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SQUEEZING OUT MORE PROFIT

SQUEEZING OUT MORE PROFIT

Most small business owners believe adverts, direct mail, and flyers are the key to more profit.  These methods are often hit and miss, and all cost money! New customers aren’t always the key.

  • Pareto’s Law – This is the old 80/20 rule which, applied to revenue, means that 80% of your profit comes from 20% or your customers.  Although not exact, extensive studies and analysis are sufficient to consider this a law.  By examining gross profit from each customer (revenue minus cost of goods sold), then estimating or allocating your other costs to each, you have your list.
  • Increase their buying frequency – The most simple approach to this is anticipating a customers need and offering the product or service before they require it (or go to a competitor).   This is easy.  Track their order frequency (and quantities) and find a pattern.  Gaps may reflect them purchasing from backup sources (competition!).  Then, estimate their next order time and contact them a bit early and tell them you know they may be running low and ask if they would like the usual quantity or more this time.  This may save lost orders, and will certainly give the impression of you being on top of things!
  • Increase their order size – Some of your top customers may be ordering a product or two from a competitor, so it helps to be bold and ask for more of their business… but don’t cut margins, offer an improved service (e.g., support, delivery) first.  This also provides the perfect opportunity to make the customer aware of products or services they may not know you provide.
  • Talk to them – Rather than waiting for them to call you, find an excuse to contact them.  Forward them an article of interest, either business or personal.  You can also ask them to refer you to some of their contacts.
  • But don’t forget the others – By putting some of these tips to practice, with the bottom 80% of your accounts, you may also uncover some customers with Top 20% potential!
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