How to Double Your Profits and Save Your Life – Part 2

I’m glad you’ve returned to conclude our last discussion. This is an important one, so let’s continue where we left off last time. There are two more options on how you can increase your profits substantially. Here they are.

Option 3 – Increase Your Average Sale

 

Max out on cross-selling and upselling. If you are not already making the most of these sales techniques, here are some examples you can immediately use:

 

● More than 30% of customers who have just made a purchase are responsive to an immediate offer—especially for a related item. That’s why supermarkets have lots of small value items just near the cash register. Try this in your own industry. Your typical up-selling item is typically of lesser value, so let’s convert 35% of your customers into an additional 10% sales. This will result in a net margin increase of approximately 4%.

 

● One nursery famously said, “We are not in the business of selling plants, we are in the business of selling holes.” The hole takes the plant, a watering system, fertilizer, and support stakes; and generates a desire for similar holes. Similarly, a florist just selling flowers is missing out on an opportunity to sell décor.

 

● Do you have a sign in your business that tells people you accept credit cards? A Visa or MasterCard sign has been shown to make people more amenable to purchase.

 

● Put more focus on items that encourage companion selling. Do you sell jewellery? You should have matching pendants and bracelets for your earrings too.

 

● Understand the way psychology pricing works:

 

  • Change your pricing strategy. Studies have shown that prices ending in 9 (but not 09) can increase sales by over 20%. That’s when people are buying on value. If they are buying for quality, then prices ending in zero are more effective.

 

  • Offer packages of products, but include a nonsense middle point item at the same price of lesser value. This helps reinforce the value of the package you are actually trying to sell.

 

  • Offer service policy options where a shorter period is not perceived as valuable.o Offer anchor point products. These are high priced items that tend to make the rest of the range seem infinitely reasonable. The $10 hamburger sells lots of $7 steaks, and the high priced vitamin supplement helps sell lots more of the midrange ones.

 

  • Improving the décor of your retail outlet reduces complaints of high prices and gives the impression that your range is much more reasonably priced. One client who implemented this strategy saw a $10 000 redecorating investment recouped within 8 months; and complaints dropped by over 90 percent.

 

Option 4 – Generate more Leads

● What sort of incentives are you offering your existing customers to generate leads for you? We’re not talking about cash, but some form of gift that has a perceived value that’s higher than its actual cost.

 

● Who can you partner with? We want to associate with another business that already has lots of leads. You could take advantage of such a company through affiliation where you both benefit.

 

● Advertising is the most common form of generating leads. Can you measure how cost-effective your advertising is? Do you use special phone numbers and email addresses, or different website landing pages to measure effectiveness?

 

● Use Facebook, your web blog and Twitter to generate more leads.

 

● A 30% increase in leads will generate approximately a 15% increase in sales, based on our 48% conversion rate.

 

What is the impact of applying just some of these four options on our sample business? Note: I have added additional expenses of 25% to cover the additional staff for the increased workload.

 

Item Current Price Conversion Avg Sale Leads Increase
Change Option 10% 30% 10% 15%
Sales 100,000 110,000 143,000 157,300 180,895 81%
Cost of Sales   60,000 60,000   78,000   85,800   98,670 64%
Gross Profit   40,000 50,000   65,000   71,500   82,225 106%
Gross Margin 40.0% 45.5% 45.5% 45.5% 45.5% 14%
Operating Expenses   30,000 30,000   40,000   40,000   40,000 33%
Net Profit   10,000 20,000   25,000   31,500   42,225 322%
Tax (25%)   2,500   5,000  6,250  7,875   10,556 322%
Net Profit after tax   7,500 15,000   18,750   23,625   31,669 322%
Profit Margin 7.5% 13.6% 13.1% 15.0% 17.5% 133%

 

Our Net Profit didn’t just double; it went up four times! In addition, our Net Margin nearly tripled. Note how the increases compound on each other. It’s the cumulative effect that is key.

 

But Wait!! There’s more! Next issue we will see how much more money you can make by plugging the leaks and increasing volume. We will also consider some of the most cost-effective investments you can make to grow your business.

 

Graeme Stevens
CEO and Co-Founder
neXtep easy
www.nextepeasy.com

 

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