As a business owner, you likely know that profitability is a very essential sales metric. Without a profit, you cannot keep your business afloat. Which is kinda the whole point of this starting your own business thing.
According to data from the Bureau of Labor and Statistics (BLS), about one in five new businesses fail within the first year. Finding ways to increase the profitability of your business can help you avoid becoming another casualty.
Sales as a whole can be a bit overwhelming, with so much information out there. It’s hard to know what you need to know, and how to apply your findings to your actual business.
In the following guide, we’ll cover the most effective strategies and resources for generating larger profits. That way, you can take some of the heat off yourself & have a good starting point. Let’s dive into sales 101.
1. Set Clear Sales Goals and Targets for Your Sales Team
The first step for increasing profitability is to set very clear sales goals. Decide how much income your business needs to generate to achieve the kind of success that you really want. You may want to generate enough to simply keep operating or to surpass previous sales figures.
For example, you can review data from the previous quarter or the same quarter from the previous year. Use historical data to set a benchmark for what you can realistically achieve in the next three months or so.
No matter how you decide on your sales targets, you should set clearly defined objectives for your sales team. Use the SMART methodology for setting goals, which states that goals should be:
These characteristics are truly important for setting sales goals. People often work more efficiently and effectively when they have a clear finish line in sight. You’ll also want to ensure that your goals are attainable, as creating unattainable goals leads to discouragement. Which is exactly the opposite of what you want your sales team to feel!
2. Focus Your Marketing on More of a Niche Market
New business owners often market their products or services to a broad audience in hopes of attracting more interest. However, narrowing your focus to a niche target audience helps you better address the needs of your actual customers.
A niche market can also help with lead generation, especially when trying to enter a saturated market with heavy competition. Marketing to a smaller customer base makes it easier to cut through the competition and provide more specialized solutions to your target audience.
For example, a cyber security firm that struggles to generate leads may benefit from specializing in providing security services to businesses in specific industries. Ex: Government, Retail or Hospitals.
Try to find commonalities between your most loyal customers. You may find that your products or services appeal to a specific portion of your market, giving you an indication of where you should focus your sales and marketing efforts.
If you are looking to launch a new business, you have the opportunity to choose a niche that complements your interests and passions. Choosing a niche market that you are passionate about can also seriously help boost your determination to succeed.
3. Don’t Overprice or Underprice Your Products or Services
Overpricing and underpricing are common business mistakes that can severely limit profitability. Overpricing your products can put them out of reach for a certain part of your target audience. Underpricing your products cuts your profit margins. It’s super important to avoid both.
You can use several methods for price optimization: Competitor-based pricing, Customer-based pricing, Cost-plus pricing
Competitor-based pricing involves looking at the prices of comparable products or services in your industry. Review your competition’s prices to figure out if you are at the high end or low end of the spectrum.
Customer-based pricing is another common pricing strategy. It involves assessing the customer’s perceived value of your products or services, which requires feedback from customers. This approach is more common with business-to-business (B2B) services, such as SEO or web design, where the cost of a project is often based on the client’s budget.
Cost-plus pricing is one of the most used strategies for setting prices. It involves determining the total cost of producing a product or service and then adding a healthy profit margin.
You might also want to consider using a combination of these pricing strategies. Start by looking at your competition’s prices. Receive feedback from customers to determine if your prices seem a little steep or too low. Set the final price by determining how much of a margin you need to generate a healthy profit. It requires a bit of thought but it’s key to get your pricing right.
4. Create Upselling and Cross-Selling Opportunities
Upselling and cross-selling are common tactics for increasing customer lifetime value (CLV), average transaction value (ATV), and other key sales metrics.
Upselling involves pitching a higher-priced option to a customer. Salespeople often use upselling with customers that already show interest in a lower-priced product. Explaining the advantages of upgrading may persuade the customer to spend more on a better version of the product.
Cross-selling is a sales technique for promoting related products and services. Salespeople may encourage a customer to add features or buy supplemental products to get more out of the base product.
For example, if you order a cheeseburger from a fast-food restaurant, the cashier may ask if you want fries and a drink. A software-as-a-service (SaaS) product may be available with add-on features or implementations. A marketing agency providing SEO services may promote PPC management services. Obviously you can decide which things make sense to offer together based on your specific field.
5. Use Customer Feedback to Improve Your Offerings
Listen to your customers to find ways to be constantly improving your products or services. Improving your offerings based on customer input can boost their satisfaction and keep them from just starting to shop elsewhere.
Using customer feedback is effective for increasing customer retention rates, but you first need to obtain their opinions. Here are several methods for gathering customer feedback:
Having a customer survey is a pretty simple tool for learning what your customers think about your offerings. The most basic surveys simply ask customers to rate a product or service and write a few words describing what they like most and least.
You can create surveys using online tools and plugins for popular content management systems. Surveys can be sent to customers via email, such as after completing the checkout on an e-commerce site or just after the on-boarding process for a B2B service.
Social media platforms are also super useful for learning more about the opinions of your customers. Search Facebook, Twitter, and Instagram for mentions of your brand or business. Read all positive and negative comments to gain more insight into how your customers really feel.
If you struggle to get people to fill out your surveys, give them an incentive. You can offer a discount or a promotional item for completing the survey. It’s always a nice gesture to make sure people know you appreciate them taking the time out of their day to share their feelings.
