4 Ways to Make Your Business More Profitable
Do you know how much money your business is actually making? The question may seem obvious. However, every retailer needs to have a starting point before creating a roadmap that will make their company more profitable. It’s critical to know all of the operation’s exact costs and general expenses. Another factor to consider is the value you place on the day-to-day activities required to run the business. Investing time in activities that achieve tangible results versus those that reap little to no benefits for the business is essential to being profitable.
In an interview with Small Business Trends, Sam Pillar, CEO of software provider Jobber, says, “Profitability isn’t rocket science—it’s about the relationship between revenue and expenses. “Getting a very accurate view of what’s referred to as “unit economics”—what the entire revenue and cost chain looks like at the micro-level is essential to supporting the business. Getting clear, accurate real-time visibility of your unit economics is key. When owners can find the bandwidth to focus and spend their time on the things that matter, they tend to be able to make good decisions.”
Automate Essential Functions
While many business owners consider themselves to be a “jack or jill of all trades,” trying to manage all of the essential functions in the operation can be overwhelming. The retailer’s primary focus should be managing big picture activities such as optimizing procurement costs, managing customer relationships, following trends, and responding to market demands. The best way to free up time to focus on these activities is to automate time-consuming essential functions such as payroll, invoicing, and scheduling. Using automated software and online programs is a necessity to most efficiently operate a business.
Invest in Great Employees
Retailers know how tough it is to hire and retain a good employee. Just as owners invest in inventory, facilities, and equipment—investing in employees increases the value of the business. They are the front-line face of the company and the people who build relationships with your customers through positive interactions. In addition to salary, there are other inexpensive ways to keep employees motivated and loyal. Surveys indicate that one of the things motivated employees want is job training and the opportunity to grow.
Most wholesalers and many industry organizations offer retailers free or low-cost access to training programs for their employees. Training is also offered through community colleges. Be sure to cross-train employees to ensure they are continuously learning and contributing fresh ideas to the organization. Like owners, employees should also spend their time wisely and invest in activities that increase the company’s profitability.
Manage Inventory and Procurement Costs
When it comes to being profitable, one of the most critical factors in purchasing and managing inventory. Knowing the cost of carrying inventory until its sold is a fundamental rule of business. Holding too much inventory can tie up working capital or lead to mark-downs on the slow-moving stock. Typical carrying costs range from 20 percent to 30 percent of inventory value and increases the longer it takes for the product to sell. The goal is to reduce inventory costs by keeping less inventory on hand by buying out of the wholesaler warehouse or direct from vendors.
- Stock seasonal and specialty merchandise that is in demand by customers
- Sell more products with high-profit margins—house brands, dealer specials, paint, and sundries
- Work closely with key vendors to get the best prices and track price increases
Stop Doing What Isn’t Working
You’ve invested time and money in your business. No one knows how it operates better than you do.
It’s alright to get recommendations from your wholesaler or industry experts, but if their suggestions don’t work for your customers or market, it’s time to put their ideas to rest. Constantly discounting merchandise is not always the way to go. You don’t want to give customers the perception that your prices are inflated, and they should only shop during sales. Be creative and offer savings when customers buy two or more items. The idea is to increase the basket size of each transaction. There are a variety of other things businesses often do without considering if they are hampering Profitability.
- Paying for marketing that isn’t getting quantifiable results
- Stop undercharging customers for blind items that aren’t price sensitive
- Offering free delivery on small-ticket merchandise
- Relying on paper records to keep track of business expenses
Entrepreneurs go into business to make money and be profitable. When that isn’t happening, it’s time to develop a new plan to turn the situation around. Look at the business holistically and eliminate waste. Leverage your most valuable assets—your customers and employees. Seek to improve the business by incorporating fresh ideas from industry experts and peers in your network.