It’s often believed by business owners that to make more profit you have to find more customers. Well actually that’s not always the case. In many circumstances there is plenty of profit to be found from your existing clients simply by shifting your focus from adding more customers, to recovering the profit leaking out your business right now.
There is a quote my Dad drummed in the early days of my career: “Revenue is vanity, profit is sanity.” An important message to keep in mind for every business owner.
Think about it this way, if you had a boat with holes in it that’s letting in water, it would make much more sense to fix the leaks before you put more people into it, wouldn’t it?
So how do you know where the holes are that are leaking profit in your business? Here are five common areas to look at first.
1. Holding On To Unprofitable Clients
Yes we all love adding value to our customers but are they all adding value back to your bottom line?
When you consider whether a customer is profitable or not, don’t just look at what you charge them, less the cost of the goods or service you have provided; you also need to evaluate the other less obvious costs associated with them.
Here’s a few examples:
- Hours of customer service to keep them happy
- Delivery distance and packing costs
- Selling costs
- Product design costs
- Hours of support/admin staff
- Management hours
When you include some of these costs that are usually just lost in your overheads you will start to get a true picture of which customers are making you money and which ones aren’t.
Don’t be afraid to let go of customers when they are hurting your pocket, they are merely diverting your valuable focus and your resources from where they should be.
Related Article: Why You Need To Fall In Love With Your Numbers
2. Not Charging For All The Work You Do
A common hit to the bottom line that many businesses suffer from, is not charging for all the work they carry out.
This is particularly common in service businesses where from accountants to bookkeepers to consultants to designers, they are not charging anywhere near the hours each job takes to complete.
They will say something like, “But the client can’t afford my services if I charge them for all the hours…” or “They are just a start up and I want to help them out…” or “I don’t like going back and asking for more money after I’ve started the job”.
There are many ways in which you can charge your client for all the work you do for them; it just requires you teaching them how to do business with you from the start. For example, set out your inclusions and exclusions in your initial quote or say how many iterations or hours they get as standard before they incur additional costs.
Remember that you can’t help others if you do not first help yourself. Just like in an airplane, you must put your oxygen mask on first and take care of your own business.
3. Quality Failures
Having high quality standards in the delivery of your product or service is paramount in every business.
There are two places you will pick up quality errors, during production (less costly) or by the customer (more costly).
When an error is picked up internally you or your team there is the cost of reworking the goods or service. Where it’s picked up by the customer, as well as fixing the error you also run the risk of losing the sale, the customer and the sales cost of having to find a new customer.
4. Poor Customer Experience
According to a research report by Ruby Newell-Legner, a typical business hears from 4% of its dissatisfied customers. 96% won’t complain and 91% of those will never return. To find a new customer it costs a staggering 6-8 times what it costs to retain an existing one.
According to Harris Interactive/RightNow almost 9 out of 10 U.S. consumers say they would pay more to ensure a superior customer experience.
In fact according to the same source, they found 86% of consumers quit doing business with a company because of a bad customer experience.
These stats speak for themselves; if your customer experience is poor, it will be adversely affecting your profit.
Related Article: Cutting Costs Can Make Your Business Less Profitable
5. Missing Opportunities to Upsell, Cross Sell and Down Sell To Your Customers
Let’s look at Apple as an example. When a customer first buys an Apple product they may buy an iPhone. They love the product and love the customer experience so Apple then upsell them a more expensive item, like a MacBook.
The customer wants to keep their MacBook clean and protected so Apple down sell them a case. Then a couple of years later the new latest iPhone comes out and Apple cross sell them a new phone.
Does your business fully understand their customers problems, wants and desires? If not then you will be losing out on opportunities to make additional sales because you are not helping them solve more of their problems.
As well as being a Chartered Management Accountant (CIMA) and ex-CFO with over 20 years experience, she has also worked extensively with small and medium sized business owners to help them grow profitable businesses.
She's also a certified coach, NLP practitioner, Metadynamics TM Consultant and contributor for Kochie’s Business Builders.
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