“Increasing Sales will Boost Our Profits!”

Are you really so sure?

Sales and Marketing dudes have for years been telling us “the more sales you make the more profit you will have”…But the truth is increasing the number of sales flowing through an already cracked system will usually cause more drama than profit.

Use these Real Profit Boosters

The definition Profit is the difference between the money you receive when you make a sale and what you spend to create what you sold.  Selling more does not always mean more profit, as selling more usually also means more costs.

Profit = Money Received Less Money Spent
( Profit = Sales – Costs)

Profit is always influenced by the RELATIONSHIP between Sales and Costs

I am sure you are starting to see the problem here, boosting sales doesn’t happen without some related impact on costs – you are selling SOMETHING and that something has COST you to produce it, inputs, rent, staff, packaging, time – these are all outlays you make as part of delivering every sale.
Often with a rapid boost in Sales, there are EXTRA Costs – staff overtime to meet the extra orders, rework because quality slipped as everyone was rushing to finish on time, extra money borrowed to ensure sufficient stock levels, etc etc. So instead of the boost in profits promised by the marketing team, a rapid profitability drop ensues.
falling profit graph image

Let’s face it, we all want more Profit – keep it simple and you can start boosting today:

Sales

Ensure you are selling at a price for making profits.

  • 1. Price

    More often than not SMEs set their price by sticking their finger in the air and testing wind speed… What do I think people will pay? Will they complain if I raise my price?… Neither of these approaches is a good reason to LOSE MONEY. Apart from Clearance Sales, is every sale you make profitable? Are you REALLY sure? Raising the price on a few products by a few dollars will make a significant difference to your overall profit; especially if those products were previously making a loss. Check your products and slightly raise the price on your least profitable few. Keep checking and keep raising slightly every few months… If the market doesn’t wear the price rises, and you make fewer sales you are still more profitable because ZERO profit is better than selling at a loss.

Costs

If you can save money in production, yet continue to sell at the same price, your profit will improve!
  • 2. Direct Cost

    These are the inputs needed to build and deliver your product or service; direct cost correlate directly sale – for every unit sold there is an extra unit of cost. Have you set-up bulk discount arrangements with your suppliers where the more you buy the cheaper the per unit costs? Do you have a loyalty discount from your most trusted suppliers? Do you “shop-around” regularly to ensure your trusted suppliers are treating you well? Benchmarking the direct costs of your competitors helps you stay competitive

  • 3. Indirect Cost and Overheads

    These are the inputs that you have regardless of if you sell anything this month or not – rent, phone bills, bookkeeper’s bills all come in the door on a good day or a bad day so it is best to keep these as low as possible to be functional and maintain your market position. Rent is a really good one to check – is the space you occupy still suitable for your use – if it is too large, although moving is expensive, sub-letting unused space can be very sensible alternative. Check your bigger costs and see where you can get loyalty discounts, or cheaper deals elsewhere.

  • 4. Terms

    When your debtors are paying slowly and your suppliers are requesting COD, or deposits up front, you have a gap. This gap is generally plugged by your overdraft, which costs you extra interest. By simply aligning your terms to your suppliers’ terms (and ensuring your debtors are collected within terms) you can significantly reduce your financing costs. Getting Debtors to pay promptly is a time old issue, however setting customer expectations, being clear that you expect them to stick to your terms, and negotiating part payments.  Simply asking late payers “How much are you short?”  (instead of “what can you manage”) gets money in the door faster.

  • 5. Wastage

    Sometimes it isn’t what you are doing but how you are doing it that costs money – don’t have an archiving process that says print an email, so you can scan it so the scan can be emailed off for microfiching. Simply archive the email effectively by filing the electronic copy at step 1. There are three cost savings in this example, unnecessary printing, unnecessary microfiching, AND unnecessary wasted time and effort. “Doing the Do” often means we fall into the trap of not seeing what tiny changes can be made to improve efficiency and effectiveness. Check what wastage of time or materials you can reduce and more profit will result.

Try any one of these 5 profit boosters – or better still have a go at all 5; a few small changes will add up very fast to boost your bottom line.