5 Tips on How to Increase Profitability
While it is simple to list them, implementing the right strategy is the challenge:
1. Your client base. Often, firms are chasing new clients all the time. This is suitable for customers that purchase very infrequently or potentially only once. However, research shows it costs 4-6 times more to get new clients than keep old ones. The key question here is can you sell more product to existing clients? This can include products they do not currently purchase or new products that will compliment what they already buy. There is also the option of providing incentives to purchase more.
2. Pricing. This is an area clients often ask me about. The fact is only 14% of people list price as the first key driver (list of service / product characteristics that determines what they purchase). Often you will find that you can increase the price (margin) with minimal impact on volumes. Adding value (eg same day delivery, service components) as a strategy should also be considered to increase profitability.
3. What attributes to people use to buy (Key Drivers). The 5 key drivers in order of priority are:
– Trust / confidence
These drivers will vary across industries and product types. Even within an industry market segments will rank key drivers differently. So which are the important key drivers for your market? Is there a market segment where you can package up the key drivers to be an attractive option at a higher margin? Are there new markets where it would work?
4. Distribution. What is your current distribution model? Can efficiencies be made? This is often one of the last areas businesses look at. However, ecommerce has mean that distribution channels can span geographic barriers. In addition, low cost entry into new markets can be achieved by picking the right distribution partner. Distribution is an area well worth looking at.
5. Promotion. This is considered the cornerstone of marketing, however if you are targeting the wrong market with the wrong product then it will not matter how much you spend, it will not work. There are over 200 forms of promotion and the right ones need to be used and usually in combination. The key to doing this is answering one simple question: what combination of promotion will have the impact I want?
I hope this has helped identify areas where you can improve your business performance. While "listing" the 5 points is easy, the development and implementation of the right strategy can be a challenge!