If you want to create a more valuable business – chase Margin not Turnover!
The American sales push after Thanks Giving, Black Friday has just passed this weekend along with Cyber Monday – these marketing strategies have crept into the UK over the last few years – So should we take note and what can we learn?
Chasing increased sales by reducing prices may be appealing to your customers, but what’s the cost to you the business owner?
One risk to your business from discounting heavily or having a sales campaign such as “Black Friday” is that you potentially pull forward sales at a lower margin than you would have achieved if you kept your pricing stable.
Secondly, you may have increased costs, what with extra staff or overtime hours, to deal with the enquiries, distribution or delivery of your service offer, hence adding a higher cost of sale when you’re generating a lower margin in the first place.
Finally a higher volume of sales can also affect cash flow, as you’ll have higher stock levels to fund if selling products, and/or capacity issues with dealing with all the service follow ups, then this is followed by a few months of lower sales due to bringing these sales forward.
We all want to increase turnover, however not to the detriment of the bottom line. Therefore what’s the most profitable way of achieving further sales?
In fact not everyone buys on price, in many cases key decisions on a purchase are made on; understanding and fulfilling the customer’s needs, accessibility of the product or service, a professional or high level of service or on recommendation.
So unless you have deep pockets and the finances to deal on price, focus instead on those areas where you make a difference to your competition. Don’t undermine all the effort you may have put into; recruiting the best staff, their training and development, service delivery improvements or having a marketing plan to raise your brand awareness. It’s easy to get caught up in the euphoria of reducing your prices however it won’t be sustainable in the long run.
2 key areas worth spending some time analysing within your business are;
Understanding what products or services that you offer which generate the highest gross margin
Then understanding what type of customers, by size and by sectors buy these products and services
Then focus your marketing plan and sales efforts improving communication, building relationships and therefore increasing sales to these targets customers with the objective of selling more of the products and services that generate the most profit.
What would you rather have?
A £5,000,000 turnover business making £200,000 or a £500,000 business making £250,000?
We can all be busy fools, so remember :-
Turnover is Vanity, Profit is Sanity and Cash is Reality
At Business Doctors Cumbria we offer a free business health check whereby we will help you to understand the steps you need to take to achieve a more valuable and profitable business. Ultimately helping you the business owner to deliver your aspirations.
For further information https://www.businessdoctors.ie/health-check
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