Seven Low Cost Ways To Increase Profits
In the never-ending quest to improve profits, it is a smart move to first target the low hanging fruits. There are so many low-cost ways to boost your profit if only you would take some time to study the possibilities.
Before investing large amounts on things like expensive equipment or massive renovation, see first if you can accomplish much with far less. Below are seven of the best profit-making tips for those in a tight budget:
Increase your prices. Most businessmen are terrified of increasing prices for fear of losing customers. At times, this has caused prices to be frozen for years despite the increase in costs due to inflation. Some resort to reducing the quantity or quality of their product. This may work at first, but it is bound to backfire in the long run as customers will sooner or later realize the difference. Rather than watching your profits dwindle, be bold enough to price according to the value of your offering. In the majority of cases, the additional margin brought by the price increase will far outweigh the loss of price-conscious buyers.
Reduce your inventory. Too much inventory results in numerous troubles. Obsolescence is particularly dangerous for it may result in demand drying up seemingly with no warning. Capital is tied up, and the risk and cost of carrying the excess inventory rise rapidly. The problem of too much inventory often occurs in both new and experienced businessmen.
In the case of newbies, the reason is usually poor forecasting. With established entrepreneurs, there are several reasons for this bad habit. It may be that they want to maximize customer satisfaction by making all items available, but this should be compared to the costs incurred to see if it is feasible. For others, it may be due to a desire to profit from price increases. Again, the potential gains must be computed versus the cost and risks.
Negotiate for lower prices from suppliers. This option should be explored if it is possible. In today’s competitive environment, most suppliers are flexible if they think that you are a good customer. To be successful in negotiating, do your homework and try to gain as much useful information possible before facing your supplier. Knowing that X company is getting an additional 10 percent discount compared to the price you are getting would improve your leverage.
Look for other suppliers. Having another supplier puts pressure on your main supplier. Being not dependent on one gives you more clout in price negotiations. Even if the price could not be changed, it is very possible to seek better terms or improved services, which may also be helpful in adding to your bottom line.
Offer other products or services. Look for complementary products or services that you can add. The key here is to make sure that you do not lose focus not only on your operations but also in the perception of customers. Glaring examples of these are some small drugstores that appear like sari-sari stores. Since drugstores are primarily dispensers of medicine, they should have a highly hygienic and professional image. Unfortunately, many have added new items with no regard for their image. This results in loss of confidence by consumers.
Differentiate your product or service. Try to find a cost-effective way to differentiate your product so that you can price it better. One way to do this is by improving the packaging. Packaging can add value in many ways besides aesthetic purposes. It can make the product last longer, be more hygienic or more convenient to consume. These factors may be more important to your customers than the added price.
Improve your internal controls. You may be losing too much to internal theft. See how extensive this problem is by computing what should be your profit versus what is the actual result after verification of the true value of such shortage-prone assets like inventory. You can then narrow down your search for the leakages by going through each asset class to see where the serious deficiencies are. Note that this is just for a quick estimate and does not replace the need for an expert on internal control and auditing.
*Originally published by the Manila Bulletin. C-4, Sunday, March 23, 2014. Written by Ruben Anlacan, Jr. (President, BusinessCoach, Inc.) All rights reserved. May not be reproduced or copied without express written permission of the copyright holders.