Maximizing profits should be a primary goal of every business, but it takes on added urgency during challenging economic times like we’re facing today. Even in the best of times, it’s hard to simply “sell” your way to higher earnings. Instead, it’s usually a matter of doing a combination of two things: reducing costs and growing revenue.
For many companies, the best way to reduce costs is to increase operational efficiency. In other words, look for ways to do more with less. Re-examine how your people, processes and technology come together in order to manufacture and deliver products and services. Here are a few ideas to consider:
Align procedures with priorities. Make sure that all production and operational procedures align with your company’s strategic priorities. If a task or procedure isn’t promoting a key strategic initiative, then it should either be eliminated or changed. “We’ve always done it that way” are six of the most dangerous words in business.
Streamline and automate processes and procedures. Re-engineering, a popular business buzzword in the ’90s, is making a comeback during the current recession as companies look for ways to revamp processes in order to maximize efficiency. Remove any barriers and redesign processes that are hindering efficient workflow throughout your operations. Look for opportunities to automate. For example, the Internet has enabled the automation of many processes, such as order-taking, tracking packages, payment and even customer service (online FAQs can answer many customer questions without human intervention).
Limit errors. The cost of mistakes and rework can take a big bite out of cash and, hence, profits. Consider how many errors are occurring in your manufacturing, delivery and service components. What types of errors are occurring? How much are they costing you? This exercise will help you focus attention on improvements that have the biggest impact on your bottom line.
Boost employee productivity. Do your employees have the tools they need to do their jobs in the most efficient manner possible, and are they working with the latest technology? Are the right people doing the right jobs? Employees should receive regular training to make sure their skills remain up to par, as well as incentives (financial or otherwise) to encourage productivity and efficiency.
Measure performance. Key performance indicators (KPIs) are quantifiable measurements that reflect your company’s most critical success factors, such as profitability, cash flow, leverage and liquidity. Every company’s KPIs will be different, but the most common financial KPIs include profit margin, debt to equity, return on equity, accounts receivable and accounts payable days, and inventory turnover.
Be selective in your client relationships. While this may seem counterintuitive during an economic slowdown, it’s likely there are clients you’d be better off saying “goodbye” to. The classic 80-20 rule states that the majority of your profits come from a minority of your customers.
The flipside of the profitability equation is revenue. Consider these ideas for growing your revenue even in the midst of the economic slowdown.
Segment your customers and prospects. They aren’t all the same. Find out in what key ways they are different so that you can more tightly target your product offerings and marketing efforts. Try segmenting by differentiators like industry or market. This should help you zero in on highest- and lowest-value customers and prospects.
Devise a contact strategy. Once you’ve segmented your customers and prospects, create a plan for how you will “touch” them throughout the year. Include high-cost touches like face-to-face sales calls and trade shows, as well as lower-cost options like phone calls, direct mail and Internet or e-mail.
Segment your product or service portfolio. Similar to segmenting your customers, do the same with your products and services. Identify your stars, cash cows, question marks and dogs so you know how to invest your sales and marketing resources.
Start an e-marketing campaign. E-mail can be an effective communication tool if used wisely. It tends to be more effective for building long-term relationships with customers and prospects than making quick sales. However, be wary of offers that claim to sell you thousands of e-mail addresses for pennies apiece; it’s usually best to build your own list from your customers, prospects, business associates, friends and relatives, and referral sources.
Leverage public relations and publicity. There are many low- and no-cost public relations strategies you can implement to generate publicity for your business and kick-start new sales. Writing and distributing press releases and white papers, publishing a newsletter (print and/ or electronic), contributing to a blog, and writing articles for industry trade journals and Web sites are a few ways to crank up your company’s profile.
Raise your prices. Don’t overlook the obvious. Of course, in today’s economy, your clients may not accept price increases. So, the best strategy is to offer added value that costs you little or nothing along with the higher price. Also, be sure long-term contracts include automatic annual cost-of-living adjustments based on changes in the consumer price index.