Every entrepreneur goes into business for the purpose of making profit. You need to make a profit. Otherwise, you’re not a business — you’re a charity.
Still, despite this obvious rule, some wannabe entrepreneurs get lost along the way; they get caught up in the “busyness” of running a business and the incessant drive to keep the cash register ringing continuously. And in that regard, they will have made the mistake of thinking that “making sales” means “making money.”
They’ll have fallen into the trap of neglecting to ensure that their businesses are actually earning enough to cover costs and bring home a healthy paycheck.
Don’t let this be you. Instead, do the math to understand where you’ll be sitting after your overhead is covered. Avoid chasing sales by offering deep discounts that do nothing but cut your profit to the bone (or, an even worse move: handing out free products and services when you really can’t afford to).
Do you really want to be the owner that doesn’t collect a paycheck? If not, follow these four simple tips to build a million-dollar business this year:
1. Price for profit.
It’s natural to want to go head to head against competitors in your market, but you don’t need to undercut their prices in hopes of getting more traffic to your business. That’s just taking money out of your own pocket. Doing so devalues your business and sets a precedent that says your only appeal is lower prices. Once customers find a cheaper alternative, they’ll jump ship.
If you want to make more money in 2016, then, you’ll need to improve your pricing. Look at where your costs are and determine your break-even point. Then look at your competitors’ pricing. When you adjust your prices, don’t be afraid to be the highest in the market or to increase your prices if you find that you’re not priced high enough.
Just remember, though, that you’ll only be able to execute this successfully if the value of your products and/or services justifies the change in your rates.
2. Push the right products.
If you’ve got different products and service offerings, then you likely have different profit-making potentials. When you know the margin difference between your products, you’ll know which of them bring you the greatest profit. You can then significantly increase the amount of money you make this year by working with your team to push products and services with a higher margin.
Do you have a product with a lower price point, but higher margin? That’s where you want to steer your promotions. The dollar value of your individual sales may be lower, but you’ll put more money into your pocket in the end.
3. Put an end to discounts.
At the highest level, discounting makes sense from a marketing and sales perspective — especially if you’re working through a bit of a slump. You’re hoping to attract new customers in droves that may have never experienced your brand before, and your discounts are an encouragement to buy through a special deal or offer.
While all this may sound like a brilliant strategy, discounting can do some serious damage to your business in the long run in a number of ways:
You’re training customers to buy from you only when there’s a special offer or discount on the product/service they want.
You’re lowering the perceived value of your products or services based on the price. If you go in with a discount in hand, you’re destroying the value immediately.
You’re losing their trust. How would you feel if you were presented with “best I can do” pricing, said no and were then offered a discount? If you’re anything like me, I’m guessing you’d immediately question the company’s honesty and integrity.
Above all else, you’ll be cutting into your profits. So, kill the discounts and focus on value because the numbers show us that returning customers are where your profits are at. In fact, a customer that has purchased from you at least twice before is nine times more likely to convert than a first time customer. Why offer a discount when this customer is willing to purchase?
Get the most out of those sales. Be confident in your product or service, and know how it brings value to your target audience. Then, price it accordingly and sell it.
4. Trim the fat.
Do you know how much of your inventory is tied up in slow-moving stock that underperforms? Can you easily identify people within your team that are just along for the ride? When you can trim away slow-moving items (and people), you can sink that added money into more products with higher turnover. Or, if you’re a service business having difficulty attracting certain clients, find out how you can add value or resources to services that keep bookings filled.
When faced with employees who are underperforming, evaluate the culture of your company to identify the cause. The solution may be as simple as investing in your employees with additional benefits that don’t have an immediate cost, in order to boost performance now.