In 2023, the business environment is one that poses significant challenges to organizations in every sector of trading. Currently, the ongoing war in Ukraine is increasing the prices of energy and some staple consumer food products and is reducing the spending power of individuals in many western countries. In addition, the emerging cost of living crisis in the western world, coupled with high levels of inflation, is creating an economic situation where millions of people are poorer than they once were. These economic circumstances are leading to a reduction in sales in many different industries. Put simply, as consumer spending power reduces, all non-essential purchases begin to decline in an attempt to safeguard personal finances. For the small business owner, this economic landscape poses challenges for the profitability and long term viability of their organization. It is now more important than ever for all small business owners to ensure that every available step is taken to maximize profits in their company. There are a wide range of ways in which this can be achieved; however, they may not always seem obvious to managers, leaders and company owners. In this article, the value of maximizing profitability is recognized for all small businesses to ensure long term survival. Five distinct tips and strategies will be explored that seek to keep profit levels as high as possible. This information is useful across a wide range of sectors and specific industries.
Buying Raw Materials In Bulk
Any small business owner should be aware of the fact that economies of scale can be enjoyed if a company buys key raw materials, components or ingredients in bulk quantities. Put simply, if a business buys one thousand similar items from a commercial supplier, it is likely that the unit cost of each item will be significantly lower than if it were to simply buy one item. Buying in bulk is a key way to reduce unit costs and therefore improve the profitability that can be gained from the sale of each finished item. An example of this in practice can be found in the catering industry. Many restaurants and hotels will buy key ingredients in bulk quantities from trade suppliers rather than from public shops and supermarkets. A restaurant may choose to buy bulk spices that can be stored in a cool and dry environment on the premises and used when required in the creation of meals. The restaurant trade commonly uses this method to keep the costs of each specific menu item as low as possible so that the profit per plate can be maximized. The same methodology is used in small manufacturing businesses where the firm will hold a large stock of components. These components will have been bought at trade prices in high volumes and the unit cost of the final product will therefore be lower.
In-Depth Market Research
In the modern world of small business, every company, regardless of the industry in which they operate, needs to have a thorough understanding of their target market(s) and consumer preferences. One of the main ways this information can be gained is by conducting in-depth market research. This can be undertaken in a variety of different ways. Small businesses can save time conducting market research by buying existing consumer information from dedicated market research organizations. There are several companies that focus their business on creating consumer surveys and gaining quantitative and qualitative data from their research. You can find a list of these types of companies by clicking here. Another option is for companies to conduct primary customer research themselves instead of relying on existing market data. While this may be more time-consuming (potentially expensive), it provides businesses with up-to-date consumer and market information. One way this can be achieved quickly and cost-effectively is to use online customer survey platforms such as SurveyMonkey. Surveys can be incentivized by giving respondents money off coupons for subsequent purchases from your small business. In short, high-quality customer research can provide businesses with insights into consumer behavior and market information, allowing them to make intelligent and informed decisions. These decisions are likely to result in successful outcomes and can drive the increased profitability of a company.
Minimize Customer Churn
Customer churn is the phrase used to describe the situation when an existing customer decides not to trade with the small business anymore. Every business needs to keep customer churn levels as low as possible. High levels of customer churn mean that the business needs to rely on attracting larger numbers of new customers to remain profitable (which can be hard to achieve). Businesses with low customer churn levels typically enjoy improved profitability as they have a constant stream of revenue that comes in from repeat purchases made from a loyal base of existing customers. There are many factors that determine the customer churn rate in any small business; however, several of these are directly linked to customer service issues. Put simply, if a customer believes that they have received poor service or have had difficulties in getting a suitable response to their questions or queries, they may be less likely to trade with the company in future. As such, it is vital for all small businesses to aim to offer outstanding customer service across all their main touch points and across the customer journey.
Eradicate Waste In All Forms
Another key strategy for maximizing the profitability of any small business is to ensure that waste levels are kept to an absolute minimum. In an office environment, this could mean moving to a paperless method of work production by using electronic devices to store and retrieve tasks, emails, and projects. In a small factory environment eradicating waste could be achieved by recycling all unused materials from the production process and seeking to limit the number of defective products produced by improving quality processes along the production lines. In short, waste in all forms costs a business money and reduces its profit potential. It can be highly beneficial for small businesses to employ the services of systems analysts or business consultancy firms that specialize in minimizing waste and eradicating inefficient business processes. This can lead to a situation where a business keeps waste levels to an absolute minimum and can publicize the fact to its customer base. Today’s customers tend to be highly aware of issues relating to the environment (such as sustainability issues and concepts such as a business’s carbon footprint). By demonstrating that the business is committed to minimizing waste across all operations, the company can benefit from increased levels of goodwill and an improved corporate image.
Outsource Some Business Operations
As a final key way to improve profitability, businesses can consider outsourcing some of their operations. For example, many small businesses will have a finance department that deals with invoice processing and paying wages to staff. However, a wide range of dedicated external finance teams provide their services to many small businesses. These firms typically use the latest IT and finance platforms to improve the efficiency of routine financial tasks and automate a large proportion of them. The fees these firms charge for their services can often be substantially less than the cost of employing an in-house finance department while ensuring that work is completed to the same high standards. Another example of outsourcing would be utilizing a virtual medical receptionist if you run your own medical practice to streamline operations and enhance customer service. By outsourcing tasks such as call handling and appointment scheduling, your staff is able to focus solely on the core objectives. Furthermore, any small business could also consider outsourcing call handling to a call center. Call centres in the Phillipines are a top choice for this as they are cost-effective, have 24/7 availability and possess great English skills. These are only a few of the reasons why you should outsource your call center to the philippines if you are looking to elevate your business operations and customer service. It is always beneficial for small businesses to evaluate their teams and departments in order to determine if some of their business processes can be outsourced to improve efficiency, lower costs, and therefore lead to increased profitability.