How can I Increase my Business Profitability? 8 Ideas to Explore to Elevate Your Profits!
Every entrepreneur starts their business with starry-eyed optimism. Optimism is important, but so is being realistic, especially about your financial results. Completely understanding your financial and statistical results and reviewing your results regularly gives you knowledge that allows you to jump on opportunities and gives you time to see adversity in advance and steer around it.
This article is dedicated to exploring strategies to increase your business profitability, and perhaps provide you with a few practical insights into those strategies and practices that can drive your business success. From analyzing data to fostering innovation, our goal is to offer valuable advice and actionable tips for businesses of all sizes. Whether you're an experienced ecommerce entrepreneur or just starting out, join us as we delve into the factors that contribute to sustainable profitability.
Here are 8 strategies that can propel your Canadian ecommerce business toward greater profitability:
1. Pricing: Review your pricing regularly. Make sure that your prices are high enough to cover all your costs – that’s rule one - and the most important rule. Don’t forget to allow for your shipping costs and the cost of the time that you and your staff put in to handle shipping logistics.
Rule two of pricing – Value. Your customer will pay the price that matches the value that they see in your product or service. The customer’s perception of value should be reflected in your price. Look at all the things that your customers like about your product or service. Do they like the quality or perhaps the speediness of your service? Is it that you are a local vendor and that you work within a strictly ethical framework? Quality and service are appreciated by your customers and should inform your price.
Yes, you can get into dynamic pricing algorithms and adjust your prices based on demand, seasonality, and competitor pricing. This may be overwhelming to smaller ecommerce companies and for smaller companies, it’s not strictly necessary anyway.
2. Customer Retention:
Implement excellent customer service practices to encourage repeat purchases and increase customer lifetime value. Focus on your customer’s experience.
Enhance your website’s user experience, make the customers’ checkout experience seamless. Design your website so that your customers can use their tablets and phones to order from your business. Regularly communicate with your service customers.
3. Watch Out for Sales and Discounts – What may seem like an opportunity to boost sales revenue can be fraught with hidden peril. This is what we mean by completely understanding your financial results. Before you hold a sale, calculate how much of an increase in sales volumes is needed to recapture lost revenue from lower prices. It’s more than you think!
Here’s an illustration of how sale prices can erode your profitability. You hold a sale and product flies off the shelf – it looks great on the surface. However, the sale may not help your bottom-line profitability, and now you have trained your customers to wait until the next sale until they buy. Not a good scenario.
4. Streamline your Operations: This is a big opportunity. Little changes can build up to a big difference. Just ask Toyota! It’s just plain surprising how many insights into your operations you can find by studying your accounting numbers.
Analyze your costs to identify inefficiencies and reduce unnecessary expenses. There are many, many messages in your financial expense statements – from as small as “are you paying for subscriptions that you don’t use or are you renting a piece of equipment that’s sitting unused in the backroom”, to the very large: “why are we renting a warehouse that we don’t use”. “I didn’t notice that our bank and merchant fees were getting that high.” Are there areas where you can cut costs without compromising quality or customer experience?
And don’t forget to ask your employees – they will have lots of insights into eliminating unnecessary work and streamlining daily processes.
5. Use Technology to Reduce your Operational Costs: Every day we learn about a new opportunity to leverage technology to automate repetitive tasks and lower overhead costs. Time to look at implementing these technologies. Look deep – each industry has its own set of technological opportunities but not all will be a good fit for your organization.
5. Use Technology to Reduce your Operational Costs:
Every day we learn about a new opportunity to leverage technology to automate repetitive tasks and lower overhead costs. Time to look at implementing these technologies. Look deep – each industry has its own set of technological opportunities but not all will be a good fit for your organization.
Here’s a great statistic – “Companies that prioritize digital transformation are reported to be 26% more profitable than their peers, indicating the positive impact it can have on financial performance. (MIT Sloan Management Review)”
6. Harness Data: We are in a digital age and data is our powerful asset. Delve into analytics tools to gather insights into customer behavior, market dynamics, sales trends, and operational performance.
Leverage analytics tools to gain insights into customer behavior, market trends, and inventory management. There are many free tools that can help you make informed business decisions without adding cost. A quick Google search will give you multiple lists of free tools.
Analyze and consult with your team, and don’t be shy about implementing data-driven decisions.
7. Optimize Supply Chain: Improve your inventory management to minimize stockouts and overstock situations (there is that technology thing again!). Negotiate your vendor contracts regularly, negotiate better shipping rates, and consider fulfillment options like drop shipping to reduce costs.
8. Diversify Revenue Streams: Relying solely on one product or sales channel can be risky – and didn’t we learn that truth during the pandemic! The pandemic taught us about the fragility of long supply chains and how consumer needs can change on a dime. These are lessons to build into your long term plans.
Diversity is the key to resilience and along the way you may be able to add significant profitability to your business. Conduct market research to identify niche opportunities and align your product roadmap accordingly. Explore opportunities to diversify your revenue streams by expanding your product offerings or tapping into new markets.
Understanding business profitability really is essential for long-term business success. By increasing your knowledge, implementing data-driven strategies and by fostering a culture of innovation, your business can position for sustained growth and resilience. Profitability is about maximizing revenue, while also managing costs, making the best use of your resources, and by creating value for your customers. Continue to seek knowledge, adapt to market dynamics, maintain your ethical practices, and prioritize sound financial management to achieve your profitability goals. Digging down and doing the analytical work will work for you!
Guildstreet provides accounting services, analysis and business mentoring for your ecommerce business. We take great pleasure in introducing business owners to the opportunities buried in your numbers.
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info@guildstreet.ca