Want to improve the profitability of your business? It all goes back to customer service.
By: Kellie Shipley
What is profit?
Profit is what’s left over after you’ve paid all your expenses. Some of the things that happen in and to your business are within your control, and some of them are outside your control. If you’re going to have any effect of your profit, you have to focus on those things over which you have control. So … what are they? To answer this question, it is helpful to understand that there are only four specific factors that determine your profit:
1/ The price you charge for the products or services you sell
2/ The quantity (or volume) of products or services you sell
3/ The costs you directly incur by producing or buying the products and services you sell (the variable costs)
4/ The costs you incur whether you make any sales or not (the fixed costs)
Developing a profit improvement strategy
To improve your profitability, you must either make a larger gross margin on each dollar of sales or sell more without increasing your fixed costs. It goes without saying that the biggest improvement will occur if you can achieve both simultaneously.
Gross margin is the difference between the price of your product and what it costs for you to buy or make it. Therefore, the only way to increase your gross margin is to sell at a higher price or buy/make at a lower price. In most instances, you will have a limited scope to buy at a lower price. For this reason, your selling price is the critical variable.
Without a doubt, the biggest single barrier preventing small business managers from making an acceptable profit is their refusal to charge a price that will enable them to achieve it. You are not in business to match the price your competitors set – you are there to service your customers.
There is no business that does not have the potential to command a premium price for its products or services if it is able to market those products or services in such a way that the customer perceives added value. If all of your marketing efforts, all of your advertising and all of your sales efforts focus on price, you will be beaten on price every time a competitor comes along with a lower one. In other words, if you focus your customers on price as a critical factor, it will be one.
The only way to get out of the price trap is to promote other features and benefits that you can offer your customers (for example, better quality, longer warranty, satisfaction guarantees, timely delivery, 24-hour accessibility, more convenient location, etc.). It may be that your competitors already offer all of these things, but unless they also emphasize this in their marketing, how will the customer ever know?
Increased profit and customer service
Your job as a marketer is to create the perception of value and then to back up what you sell with superb service. The thing to remember is that price is only important when all other things are equal.
Some customers only think in terms of price; those customers are better left to your competitors. What you should be doing is working with the people who are happy to pay for value. This means two things. First, you have to deliver value (embody service). And second, you have to educate your customers to be aware that they are receiving value. One without the other is not effective.
The only sure way to get customers to come back and act as advocates for your business is to give them absolutely superb service. They need to feel that you really care about them and that your goal in business is to delight them with the way you look after them. Most businesses fall short of this ideal, but it is an objective well worth striving to deliver.
Word-of-mouth referral is the best means of creating new customers. But satisfied customers do not become advocates for your business – delighted customers do!
Your plan of attack
Even if you are already the leader in your industry, there will be opportunity to improve the profitability of your business. It is not always easy to achieve, but it’s certainly possible. You need a plan of attack. Specifically, you need to find out exactly what your existing and potential customers want – it’s not always the lowest price.
You then need to organize your business so that you can delight your customers. This will require giving attention to your team members and equipping them with the resources and skills they need to excel in what they do.
Improved business performance comes from a willingness to do something different and then getting the details right. If you get all the little things right, the big picture looks after itself.
Kellie Shipley is a certified public accountant at Flucshe, Van Beveren, Kilgore, PC, in Corpus Christi. For more information, contact her at 361-880-5600 or email@example.com. And to learn more about the firm, visit www.fvbkcpa.com.
Headshot/Dick Wittliff Photography