I am teaching a class this Thursday entitled, “Increasing Your Bottom Line” in partnership with the Plattsburgh-North Country Chamber of Commerce and our local SCORE chapter. For those who are unable to attend, I will give a little preview of this presentation.
As I have said in some previous posts, there are only three things you can do to increase the profitability of your business:
* Increase Prices
* Increase Volume
* Decrease Expenses
The simplicity of focusing on these three strategies would seem to make business management a relatively easy task. Unfortunately, the implementation of these strategies is complicated by the huge range of variables that may result from any decision.
For example, if you increase your prices and maintain your current volume of customer transactions, you will certainly increase your profitability. Yet we know that if you raise your prices, you become more susceptible to losing volume. What if the competition doesn't raise their prices? You run the risk of losing customers to them. That is not the only variable that comes into play. What if your customers can no longer afford your prices?
To increase volume, I like to refer to your strategy options as a two step dance. The first step is to get your existing customers to purchase more each time they make a transaction. It is no joke why fast food establishments train their workers to ask, “You want fries with that?” Every time you can add an item to a transaction, you will increase your volume and your ability to increase profit. So train your employees to offer more products or services to your customer. Don't have any more products or services to offer? Maybe that's the problem and may be missing out on an opportunity to grow your business.
The second step to this dance is to get more customers. That is also easier said than done, but we'll do some postings in the future to help seed some ideas in this area. Basically, it boils down to marketing your business. Jay Conrad Levinson, the celebrated author of Guerilla Marketing, says, “marketing is everything you do to promote your business, from the moment you conceive of it to the point at which customers buy your product.” So keep doing everything, but try to do more of it!!!
Like with raising prices, there are risks to your attempts to increase volume. By adding product lines, you may incur the costs associated with the increase of inventories. You also run the risk of “cannibalism.” Cannibalism refers to the sales of one product line eating away the sales from other areas of your own business. Adding services may increase your labor costs, decrease your productivity or carry other unforeseen costs. Another concern is the costs associated with marketing your business. While there are some great books on saving money on marketing, any plan will at the least require your time; and there is a value to your time.
The final option is to decrease your expenses. I will again reference one of my favorite humorists, P.J. O'Rourke. In his book, Parliament of Whores, he introduces the P.J. O'Rourke Circumcision Principle which simply states, “you can take 10% off the top of everything.” Can you cut some fat off of your operating budget?
You need only to go back to my first post on this blog, “You Can't Cut Your Way to the Bottom Line” to get my opinion on your prospects in this area. Still, if you can cut some expenses off your budget without that sting that I felt by just typing the word “circumcision,” you will increase your profitability.
The purpose of this posting is not to get you to make rash decisions, but rather, to encourage you to explore the possibilities. Your main responsibility as a business owner is to maximize profitability. When was the last time you reviewed your options? Can you come up with a plan of action with a forecast of the expected results? Have you done a risk/reward analysis?
If you want to join our discussion this Thursday, here is the link to more information on this event:
http://www.northcountrychamber.com/MBTP/eventspage.cfm?ID=150
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