Ten Ways to Build Profit When Raising Prices Isn’t an Option
Steve LeFever of Profit Mastery explores how even small changes in your margin can have huge impacts in your gross profit because the largest percentage of your costs is tied up in the costs of goods sold.
Posted: April 10, 2012
4. DISCOUNT WITH PURPOSE, NOT FROM HABIT
If you need to discount to stay alive, by all means do so. But do it strategically by knowing how much more you’ll need to sell at the lower price to make up for the discount. Also, don’t make it too easy for your sales people to automatically discount to make a sale: if you pay your sales people on commission, base it on gross margin, not top line sales, so that if they discount to make the sale, they’ll feel the pain as well.
5. BUY BETTER AND SMARTER
Buy products with your target margin and your customers’ price points in mind. For example, your target margin is 50 percent and your research shows that $200 is the average selling price point at which your customers buy. Find products that you can buy for $100 and that your customers will think are a good value at that $200 price point. Also, negotiate discounts for early payments or bulk purchases from your vendors. Look for other sources that are more cost effective.
One company examined their purchases and found that managers frequently placed last-minute orders without paying attention to price, costing the company money. Once they consistently centralized the purchasing function and required purchase orders for payments (particularly with primary vendors), its problem of extra costs associated with rush orders was eliminated.
6. INTRODUCE COUNTER-CYCLICAL PRODUCTS
If you have a slow season, think about introducing counter-cyclical products or services to your core business to generate incremental profits and cash flow. One company that sells floor-based heating systems (with a traditional slow summer sales season), introduced a de-icing product that could be sold and installed during the summer. They added $80,000 to their bottom line in the first year of the new product.
7. TAKE ACTION
A very wise person said that hope is not a strategy. Take action when needed. Don’t let problems linger. If you made a buying mistake, don’t hold on to the product. Take the hit and get it out the door so you can generate cash to buy or produce products that will sell.
8. LOOK AROUND YOU
Find out what the leaders in your industry are doing. As long as they are not direct competitors, most are willing to share ideas. Join a peer group that shares numbers, not just war stories. I know many businesses that are alive and flourishing even in today’s challenging times because of ideas and insights they gained from such groups.
9. THINK OUTSIDE THE BOX
Look outside your industry for ideas. We can all learn lessons from how other industries and business models are maneuvering through these times. The New York Times has an excellent online series called “How I Saved My Company” that features videos of business owners sharing how they got their companies through the recession.
10. NOTHING VENTURED, NOTHING GAINED
Ships are safest in harbors, but that’s not where they belong. Are you spending too much time idling in your safe harbor? Sometimes you have to make strategic decisions that are outside the prevailing wisdom. While many are cutting back on advertising and marketing, now might be the right time to increase your visibility. Invest in sales training. Look at picking up some of the substantial talent and experience that’s currently on the market.
Bottom line to increase your bottom line? Act with the conviction that there are profit opportunities out there, and focus on what’s possible.
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