If you could create your own fantasy Board of Directors who would be on it? CO— connects you with thought leaders from across the business spectrum and asks them to help solve your biggest business challenges. In this edition, a CO— reader asks for best ways to boost profitability in a growing small business.
Juli Lassow, owner and principal of JHL Solutions, answers…
Your business is growing! Fantastic! Growing your business by driving top-line sales, as well as profitability, is the key to long-term business health and stability. Happily, there are several ways that you can drive this growth within your business. Depending on your style of business and where you are in your organizational maturity, you may find yourself using a combination of the below:
Give them more of what they love
Start with growing your revenue — profitably. The idea of revenue growth is often the one that excites entrepreneurs the most. This growth signals that you are connecting with more of your target customers and developing deeper loyalty with them. Focus on your most popular revenue-generating offerings. What goods and services could you develop that compliment your most popular offerings? If you continue to find ways to serve your most loyal customers, that helps you drive profitable business growth on multiple levels:
- New offerings can often leverage existing research, infrastructure or collateral, which lowers the cost of product development.
- Your consumers will likely become more vocal in their support of you, which brings in new customers — delivering more significant sales and profit.
- Your customers will stay more loyal to you, so you have less pressure to attract new customers, which saves on the cost to acquire new consumers.
Another way to approach operational spending is to focus on reducing waste — in all forms.
Juli Lassow, owner and principal, JHL Solutions
Assess
Expert Juli Lassow explains that the key to profitability lies in continuous assessment — from what works and what doesn't, to reducing costs and waste. Read on for more ways you can grow your business.
Give them less of what they don’t love
Understand your key performance indicators (KPIs) for critical sales growth and profit. Regularly review and assess the performance of your products against these measures. This review makes it easy to identify and fund offerings that are doing well. The additional benefit is that this exercise helps you identify where you aren’t seeing the results and return on investment that you need.
Be ruthless in your assessments when reviewing underperforming assets. What is the investment needed to make this product more successful in driving needed sales or profit levels? Could that money be put to better use growing businesses that are thriving? Move quickly to redirect funds to either elevate or sunset a struggling initiative.
Make your money work for you — and yes, that means cutting expenses
While not as energizing for most entrepreneurs as growing your business, you need to keep a close watch on the expenses your company generates and how those costs are impacting your bottom line.
This was touched on above, but you’ll need to have a fundamental expectation of reasonable return on investment for your business. What results are you gaining for the money that you invest in your products, processes and systems? How does your performance compare with your industry average?
Another way to approach operational spending is to focus on reducing waste — in all forms. Invest in a review of your process and systems to understand where you are generating the most value and waste in your organization. Then build and execute a plan for addressing waste in the most impactful way.
Depending on what you uncover, you may want to address quick hits first to free up cash to reinvest right away. Or you may want to go after your most significant areas of waste. Hold yourself accountable for tracking progress on your plan for reduction. Continue to review ROI to ensure your net waste continues to decline.
A final critical piece of cost management is an evaluation of the cost of goods and services. Depending on the maturity of your business and the length of your existing service agreements, you may see tremendous value in renegotiating contracts with your key supplier partners.
There are many reasons why you’ll be able to uncover savings when renegotiating your contracts. Your business may have grown to the point where you are experiencing economies of scale and are eligible for a discount. There may be new providers that can offer comparable or increased value or service for you and your customers. An existing partner may be willing to reduce their prices to maintain your business, when faced with the prospect of a challenger.
No need to envision a highly combative approach as the primary way to increase profitability. Negotiations, when conducted well, are all about generating incremental value for all parties. Structuring the conversation thoughtfully and with clear expectations allows both parties the opportunity to be creative and, yes, collaborative, in coming up with new solutions to grow both of your businesses profitably.
There are as many paths to profitability as there are organizations. As the leader of the team, it will fall to you to understand how to identify, prioritize and take action to capitalize on these opportunities. A consistent review of your key metrics and progress on action plans will provide you with the framework to keep your organization growing profitably for years to come.
CO— aims to bring you inspiration from leading respected experts. However, before making any business decision, you should consult a professional who can advise you based on your individual situation.
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