Do your homework to start running a better business
By studying your product mix, pricing, marketing strategies, overhead, debt and cash flow you may learn some valuable lessons that will put you on track to running a better business with increased potential for profits.
Review your product mix
One big key to profitability is offering quality products that fill a need in high demand by your target market customers. Review your current product offerings to determine how they are performing.
Is each product:
- providing a tangible value and benefit to your target customer?
- in high demand?
- a good source of income for your business when you factor out direct and indirect costs?
- complementary to the other products in your product mix?
- expected to have a long enough life cycle for the required time and resource investment involved?
Based on your answers to the above questions, determine whether there are products that should be your product mix.
Next, review your current product line compared to your target customers’ needs or wants. Determine if there are any additional product offerings that would be attractive to your customers and serve as companion products to your current offerings, really rounding out your product package. Incorporating products such as these can bring more income to your bottom line.
Ensure proper pricing
As customers become increasingly price sensitive, pricing can make or break the sale of your product. It can also have a huge impact on your profitability if you aren’t able to maintain your profit margins. Gather market intelligence by asking these questions:
- What value and benefit do your customers get from the product?
- What is the current supply and demand for this product?
- Does any business currently offer this product?
- How does the competition price the product?
- Are these prices consistent with the customers’ perceived value and benefit?
- What is the break-even pricing on this product when factoring in direct and indirect costs?
- Is it possible to mark up prices for additional profit and still remain competitive?
- How can your business set itself apart from the competition? Aggressive pricing? Service? Product packaging specials?
Next, set a pricing strategy that will allow you to adequately compete while maintaining profit margin. How much profit margin can you get? Do you want to lead, meet or lag the market in price? Do you want this product to be a loss leader? Is this is a premium product where you may be able to ask for more markup? If the product has a short lifecycle do you want to price the product to move quickly and make your profit through high-volume sales before the market is saturated? All these factors, and more, need to be taken into account when developing your best strategy.
Conduct strategic marketing
If your sales have slowed it is important to think strategically about how to grow your business. Are your customers using all of your products, or is there an opportunity to cross-sell other products to your existing customer base?
Existing customers are already familiar with and like yourorganization. Therefore it is easier to introduce new products to themthan to prospects.
Existing customers often view your attempts to sell additionalproducts that can help them as good service. In addition, if you haveidentified a new product that fills a gap in your product package,approaching your existing customers to sell the new product is a goodplace to jump-start sales and quickly help generate more income.
If you have saturated your current market, now would be the time toidentify new markets that you can sell your products to. After all, youalready have achieved a desired level of success in your current marketand have the established processes, production and distributionchannels in place.
You just need to determine if the contributing factors that havehelped your business be successful in your current market will bepresent in the new target market and how that target market differspositively and negatively from the one you are in now.
Another marketing strategy is to network and build key relationshipsthat can become referral sources. Identify sister industries that canfeed customers to your business and vice versa. Consider formingalliances with other non-competing businesses that offer complementaryproducts and services to yours or have the same target market customer.This can be a powerful growth strategy.
Lastly, review your promotional practices and measure their success.Do more of the promotional activities that produce positive tangibleand valuable intangible returns. Eliminate those activities thatdemonstrate little to no returns.
Manage cash flow
Another way to improve profitability is to control expenses and manage cash flow. The best way to control expenses is to first understand your company’s financial statements, including cash flow and how it relates to the bottom line.
Analyze your financial documents to see if there are areas where youcan reduce your expenses. Strictly monitor every expense your businessincurs and make sure you are getting maximum value. Where possible,share fixed expenses (such as office space, equipment, evenadministrative staff) with other businesses.
Determine if alternative work schedules could be morecost-effective. Make sure you are fully utilizing your employees.Streamline staff and assess whether to fill vacant positions or whetheranother employee can absorb the responsibility. Manage your debts andyour tax payments.
