Most small-business owners at some point fall into the trap of “any revenue is good revenue.” But, uncontrolled revenue growth can actually lead to a decrease in bottom-line profits.
These two time-tested tactics will help you boost your bottom line quickly and safely by focusing on profitable revenues to grow your business.
1. Optimize your pricing strategies, safely, and with integrity to increase your bottom line by 25-60%:
Most of us have accepted that that there are certain pricing “rules” in our industry when in actuality price is nothing more than a reflection of perceived value. When we allow ourselves to be lumped in with the rest, the focus shifts to price. That’s when we resort to discounting to match or beat competitive threats.
A mere 1% decline in price typically leads to a 16% decline in profitability. These five steps focus on value and drive profitable revenue across a wide range of possibilities:
- Raise less-visible prices. What are “less-visible prices?” Well, do you know the difference in extra baggage charges from one airline to the next or the price of Internet services at various major hotel chains? Most businesses have a range of less-visible prices. Brainstorm them and raise each of them by 5%.
- Price for value-add services. Ask your customers how you can expand your offering to meet their needs and then charge more for something they don’t want to do themselves. Pre-cut and pre-washed vegetables are a good example of this. If no-charge-yet-value-added services have crept into your business model over time, bundle them into a chargeable premium service and make that the standard for all new customers.
- Justify a price premium by saving time or money. Consider cost of ownership versus initial purchase price. Could your product save time or effort by being shipped or packaged differently? Could your product save money with a longer mean-time-to-failure? For example, cheap printers that end up using a lot of toner could have a low purchase price but a high ownership cost. Clients may pay a premium if they know the ink will be less expensive to replace.
- De-commoditize your pricing by solving a real problem. Look at the bigger picture of what your customer is actually trying to accomplish as a result of using your product. Ask them what drives them crazy and then solve that problem. Remember, customers want the hole, not the drill.
- Justify a price increase by providing peace of mind. The emotional side of the brain is often the decision maker. Facts and figures are merely used to support the decision. Make sure your products or services have emotional value to your customers. Are you lower risk? More trustworthy? Do you offer higher service levels? Have a “cool” factor? Are you easier to do business with?
2. Reduce business costs 15-25% by getting it right the first time, for bottom-line results:
Sometimes our revenue doesn’t turn into the profit we expect as a result of self-inflicted wounds.
- 80% of service issues are caused by just five categories of complaints
- 97% of a company’s service time is typically spent responding to the complaint, rather than fixing it.
- 70% of calls to customer service lines are due to the company’s own failures, not unreasonable customer demands.
Your business may be able to reduce costs-to-serve by as much as 25%, and can often sustain an 8% higher price than competitors, just by eliminating common failures. You can take three simple steps to reduce your company’s costs-to-serve:
- Schedule front-line staff (even if that’s just you) to spend one day per week identifying where your failure as a company is resulting in support and service requests from customers and staff.
- Seek input from customers and staff involved at each stage to identify roadblocks, cumbersome workarounds, inefficient systems and missing information.
- Solve problems for good at a root-cause level by repeatedly asking, “why is this occurring?” until the root cause is identified.
Tackle each of these tactics diligently for the next three months, and you’ll see a terrific boost to your bottom line.
Original article published in Business in Vancouver October 18-24, 2011; issue 1147