Brendon Tipping & Andrew Willcocks –
However, the best way to improve profitability is to increase turnover – provided the sales you make are profitable of course. It is the best way because there is technically no limit to sales, while there is a finite limit on reducing your costs.
Identify the steps you can take to minimise your direct costs, such as by negotiating lower prices with your suppliers, reviewing processes and systems to minimise wastage, and implementing additional security to reduce the chance of theft.
Try to eliminate unnecessary costs to cut overheads and review costs such as insurance, power, telephones, and Internet.
The best way to reduce overheads is often to improve systems such as by installing better accounting software, so you can generate regular reports to monitor costs and compare your actual costs to budget figures.
Reduce costs through good systems: Introducing systematic procedures and methods is one way to reduce costs. Good systems will help you minimise errors and reduce time and money wasted ‘fighting fires’ in your business.
The time invested in creating systems is usually minimal compared to that spent solving a problem from scratch, and has a lasting effect.
Where appropriate, turn decisions into policies to avoid having to make the same decision again or sort out the same issues.
Learn from mistakes and problem areas. If systems go wrong, fix them. It is a good idea to review your systems periodically to see where improvements can be made.
Increasing your turnover: Some tactics to improve your turnover: (a) Invest resources in increasing your sales volume: a retail business appointed a specific employee to be the ‘sales champion’ and they were given time off and a budget to come up with ideas. They managed to increase turnover by 9% by creating monthly business events and introducing an e-newsletter (b) Actively sell. Do not just take orders. Businesses that are content to simply take orders are less likely to survive, let alone grow (c) Retain existing customers through good service and explain to your staff why the lifetime value of customers makes this effort worthwhile (d) Review your credit limits if sales to a particular customer go up significantly and consider a credit check. If they are stable and a great customer, increase their limit, or find out what else you can do for them (e) Maximise the value of your sales: consider moving upmarket and providing a premium product and service. Add features to products if the perceived value to the user is greater than the cost to you (f) Keep your product or service up-to-date. If appropriate, extend your product range or work to ensure it stays ahead of the competition (h) Compare your price and quality with competing products or services. Aim to charge a full price and offer value for money from the extras you provide, such as after-sales service, installation and training or bundled extras and (i) Focus your efforts on your most profitable customers. Look after the customers who place large or frequent orders, pay the full price, on time, and are low maintenance.
Review your profit margins: (1) High percentage of sales and high profit margins. Nurture these stars (2) High percentage of sales but low profit margins. Consider a price increase and examine how you can cut costs to increase your profit margins (3)
Low percentage of sales but high profit margins. Consider a sales push (4) Low percentage of sales and low profit margins. Eliminate these where possible.
Take into account any possible effects before making decisions. For example, a low-profit product might be the one which brings other business from a major, highly profitable customer.
Looking to grow your business? Call BNZ Partners on 0800 273 916 to find out how we can help.
Brendon Tipping is National Manager for Asset Finance and Andrew Willcocks is Asset Finance Operations Manager at BNZ Partners. BNZ is the Title Sponsor of the Indian Newslink Indian Business Awards 2016 and the Sponsor of the ‘Best Large Business’ and the ‘Supreme Business of the Year’ categories. The Awards Night will he held on Monday, November 28, 2016 at Sky City Convention Centre, Auckland. BNZ was also the Title Sponsor of the Indian Newslink Sir Anand Satyanand Lecture 2016 held on July 25, 2016 at Pullman Hotel Auckland.
The above article is intended as a general discussion only, and is based on selective information which may not be suitable for your purposes. BNZ strongly recommends that the recipients take independent legal, investment and financial advice prior to making financial or investment decisions.