Identify Five Things You're Spending on That Aren't Contributing to Your Bottom Line And Eliminate Them
Do you really need that water cooler service or bottled water? Studies show that most tap water is as good or better.
Do you pay fees on your checking account? There are plenty of no-fee accounts available. Before you go to the trouble of changing banks, pay a visit to your branch manager and see if they'll waive the fees--most will.
Do you have a separate fax line that you rarely use? If so, cut the cord and use an online fax service or combine the fax line with your standard phone line
Do you pay long-distance fees? If so, make those calls free via Skype.
Is your telephone, internet access and cable with different carriers? If so, look for a deal that combines all three.
It's amazing how much you can save when you set your mind to it. The above changes are probably worth between $1,800 and $2,400 a year. Skip that morning latte, and you'll save another grand. You can buy a good home latte machine for less than half that and still get your morning caffeine fix. Your turn. And please, share the wealth--let us know what you did and how much you saved, and we may make you the poster child for our wrap-up column.
Identify Five Metrics
Look for ones that make it easy to know how your business is doing without being buried by numbers. For example, figure out what the conversion rate is on website visitors. If 10 percent of them turn into orders, all you have to track is web visits and make sure the conversion rate doesn't change, and you'll have a pretty good estimate of your income.
Raise Your Prices
If your gross profit margin is 25 percent, a 5 percent price increase would allow you to sell 20 percent fewer units and still make the same profit. For example, if you sell 500 items for $100 with a cost of $75, your revenue will be $50,000 with a gross profit of $12,500 (that's $25 per unit, or 25 percent gross profit margin). Now let's say you raise your price by 5 percent to $105 per unit, but in so doing you sell 10 percent fewer units. Your sales will be 450 units (500 minus 10 percent), your revenue will be $47,250 (450 units at $105 each), and your cost is still $75 per unit. So your new gross profit is $30 per unit ($105 minus $75), and your gross profit margin is 28.6 percent ($30 divided by $105).
That means your gross profit is actually $13,500. That's $1,000 more than it was originally, in spite of the lost business. By the way, it doesn't work the same way in reverse. A 5 percent price cut means you have to increase sales by 32 percent just to stay even. Let your competitors play the price war game while you reap more profits from less work.
The cost of finding a new customer is always higher than retaining an existing one.
- Offer incentives for repeat businesses (e.g., loyalty cards or coupons for their next visit).
- Establish referral relationships with related businesses.
- Continually educate your customers about the other products and services you offer.
- Create categories of customers based on loyalty (silver, gold, platinum).
- Keep them from wandering off with a best-price guarantee.
- Accept all competitors' coupons.
Reduce Bad Debt.
Nothing is financially less productive than selling a product or service and having to chase down or write off bad debt. To avoid this:
- Evaluate customer creditworthiness before extending credit.
- Require and check credit references.
- Establish and enforce credit limits.
- Inform new customers of credit policies.
- Require personal guarantees, stock pledges or collateral on questionable accounts.
- Require cash on delivery for questionable accounts.
- Periodically check on customer credit standings.
- Produce and use regular accounts receivable agings.
- Establish and enforce late-payment penalties.
- Immediately follow up on slow-pay accounts.
- Stop selling to customers who owe you .
- Remember, the squeaky wheel gets the grease. Hound your bad debts.
- Consider legal action or collection agency services for bad debt.
- 50 Ways to Save Money in Your Business
- Get Back in the Black
- 30 Ways to Show Your Customers They're Always Right
- The Value of Converting Website Visitors to Customers