6. Promote Your Brand Online to Reach More Customers
These days, the Internet is a really powerful tool for reaching more customers obviously. You also can gain a competitive advantage by putting more effort into your online presence compared to other businesses in your market. Surpassing your competition in search results attracts more visitors and builds that trust with potential customers.
Grow your online presence using the following methods: Content creation, Social media marketing, Email marketing, Search engine optimization, Paid advertising
First, you need to have a quality website for your business. A professional-looking website adds credibility. No one typically wants to do business with a company that has a terrible website. It is usually their first impression of you, and it’s important that you make it look great. It’s also essential for most advertising and marketing strategies. So the take away? Have a good website, ok!?
If you have limited funds, consider building a website yourself using WordPress, Wix, or Squarespace. These platforms allow anyone to quickly build a great-looking website with no technical experience. You can use a drag-and-drop builder to customize a template and make the site better reflect your brand.
After building your site, populate it with original content. Content creation involves publishing blog articles that provide real value to your target audience. You can create articles that help your customers better understand how to use your products or services.
You should also build marketing funnels. The most basic funnel consists of a landing page with a sign-up form and a special offer, such as a downloadable guide or access to exclusive content. Use social media, email marketing, and SEO to attract more visitors to your website. You can use paid advertising, such as pay-per-click (PPC) ad campaigns, to drive more traffic to the marketing funnels.
7. Reward Your Customers with a Customer Loyalty Program
Loyalty programs involve giving customers something back when they purchase from you. However, loyalty programs are also great because they encourage repeat business. These programs give customers an incentive to continue buying your products or using your services.
Creating a customer loyalty program requires you to decide how exactly you want to reward your customers. You can offer a discount, a free item, or something else of value.
You also need to decide which customers can qualify for the program. You may want to open it up to everyone or just to a select group of customers, such as those who purchase a specific product or tier of service. This truly is a fantastic way to keep customers happy and keep them coming back.
8. Find Ways to Reduce Waste and Cut Costs
Cutting costs without cutting back on the size of your customer base certainly helps increase your profitability. You can possibly find some ways to reduce waste and cut costs in the following areas:
Offering too many products or services can limit your profitability and actually just end up overwhelming your customers. Eliminate any offerings that fail to contribute to the success of your business.
Streamlining your offerings saves money and may help with customer retention. Too many options as we mentioned before, can actually do more harm than good. You should also limit hiring new employees when trying to increase profitability. It’s simple, but it’s important: Avoid increasing the size of your workforce until your business can really afford it.
Renegotiating with vendors and suppliers may also reduce a lot of your overhead. You could save on the supplies or equipment that your business depends on by negotiating a lower price or shopping around for a better deal. You’ll never know if you don’t ask, right?
9. Accept More Payment Options
Accepting more payment options often opens the doors to more customers. If you are a local business that currently only accepts cash, you are likely missing out on a lot of potential customers. Businesses that only accept certain credit cards may also miss out on sales as well.
Consider accepting payments from digital platforms. Offering the option to pay with PayPal, Stripe, Amazon Pay, or Square can help you connect with a wider demographic.
Most payment processing platforms charge fees, we all know this. However, the fees are often negligible compared to the amount of business you can obtain by accepting more payment options.
10. Spend More Resources on Employee Development
Investing in your workforce is a common strategy for achieving business goals. You may find yourself retaining more of your top talent if you spend more resources on training and employee development. If you treat your employees well, they will treat you well!
Hiring and training an employee can be a costly process, though. Businesses save money when they can retain their top-performing employees. Focusing on internal development and hiring also helps foster a more productive work environment, as it shows that you actually value the input of your staff.
Depending on the industry, employee development may involve paying for training courses. Paying to help your employees develop new skills and knowledge is likely to provide a significant return on investment for you.
11. Continue to Track Your Progress
Setting clear goals is the best starting point for making your business more profitable. However, you also need to really track your progress to know when you have reached those set goals.
Using a customer relationship management (CRM) platform can help you track sales metrics. CRM software can track all interactions with sales leads and offer more insight for determining if you are actually on the right path. You can also use your sales data to determine which employees are meeting their objectives.
Some CRM software even allows you to generate automatic reports, which is super helpful. Creating weekly or monthly sales reports may help you keep better tabs on the progress of your sales team.
Along with tracking sales data, you should continue to monitor all your marketing efforts. Use Google Analytics to monitor website traffic and conversions as well and you should be in a great spot.
The Importance of Increasing Sales Numbers
Making your business more profitable really comes down to increasing sales numbers or profit margins.
Improving the quality of your product or services can help with sales, and is something you should always be focusing on. You can attract and retain more customers by fine-tuning your offerings by continuing to pay attention to your customers needs. Increasing your profit margins may involve cutting costs, developing more cost-effective processes, or limiting new hiring. But once you have your systems in place, it will be that much easier to ensure your businesses growth!
Stephanie is the Marketing Director at Talkroute and has been featured in Forbes, Inc, and Entrepreneur as a leading authority on business and telecommunications.
Stephanie is also the chief editor and contributing author for the Talkroute blog helping more than 100k entrepreneurs to start, run, and grow their businesses.