Three Easy Ways to Quickly Up Your Profitability
As business owners (especially ones in the creative industry) there are SO many aspects to consider when running our companies, especially during times of adversity.
I get it - this past year has been particularly hard. When the pandemic started, financial experts were estimating a 60-90% loss in revenue for a lot of companies, especially SMEs. There were certainly months when we were hit hard by that 90%. But, slowly and ever so surely, business has been making a comeback. I know I speak for a lot of us when I say that we are so grateful that this year has showed a turnaround.
I thought I'd take this opportunity to share some quick tips that I've found have really helped up my profitability, and could do the same to yours too:
1. Work out your profit margin & increase it.
"Your business’s profit margin measures what percentage of revenue your business keeps after paying for outgoing expenses. You can calculate profit margin to see profitability for a specific time period." - Patriot
Here's a big question - do you really know how much profit you are making on each of your products and services?
Have you truly taken the time to put together a comprehensive spreadsheet, including all of the costs (and factoring in your time as well!), incoming amounts, and then calculated the profit margins?
(If that all sounds like a lot of Greek to you, here's a great tutorial on how to calculate a profit margin.)
Once you have this information, you can truly structure your business. You can prioritise the products or services that have the highest profit margin (because yes, I'm also assuming that as a business owner you have different tiers of products - more on that in a minute).
Some of our services have a 600% profit margin, while others are sitting on 10% - it doesn’t take a rocket scientist to work out which of those services we spend more time, energy and money marketing.
EXTRA LITTLE TIDBIT
As I mentioned a hot second ago, and speaking of tiers: here's a little extra freebie point for this post - if you're a wedding photographer (or any kind of service provider really), and you only have one package or one option, you're shooting yourself in the foot (pun not intended).
ALWAYS have different tiers for your clients, so you can bring in clients who have different budgets.
We do this by having “mini”, “value” and “pro” packages. This also means we don’t have to continuously run promos or discount our services, because the mini packages appeal to the more budget-conscious clients.
Each tier has slightly different perks, with the "pro" package receiving the biggest benefits of extra edits, people etc.
Do you find yourself running discounts and promos often?
Because I've got to be honest, this is something that I rarely (if ever) do. We offer a 15% loyalty discount to our regular photography clients (because the kind of loyalty that brings them back every six months for photos should DEFINITELY be rewarded), but otherwise I truly believe that endlessly running discounts and promos simply devalues your service/product.
Running discounts all the time leads to:
Your client base starting to wonder if you even believe in what you offer.
Attracting in a client base that only purchases when there are discounts involved (so you therefore will never sell at full price anyway).
And in my opinion, it's the clients who ask for discounts who are the same ones that always ask for SO MUCH MORE on top of that discount - more time, more edits, more add-ons, and only after you’ve already given them a discounted rate! It drives me a little looney.
A couple of times a year, we offer express sessions. This is a very rare offering that we don’t do all the time, simply to avoid the above issues. And the big thing here: this isn’t one of our standard products that we’ve then discounted. This product is a completely different offering, so that our clients paying full rates don’t feel cheated. This one appeals to the more budget conscious, and those who’d like a very speedy shoot.
Again, this reinforces my point about reaching all levels of your target market, and bringing in revenue from multiple points.
2. Draw up targets
For the longest time, I operated my business in a I-know-I-have-money-coming-in-and-money-going-out kind of way, without really being able to say where and how and what those amounts were, or how much I really wanted to be making in order to increase our profits and bring in more revenue.
Then I started a targeting system.
Each month now has goal numbers, of how many of each service/product we’d like to sell. These numbers are based on how many of each thing we sold during the same month of the previous year (plus a little push), and any other reasoning behind why that particular month should have higher targets than others (for example, November is one of our best seasons each year, because we do our Christmas minis then).
This has been particularly useful for us because we work as a team. My office manager can let my marketing manager know if any particular item is behind on the targeting system, and the marketing manager can do a push on that service. When we reach targets, each relevant team member gets a bonus. Even if you don’t have a team, reaching those targets means you’re:
A – covering all your expenses B – hitting your goals (reason to celebrate, yay!) C – increasing your profits monthly/annually
These targets give us a track-able, meaningful way to be cognisant of our growth, and to be able to celebrate our small wins (something that’s VERY important in business!)