5 Small Changes for Bigger Profits for your Small Business
Entrepreneurship has been on the rise in Singapore in recent years. As more and more people are looking to form their own small business instead of slaving away at a regular job, many are also finding it difficult to increase their profits through their startup.
At its very essence, it’s very simple. If your small business makes more than it spends, you turn a profit. Make sure your revenue is higher than your expenditure.
…..I know, I know.
I can hear you screaming already, “It’s not so simple you nimwit!”. And I agree, of course its not that simple. There’s cash flow, taxes and invoices to look at…..things that complicate the process.
However, as entrepreneurs, it is important not to lose sight of that basic tenet of business. Here are some tips to evaluate your own company against. Read over them and take the time to really think and implement some changes to the business – we are sure you will see your profits grow.
1. Don’t do ALL the work yourself
This is the number one mistake that new small business owners make. You are the CEO, head of marketing, head of operations and head of business development all at once. Sound familiar?
For very few businesses, this model works. But if you’re here to try to expand your business, it is important to delegate work.
“But that will cost me money! Didn’t you say we should reduce expenditure?” I hear you exclaim.
While what you’re saying is true, we have to think of the larger picture. In your company, the most valuable thing is your time and energy. For everything else, someone else can pick up the slack. Thus it is important to make sure that you are not wasting your time and energy on unimportant tasks.
Find out what is the most important task in your company and work on that. Focus your energies on that. Get other people onboard to do the lower value work.
2. How are you special?
It is easy to sell things that everyone else is selling. All you need to do is compete on price!
However, this becomes a spiraling hell of always making sure your price is rock bottom to keep up with your competitors, and you can be sure that there’s always another guy out there who’s willing to take an even smaller profit margin than you.
This in turn hurts your profits!
Instead, focus on specialisation.
Try to delve deep into the field you’re in a be specialised at a specific sector. For example, if you’re selling keyboards, it could be a good idea to try to specialise in mechanical keyboards (a massive community of keyboard enthusiasts – imagine that!) for better returns and differentiation!
My point is: As a small business owner, you should start to cater to a niche community. Establish yourself as an authority in your specific niche and reap the benefits of being seen as an expert in your field. This business model is growing increasingly effective as the internet allows the like-minded to find one another.
Find out what features or products a specific subset of your customers want, and cater it to them!
3. Remember the 80/20 rule
Italian economist Vilfredo Pareto found out in 1906 that 80% of the wealth in Italy was owned by 20% of the population. He then formulated the concept that in most countries and times, income inequality is highly skewed. He called this the “Pareto Principle”
As time passed, people found that the principle applied to other things as well.
80% of apples come from 20% of apple trees. Similarly, 80% of traffic comes from 20% of the posts. 80% of healthcare resources are used by 20% of citizens.
How does this apply to business? Well, it turns out that the Pareto Principle works here too:
80% of your profits come from 20% of your customers.
Alright, I’m not saying that the numbers are wholly accurate, but I’m willing to bet that a small handful of your customers make up a significant portion of your profits, also known as your biggest clients.
What you should be doing is to refocus your energies on them! Make sure you treat them with the best service or product they can get and you can be sure that they will stay on with you for a long time, keeping your profits steady. Who knows, they might even recommend you to their friends and gain you more customers.
Also, 80% of your profits come from 20% of your products.
Pull out your sales sheets and start a detailed list, find out which products are the ones that are drawing in the most sales, and find ways to improve it or push it harder! These golden gooses don’t come easy and it is in your best interest to milk it to the best of your ability. Make sure you’re selling the best product you can in the market and you may even be able to charge a higher price point (more on this later!).
4. Technology is your friend (marketing, procurement, customer service)
This cannot be overstated enough. In this day and age, every business should utilise technology somehow. From operations to marketing to accounting, I guarantee there is some way in which technology can aid in improving your business model.
Here are some tech services to help you out:
ThunderQuote: A B2B portal for companies to find services such as designers, copywriters and web developers. For small businesses that need ad hoc work done, this is a great site to quickly find multiple leads. Ideal for companies that are unable to hire a full time position to fill their needs, get someone to work for you on a contract basis!
Eezee: Need to quickly buy a bunch of office supplies or having procurement troubles? This B2B marketplace is for companies to save time spent calling suppliers and getting quotes when you can find all of them here on the site at affordable prices. Quick and hassle free, saving you time to do the higher value work.
KeyReply: Have a website? Save time replying to repetitive customer inquires by integrating their chatbot into your website, allowing users to quickly find out vital information about you 24 hours a day, 7 days a week. Unlike humans, chatbots don’t need sleep!
5. “Want upsize?”
At McDonald’s, cashiers are trained to ask customers if they wish to upsize their meal for a small cost. To the customer, it is merely a small sum that provides a lot more value to them, why wouldn’t they? For McDonald’s however, a $2 upsize would probably only cost them 50 cents in expenditure, effectively giving them an extra profit of $1.50.
Upselling is key to quickly increase profit. How does it apply to your business?
Back to our mechanical keyboard example (because its such an interesting community), the company could offer customers an upgrade to a artisan keycap for half the original price. Assuming the company still makes a profit off the keycap, they immediately earn a slightly higher profit with this simple move.
Think about what type of add on services you could provide for your customer, things that you could get you that little bit more profit. Keeps the customers happy at the same time to, everybody wins!
6. Be expensive
I left this tip till last because it is riskier than the others but could very well be extremely beneficial to small businesses:
Raise your prices!
Remember when we talked about creating the best possible product earlier? If your product is up to par and differentiated enough from your competitors, raising your price is a good way to get your customer’s attention.
Everyone has been guilty of sorting products in a marketplace by price and peeking at the most expensive option available. By pricing yourself at the higher end, you signal to your customers that you are premium and special. Associations of prestige and quality come to mind!
If done right, your profits will jump overnight as each sale is larger.
Take a good hard look at your product and evaluate it critically. Is it differentiated or better than your competitor’s? Is there a good reason for it to be cheaper than your competitor’s product? Is your product worth more?
If you answered yes to the last question….start charging more!
Often times, small business owners feel daunted when faced with the problem of being able to scale their business. I hope that these tips help narrow down your focus more and if applied with care, I’m sure you will see some substantial growth in your company. Good luck on the journey and do tell me in the comments if any of these tips have resonated with you!