In today’s world, we spend a lot of time in business focusing on volume of sales. Have you walked into a shopping centre and checked out the clothes racks lately? They are so full, hangers fall to the floor as you try to take one off the shelf. This high-volume world is not only taking its toll on the environment, it’s taking its toll on business owners. There has to be better ways to make a profit than just selling more.
As a business owner do you find yourself asking these questions:
How much have I sold?
How much is left to sell?
Where can I sell more?
How can I sell more?
Then when you increase sales, you need to manage all the items related to the increased sales, do you need more staff? Increased storage space? Increased retailers to sell the products? Or more of your own stores? If you provide a service, do you need more available hours? More staff to complete those services?
Don’t get me wrong, I’m not saying increasing your sales is a bad thing, or an arduous task. What I am saying is that it’s not the only way to make more money in your business. And by making more money, I mean profit, not sales volume.
THE DIFFERENCE BETWEEN SALES VOLUME AND PROFIT
Many business track their sales volume, also known as turnover, sales revenue or just revenue. This is essentially the value of the goods or services that has been sold.
Profit (or profit before tax) on the other hand, is the money that is leftover after you minus expenses off the sales revenue.
These are two completely different things- you need to know both in your business. But at the end of the day you want your profit to be the main focus, sales revenue is just one component of what makes up profit.
So as promised here are 4 ways to work SMARTER (let’s make more profit!), rather than HARDER (by only selling more).
PULL BACK ON EXPENSES
This doesn’t sound very fun, does it? Like someone telling you to save money, not to go shopping or blowing your cash this weekend at the pub. But the idea here, is not to compromise how your business is running. The idea is to ensure you are running your business as efficiently as possible.
Less expenses equals more PROFIT
So how do you run a lean business:
Look at any expenses you are paying that you are not receiving value for in exchange. This may be unused reoccurring subscriptions to apps, programs or software. Do you have large amounts of stationery, packaging, old stock or large items in the office that need to be sold, used up before more items are purchased or just simply disposed of?
Review other items such as deals with suppliers, motor vehicle expenses and employee benefits. I’ve seen many an employee weekly fruit box in a tea room with most pieces of fruit still there at the end of the week! Some expenses seemed like a good idea at the time.
And finally, look at outsourcing tasks that are not your strengths. Some businesses pay administration staff to research, complete or learn how to do many tasks that are not what they are skilled in. Have you considered that the price of paying an hourly wage to a staff member to complete a task they are unfamiliar in may be more than finding a person who specialises in it?
INCREASE YOUR PRICE
Woo hoo! This is my favourite topic to talk about, not because it seems to be the easiest way to make more money, but because it brings up the most interesting responses from business owners.
The link between working smarter, not harder and increasing your price is usually evident. You can sell the same number of items or services and make more money.
But properly addressing this point is much more useful if you grab a pen and paper. I want you to write down the below questions and work out your answers.
If you think there is no point in doing this exercise you’re incorrect!
As a business owner, you will always need to increase price (at some point.) Why? Due to inflation, the prices of all goods generally need to increase over time. A 1L bottle of milk doesn’t cost the same prices as it did 20 years ago, does it?
Onward! Here are the questions:
++ When was the last time you increased your price?
++ Why did you increase your price? Or if you haven’t even increased your price why not?
++ What are the reasons why you can’t increase your price?
++ What do you need to address to feel comfortable increasing your price?
++ Where do your products/services sit in your industry (bargain basement, middle of the road, top shelf)?
++ Do you want to remain ‘positioned’ where you are now (do you want to go up a level from bargain basement to middle of the road)?
++ What do you need to address to go up a level in your pricing?
++ Do you know how much you make on each product?
++ How many products do you need to sell per month now to make your required profit?
++ If you increased your price, how many would you need to sell to make your required profit?
Reflect upon your answers here, reviewing your pricing strategy can be a game-changer when done correctly!
