Yes, it is almost that time again. Mid-year is just around the corner and you know what that means. The halfway point of the 2nd quarter is generally when muscles begin to tighten (you know which ones I’m talking about) for many business owners as they reflect on their year-to-date financial performance.
BIG QUESTION: How are you going to overcome the current budget shortfall with only 2.5 quarters remaining in the calendar year?
If you’re behind in your financial projections, it’s time to “up the ante”! No, I’m not suggesting that you just open up the check book and toss money at the problem. In fact, here are some recommended ways to dramatically increase revenues and profits with only minimal investments.
There are three basic ways to grow a business – increase prices, sell more to existing customers and sell to new customers. The primary goal for any business owner should be to get more customers to buy more, and more often. So, start with the basics and go from there to determine what actions are necessary to improve results.
Increase prices. When to raise prices and by how much is largely dependent upon prevailing market conditions and the competitive landscape. There are four ways to raise prices and the pros and cons of each should be considered before implementing across the board increases.
- Just do it. If you haven’t adjusted your prices in 12 months or more, then some form of an increase is probably warranted to offset the rising costs of doing business. However, have conversations with your best customers first to get their reactions before moving ahead with any price changes.
- Graduated price increases over a pre-determined time period until the target price is reached. The market(s) dynamics should help you assess the price ceiling before major customer losses occur.
- Price sensitivity testing by market segment, customer profile, offer, etc. This will help you to evaluate where and how to implement any planned price increases in order to maximize profit improvement.
- Value bundling. Include additional products, services and/or upgrades with current offers in order to establish a new aggregated offer/value/price structure.
Price increases are an effective way to improve both top-line and bottom-line financials. Why? Because increasing prices requires minimal resources to implement in terms of staff, budget, marketing, etc., and the “net” returns to the business are immediate.
How much would a 10% price increase improve your 2014 profits? Hint: The answer is much more than 10% for many businesses.
CAUTION: Be sure the price increases don’t result in excessive customer losses that would negate any potential net gains to be realized.
Sell more to existing customers. The first thing to explore here is what the financial impact would be if you increased the average transaction size or sale value. Increasing your average sale values can be accomplished through up sells, cross sells or back-end product sales, upgrades, additional services and value bundles.
How much would a 10% increase in average sale values improve your 2014 revenue and profit picture?
Next, consider offering special incentives, discounts and promotions to stimulate short-term demand. Pull through sales and multiple product sales will also help increase the frequency of purchase, average sale amounts, and shorten sales cycles.
What would a 10% reduction in the average sale cycle time mean to your business in terms of add-on revenues and profits this year?
Finally, consider a reactivation program to ‘win-back’ former or dormant customers. A gift or special offer could go a long way to get them buying from you again. Depending on how long your business has been in operation, these actions could materially improve your short-term revenue outlook.
Sell to new customers. This one isn’t so easy. In fact, the hardest part of building a profitable business is customer acquisition. For typical small businesses, a limited number of customers often dominate the bottom-line revenues and profits realized. Although it’s more expensive to acquire new customers than retain existing ones, every business needs a steady stream of new customers to realize its growth goals and keep the lights on over the long haul.
A key in selling to new customers is to develop a compelling offer that will motivate them to buy it above all other choices. Start with an introductory offer that includes a one-time bonus or limited-time special pricing to incent them to buy now. Once they become an active customer, you can begin to market and promote add-on sales programs to enhance the lifetime value of the relationship.
How would a 10% increase in your customer base impact your 2014 revenues and profits?
Apply the ’10% Rule’ to the scenarios highlighted above to determine how each could drive incremental revenues and profits. Depending on your financial situation, implementing new pricing strategies along with targeted short-term sales and incentive programs, could significantly improve business results with only marginal price and/or sales increases.
I hope this article has provided some valuable insights that can be put into practice to help improve your 2nd half business results. If so, please feel free to share its content with others.
Enjoy the journey!
COPYRIGHT © 2014 John Carroll