Ways to Increase Your Small Business Profits
The life of a small business owner is filled with numerous tasks and limited time to complete them.
This becomes evident when it’s time to draft a business plan. On one hand, they want to plan meticulously, but on the other hand, they are eager to kickstart their business promptly.
Starting a business can become overwhelming when you assess all the tasks that need to be completed. With numerous components to consider, some being discretionary while others are essential prerequisites, the process can quickly become complex.
At the end of the day, the fate of your business boils down to one essential element. Successful small businesses, in the long term, devise strategies to boost their profitability (the remaining funds after settling all business expenditures). This is the sole means to create a sustainable business.
This is the practical ways to increase the profitability of your small business SMEs:
1. Assess the effectiveness of current practices and identify areas of improvement.
The mismanagement of time can prove to be the most formidable obstacle for any individual running a small business.
Your time, as well as your employees’ time, is limited. However, there is a lot to be done every day.
Although you may have unproductive days occasionally, successful small businesses identify effective strategies and prioritize them.
With limited time for both you and your employees, it is important to determine what works and what doesn’t. Focus on the tasks that yield positive results for your small business.
Many times, you might be focusing on tasks that don’t help grow your brand, increase sales, or achieve important business goals.
The idea of spending one to two hours every day on social media to find customers might be entertaining, but it is vital to question whether your potential customers are actively seeking your presence on these social networks.
Another common scenario involves small business owners who are overly protective of their accounting practices, leading them to avoid hiring a part-time accountant for assistance with maintaining their financial records.
Opting to handle accounting tasks yourself may seem like a wise choice to save money on hiring a part-time accountant. However, this decision often proves to be myopic for numerous businesses.
If you operate a one-person business, you might prioritize sales when you dedicate time to accounting. Alternatively, you could concentrate on enhancing your product or service.
It is advisable to personally handle tasks at which you excel and delegate other responsibilities to your team or external vendors.
To begin today, start by creating a comprehensive list of all the tasks you regularly perform, whether it’s on paper or in a digital document. It’s important to categorize these tasks into logical areas such as sales, accounting, marketing, and inventory.
Next, allocate specific time durations for each task. Determine how long it takes you to complete tasks like bill payments on a weekly or monthly basis. If you’re responsible for managing inventory, calculate the time it takes to review and order replacement items. By doing this for each task, you will gain a better understanding of the time you spend on each activity. In the third step, evaluate the necessity of each activity.
You might be surprised to discover that many of the things you do throughout the day add little value to your business. Once you recognize the importance of each activity, prioritize them or group them by logical areas to determine where your focus should lie.
Like myself, you will likely find numerous activities that are only moderately important but consume a significant amount of time. Assess whether these activities are truly essential or if it would be more beneficial to delegate them to someone else, either part-time or full-time. We all have areas in which we excel and areas where we lack expertise.
Concentrate on the areas where you bring the most value to your business and seek out individuals who can fill the gaps in areas where you may struggle. By focusing on what works best for you, you will increase efficiency and productivity, leading to a significant impact on your bottom line. Additionally, take the time to evaluate the effectiveness of your marketing channels. For instance, if your website appears outdated, consider a redesign.
You can find more information on this topic in the article “10 Important Web Design Best Practices and Tips for Small Business Websites.” If your visual identity is lacking after running your business for a few years, contemplate rebranding. Remember, it’s crucial to identify what’s working and what isn’t in order to make informed decisions and drive success in your business.
2. Explore hyper-local advertising strategies.
A significant number of small business owners are unaware of the potential to effectively reach out to potential customers on popular social media platforms like Instagram and Facebook. By leveraging the power of these platforms, businesses can specifically target individuals based on their language preferences and geographical location, including where they reside and work.
For instance, a business owner can strategically advertise to individuals residing within a certain distance from their company or factory.
Start advertising on Facebook today. It’s cost-effective and you can easily track the results.
It is challenging to ascertain whether the cost of a print ad in a local newspaper or a Yellow Pages directory is justified. Conversely, when you advertise on Facebook, you receive comprehensive reports that precisely outline the expenses incurred.
By combining Facebook advertising with analytics reports, you can effectively evaluate the impact of this advertising approach. Although I do not claim that hyper-local advertising will yield favorable results, I recommend trying it out with a small budget and conducting experiments.
3. Research your competitors.
Most small businesses are so focused on their activities that they never take the time to understand and evaluate their competitors.
While you are undoubtedly 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 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 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, will your goal be 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 Social Media Marketing: The Ultimate Small Business Guide.
You can also leverage goal setting in the products you use. For example, if you use Google AdWords, you might not know they have a “smart goals” feature to help you meet your marketing goals.
5. Find time to develop a strategy.
Most successful small businesses develop intelligent strategies and execute those strategies.
Yet, many small business owners 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 a 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.
When we first launched crowdspring, we made a mistake by focusing solely on day-to-day activities. Because we were swamped, we didn’t set aside sufficient time to develop a strategy. We mistakenly assumed that our daily decisions were executing our strategy (but we later realized they were not).
When you develop a strategy, you’ll want to focus on your goals (it’s impossible to develop a 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. Some experts estimate that it costs between 5 to 25 times more to acquire a new customer than to keep an existing one.
How you can start today: Look at how your customers use your products or services. Are they staying with your products/services for a long time or using them for a short time and leaving (this is called “churn”).
A churn rate is the percentage 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 an opportunity to improve.
Churn rates can offer many interesting insights into your business. For example, a high churn rate could mean you must focus on improving your company’s products or services. It can also mean 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 reduce usage.
Sometimes, a cheaper plan is sufficient, saving you hundreds of dollars monthly 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 regularly audit our vendors and find that we can save from hundreds to thousands of dollars every month by reducing specific monthly plans and eliminating other products that we no longer need.
When outsourcing things like custom design services, don’t assume you’re getting the best value. Look for pricing sweet spots. Use this cost of design guide to understand better what custom logo design, website design, and other custom design services should cost.
The significant advantage of cutting expenses is that you gain an extra dollar in profits for every dollar you save by eliminating a cost.
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 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!
We have only one weekly meeting at crowdspring. It’s our “roadmap” meeting, where we discuss and evaluate suggestions from our team. We’ve done this for 13 years, and it’s one of the reasons we continue to innovate and lead the market.
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 crucial that employees feel you are 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 because they suggested it. 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 Asana to track ideas we generate internally and Basecamp to discuss those ideas asynchronously).
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