high-maintenance customers, since they can afford to shop on quality, not price. If you sell a premium product, you’d better be prepared to explain what makes it special. And make sure your expenses don’t shoot up, eating into profits.
Step three: offer less
Assess all the products or services you’re offering. Chances are, you’re putting time and resources into things that don’t sell well on a regular basis. Rather than trying to be everything to everyone, focus on what you do best. You’ll free up inventory space, cut down on training costs and allow your employees to offer better service.
Step four: cut fixed costs
Again, this seems pretty obvious: If one way to increase profits is by charging more, the opposite strategy is to lower your expenses. SCORE, the national small-business counseling network, suggests reviewing all your vendor relationships at least once a year. Telephone, wireless and cable companies are constantly reconfiguring the plans they offer small businesses, and you might be paying for services that no longer fit your needs. Go over all your monthly bills and see where there’s room for renegotiation. You can also take steps to lower utility costs by installing automatic thermostats and light switches.
Rather than putting all your efforts into getting new customers, think about getting more business from the customers you already have. But upselling has to be done right, otherwise you risk turning people off. Instead of pushing customers to buy more, think of what you can offer to make their lives easier or save them time.
Can you add variations to your basic services that will encourage them to visit more often? Offer training classes or one-on-one consultations as a way of building loyalty? Rather than looking at upselling as a way to squeeze more money out of customers, think of creating win-win situations where you both benefit.
This article has been republished from The Street. You can also view this article at The Street, an investment news and analysis site.