CHANGE THE PRICE TO ANOTHER CURRENCY
There are specific circumstances where this can work, mainly if you work in the online space or the majority of your customers are located in a country that is not the country you reside in. If you are a business that services your local area or you sell at markets, this is most likely not for you!
How can this work?
You have a membership site and 80% of your members are in the US. Charging $10 AUD doesn’t quite make sense, not when you can charge $10 USD which at today’s rate equates to almost $14 AUD.
You have a boutique online business selling bespoke items mainly to Europe. Instead of charging $20 AUD per item, you charge 20 Euro (given your product is not price sensitive), you then can earn around $32 AUD per item.
As I said this can work in some specific instances, and if your business can allow for these changes it can be worthwhile.
Just a quick note: Beware of foreign exchange fees and fluctuations in the foreign exchange rate when trying this out. Or ask an expert for help but it can be quite beneficial.
SELL TO A DISTRIBUTOR OR UNDER ANOTHER BRAND
This option came about when I was talking to a product based business that needed more avenues to sell their items. They could no longer sustain being the manufacturer and retailing their items direct to shops or the customer.
How could this work?
When your business produces a high-input item (actually even when it’s not high-input), say a beverage or product with a short use-by date, you only have so much time to make the item and sell it. And without major infrastructure changes, you sometimes need multiple ways to sell you item that doesn’t mean you are physically delivering it to multiple locations or retailing yourself.
For example- the retail price of an item maybe $5.50, and the distributor or wholesale price may be $3.50. I bet you’re thinking how are you going to make more money working smarter not harder? If you funnel more sales to distributors you receive $2 less per item that way! Well, hear me out.
If you add in the non-direct costs to distribute, deliver, package, sell, or ‘retail’ your product (think customer service and invoicing also), rather than investing time in finding the right distributor or retailer to sell on your behalf, you may be losing that $2/item in all these other tasks.
If a distributor will purchase 100 items at $3.50, you’ve sold $350 of stock. You need to only invoice one customer, keep track of one payment, supply one customer and ‘market’ to one customer.
As opposed to retailing and selling to 100 individual customers where you sell 100 items at $5.50, but you need to take off $1.50 per item for the wages of the person who packs, supplies/delivers, sell and provides customer service to these individual customers. Then another $1.00 per item needs to be taken off for providing a delivery vehicle or courier for these items and the list continues. These additional items ‘eat’ into your profit on that product.
If this situation feels similar in your business, it might be time to reassess your sales channels. Do you need to shift how and where you are selling your product?
Another option is selling under another brand name. You’re probably thinking whoa, hold up there! Why would I do that?
Probably the biggest example of this is good ol’ home brand products in the supermarket. Have you thought about how they came about? Let’s take flour for instance, do you think there is a ‘White Wings’ flour factory and a ‘Home brand’ (no frills or no name brand) flour factory making flour side by side as the wheat comes in? No. There are many no-name products made in the same factory as the named brands all across the country.
So the reason why they do this is because they are servicing different consumers. One is servicing a market that may be after well-known names and built up reputations of quality. While the other is servicing the price conscious consumer.
Your circumstances may not be exactly the same, but consider if there is another sales channel that you could be selling your product in? One example may be bottled water which is the same product under different brands. Have you noticed some food and coffee chains have bottled water under their own label? And it looks distinctly similar to a well-known bottled water brand…
You need to consider if this option is appropriate for your business and you may even need to look outside the box to see if it can work.
THINGS TO REMEMBER
I completely empathise with business owners that are working super hard to sell more products and take home more dough. Please make the time to consider if any of these 4 strategies may help you work smarter not harder.
- Consider running a lean business, spend only where necessary that doesn’t compromise quality
- Consider increasing your prices, are you positioned well in your market
- Can you charge in a different currency?
- Can you move from selling direct to the customer to a distributor and make cost (and time) savings in the process? Or sell your product simultaneously under another brand
It’s important your business works for you!