Strategy No. 1 to increase profitability – Increase your margin
I’m going to continue using the approach of cutting to the chase and giving the ‘answer’ up front. If you’ve read any of my previous blogs – or you’re a truly inquisitive lifelong learner – then you’ll already know that “the answer isn’t the answer…”
You can increase your margin in a few ways.
- Reduce the net cost (your cost to provide/make it) and keep the selling price the same.
- Increase the price that you sell it for
- or do both.
For those out there who are shocked or scared by the notion of increasing prices (based upon the fear that ‘If I increase my price then I’ll lose customers”) let me be the Mythbuster on that particular point. A study by the U.S. Small Business Administration and the U.S. Chamber of Commerce found that the reasons people stop being customers are:
- 68% Are upset with the treatment they’ve received
- 14% Dissatisfied with product or service
- 9% Price
- 9% Other
That said, your focus should really be on the way you engage/interact with our customer and adding value that looking solely at the price you’re selling for.
It’s easy to buy something that has value to you and where YOU feel valued in the process.
Additionally, I would recommend that if you decide to increase the price, do so at the same time as emphasising and adding value. This can be as easy as adding a feature that makes it easy to buy the product or service
Product Example – vending machine
How many times have you paid just a little more for something just because it was convenient? It may have been petrol, a meal at a train station/airport or just a bottle of water at a ‘convenience store’.
This behaviour is perfectly fine and is quite common. In fact, the busy pace of western life often requires – and caters for it.
On a recent visit to a college campus in the US I was waiting to meet one of the professors before I delivered a talk to business students. As I waited by the faculty lounge, I noticed a couple of vending machines. This wasn’t a surprise or interesting in itself until I noticed the added method of payment (MoP) feature that the machine had incorporated.
This feature allows customers to pay for the snack (including healthy snacks) with the ‘tap’ of a credit/debit card. The cost of the items was slightly more than other vending machines but ‘what the heck it’s only 10 cents more’ – in exchange for the convenience and speed of the transaction. A win, win situation.
Service Example – Pencast & Recordings
The majority of my income is derived from providing consultancy services to organisations who want to make sure that projects are done right, first time, every time AND within the cost and time constraints that were agreed. Another part of my income is from providing one-to-one coaching for business leaders with teams between 5 and 20 people.
Traditionally, a coaching session involves a conversation that lasts an hour or so. A LOT of things are discussed and even in the best case scenario, what you as a client, may hear doesn’t always really sink in until it’s heard or re-heard during a following session.
With other coaches the other nuggets and gems in the session is lost forever and you would have to wait for (and pay for) another session to hear the same thing. This is where I do something different to add value.
The value add that I provide as a free opt-in part of my service is a recording (Skype or audio WITH notes). This allows you to review the meeting at your leisure and often gain deeper insight and understanding by re-hearing the points when they are in a ‘different’ mindset.
Being a ‘mechanic profile’ (Talent Dynamics Profiles) I’ve naturally systemised the way this happens to reduce the overhead for me and make it easy for my clients. The result: more value for my clients and more clients for me (as a result of referrals and recommendations).
I say all of that to say this….
Increasing your margin is more about being resourceful than having resources. You are already successful if you are in business. You’ve demonstrated the resourcefulness, creativity and stamina to get this far.
You can increase your margins and be more profitable without having to spend excessive amounts on new marketing or computer systems. To do this you must continue to create value and leverage that value with the customer in mind.
Puzzle me this, puzzle me that….
What are some cost-effective and quick ways that you could increase your margin? Who is someone who could help you to become more aware of ways to do this if you get stuck?
Seek out someone to assist you get a new perspective on an old situation. This can be in the form of an advisor, consultant or coach. Most of them provide a 30 minute or 1 hour first consultation – just be sure to ensure that THEY provide results based pricing so that you can be sure that it’s a partnership that everyone has ‘skin in the game’ (That’s what I do).