How do you improve profits in this environment?

 

Last week we talked about how to exit. In order to do that for the most cash, you need to show great profitability. Well how do you do that?

Here are the classic strategies used by successful businesses:

  1. Raise prices. Yes, it is obvious and, yes, the sales people will groan. Still, it is the fastest way to increase profitability. With all the analytics available to companies now, here are a few strategies to segment and target unprofitable customers. Raise prices on all products, specific products, particular channels or customer types. What if you segregate customers based on how many extras they demand from your staff? Or, how many products they return? There has to be a way to segment your customers such that less profitable customers can be charged more.
  1. Fire unprofitable customers. Think about it. Yes, they are high volume and you need to keep employees busy. Some companies fire the 5-10% least profitable customers every year, knowing that their sales staff will find new ones. Would you be willing to do that?
  1. Improve gross margins. Greater efficiency, new processes. reducing returns, better quality resulting in fewer repairs, efficient supply chain management, more training – these are all ways to improve gross profits.
  1. Stop running all the owners expenses through the company. Ouch. This makes sense if you are getting ready to sell, but the other side knows how to recast your Profit & Loss statement, so it may not be SO vital to do if you aren’t planning to sell in the next 3 years.
  1. Move out low performing team members. This should be done carefully and with respect. Job duties change and we hold on to people who were good in the previous job, but haven’t kept their skills up. If you can’t train them up, help them to move out. If done properly, the remaining staff will believe that competence and hard work are truly rewarded in your organization, not just a nice saying.

Let’s say you improve gross margins by 1%. Would that make a difference? Assuming sales price is a multiple of net profits, you just got 5-10% that amount in a sale. Let’s get going!