Northern Accountants

Improve Profits

Six insanely simple strategies to increase profitability

 

If you want to increase profitability, price is arguably the most powerful driver in your profit equation.

Get it right and you make a profit.

Get it wrong and you make a loss.

Whilst it is true that customers care about price, it’s not the only thing they care about – that’s why you should never compete on price alone.

What you should do is identify the exact needs of your ideal customers – and compete on the basis of supplying them with that AND explaining the “maximum value” you can add.

What is maximum value?

In a traditional sense, ‘value’ is the gap between the price a customer pays and the benefits they perceive they are getting. So ‘maximum value’ is your ability to offer a bigger (perceived) gap than anyone else.

Often the key to increased profitability (or charging more) is to make sure your customers fully understand those benefits.

At Northern Accountants, we regularly help businesses grow and we believe there are six other main strategies that will help you to increase profitability:

1. Manage perceptions properly

Managing perceptions is vital in business.

To make more profit, you must ensure that clients and customers understand that what you offer is special. Otherwise they will assume it’s average – and then you’ll only be able to charge an average price.

Designing, calculating, presenting, explaining and defending your price is the best possible way to make more money and more profits.

So if you want to improve your profits, the first step is to improve the way you manage perceptions.

 

2. Test your prices

The next step to improved profits is sometimes the most challenging one: price.

When it comes to setting price there are two extremes:

• A ridiculously low price
• A ridiculously high price

Opt for either one of these and you won’t make any money – because your sales will be unprofitable (low price) or unachievable (high price).

To increase profitability, you need to find your “magic price” because that’s what will earn you the most profits.

magic-price

And the best way to find your magic price is to test.

Test, tweak and test again (if necessary) until you find it.

And don’t forget that the only thing which really matters when it comes to price is what your customers ACTUALLY do.

Don’t gamble your business by doing something reckless or irreversible when it comes to pricing, but be creative and find different ways to test different prices.

That may mean changing the prices for a small group of customers or for a certain distribution channel.

Whatever you do only change one thing at a time (the price) and nothing else – otherwise you won’t know whether the impact was purely price sensitive.

 

3. Use the power of context

Another one of the best strategies to increase profitability relates to the context you give to customers.

The way you present, describe and sell your products can have a profound effect on the perception and assessment of price.

So can the setting or place in which the sale is made.

Where you are on the price spectrum is completely up to you.

Are you the equivalent of your industry’s low-margin, stack them high and sell them cheap store?

Or do you want to be a high-margin innovator who re-writes the rules about the market you operate in – and sets the price accordingly?

These are choices you will make as a business owner – no-one else.

And remember, it’s the choices you make today that will determine the profits you make in the future.

 

4. Lose customers who don’t value your worth

When you’re in business, it’s easy to worry about losing customers.

But is losing customers always bad?

Let’s look at things logically from a financial point of view:

There will always be customers who really value what you do and see the worth in it – and these will want to utilise your services even if your prices rise.

That’s because those customers are more likely to be the ones who see the “maximum value” in what you offer.

Sometimes it is actually better for your profitability to work out how many customers you can “afford” to lose when you increase your prices – rather than worry about how many you need to retain.

Because when you put it simply: Having fewer customers who are willing to pay more will mean you’re doing less work and earning more money.

 

5. Offer incentives to attract new customers

Attracting new customers is one of the sure-fire ways to increase profit and will always have a positive impact on your bottom line.

But it can often be a hard sell when trying to convert them into a customer, particularly if you are selling them a product or service which they already have.

Offering incentives to switch to you from a competitor is one way to get customers to do this straight away.

For example, if they have two months left on a maintenance contract with another supplier, can you give them two months for free if they switch to you immediately?

Or can you honour vouchers or coupons issued by your competitors?

A good return, replace or guarantee policy (within acceptable use terms) can calm fears of investment, offers your customers peace of mind and tells them you believe in your product or service.

 

6. Never adopt a one-price approach

Charging different prices to different customers or through different channels is common practice in business.

Airline seats are always cheaper if you book online and beer costs more in a pub than it does in a supermarket.

That’s because people are willing to pay more for something in one place than in another – which again comes back to the ‘Power of Context’ outlined previously.

And when you’re looking for ways to increase profit there are many different strategies for charging different prices to different customers.

Perhaps you can offer a ‘light’ or economy version of your services – with a view to a try before you buy approach.

This way, you can get them on board and try to convince them that they will get more value from your premium package at a later date.

You may be able to offer your price conscious customers a lower price if they pay immediately or by direct debit within 7 days – this will help to improve your cash flow and offer vital price differentiation.

Alternatively, create high value bundles of products and services which allow you to encourage price conscious customers to spend more money with you.

Whatever you do, don’t adopt a one-price approach or you’ll miss out on the ability to attract different customers and narrow your market.

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Contact us today

For more advice on how to more profit, email savetax@northernaccountants.co.uk to arrange a free business consultation with one of our growth experts.

 

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