Boost Your Small Business Profits: 4 Essential Steps to Follow
Your small business may be turning over a decent sum of money, but how much of it do you actually get to keep? The pandemic has presented enormous challenges for businesses and seriously impacted profits, so we have put together four steps to improve the financial fortunes of your small business and help you keep more of the money you make.
Step 1: Focus on Customer Retention
When looking to increase profitability, you need to get the maximum ROI from your marketing budget and focusing on customer retention is a great way to do this.
It costs five times as much to attract a new customer as it does to retain an existing one, and a report by BIA/Kelsey found that repeat customers spend 67% more than new ones. Therefore, by increasing your customer retention rate, you can spend less and earn more, seriously boosting your profits. A study by Bain & Company estimates that increasing your retention rate by just 5% can increase profitability by 25-95%.
So how do you keep your existing customers coming back for more?
The secret is to engage with them. Send regular email newsletters and discount codes while fostering their loyalty by consistently posting content on social media to stay front-of-mind. Loyalty programs are also a great way to encourage your customers to keep on coming back, and they are also low-risk because you only need to pay out after a customer has spent a certain amount with you.
Step 2: Digital Marketing
When done correctly, digital marketing can prove affordable whilst generating a great return. The trick is to get super clear on your ideal customer and create material that speaks directly to them. Trying to be too general will only make you miss the mark.
Pay-per-click (PPC) ad campaigns are a great way to get the ball rolling by building your audience and generating a buzz around new products or services.
A consistent content marketing strategy will keep that buzz going and create new, organic opportunities for your customers to find you. Be sure to regularly publish blogs and social media updates across as many platforms as possible. Ensure your website is optimised for search engines to maximise your chances of being found by your ideal customer.
Step 3: Streamline Operations
Cutting operations costs can significantly improve your profit margins, but ruthlessly hacking away could seriously damage your output. So instead of being brutal, look for ways to streamline your operations and improve efficiency.
AI technology, for example, can save you money by automating tedious tasks that take up staff time - and time, as they say, is money. AI can help you to leverage your existing resources and thus keep costs low whilst doing more.
There are also many digital services out there that can lower your operating costs. For example, if you operate your business from home, a shipping tool could save you countless trips to and from the post office and allow you to compare prices to always get the best deal.
Step 4: Improve Cash Flow
Cash flow is not the same as profit, but improving your cash flow can help you to reduce costs by eliminating the need for credit usage. When you manage your cash flow well, you won’t constantly be reaching for your business credit card or using your overdraft. This means you will spend less on interest fees and thus improve your profit margins.
Staying on top of your invoices, offering bulk or annual discounts and introducing late payment fees are all effective ways to increase cash flow. But, of course, the best methods for you depend on your unique business, so it’s best to consult your accountant first.
By implementing better digital marketing practices, streamlining operations, improving customer retention and managing cash flow well, you can see a huge difference in profitability for your small business. So it’s important to start improving your profits now to set your business in the best possible stead for the future and ensure that you will not only survive but thrive for years to come.