Many business owners miss opportunities to increase their profit by leaving the proverbial money on the table.
We’ve seen clients make five common mistakes that eat into their profit and want to share those with you so you can watch for them in your own company.
The first mistake has to do with pricing. It’s true that pricing one’s product or service can be a very difficult thing to do. But when done incorrectly, it devours a company’s bottom line.
A common pricing mistake is thinking products have to be priced a certain way just because that’s how competitors do it. This might be true if you’re selling the same product to the same people in the same way.
But if your “story” is different — meaning you offer better products and customer service — you don’t have to follow your competition. Help your customers understand the value you add that your competitors don’t and how it will give them a greater return.
Underpricing is another problem. We’ve been shocked at how low some people have priced their hourly rates, and have even told people we’ve hired to perform work for us that they needed to charge more. Learn what your competitors are charging and the types of customers they service, and consider the value you provide your customers when comparing competitors’ rates to yours.
If you’re concerned about losing existing clients, test the waters by raising your rates with prospects. A clear rule for selling services is that if you’re not occasionally losing prospects because of pricing, you’re probably charging too little.
The second common profit mistake is wasting money on marketing. There’s an old joke that “only half my marketing works — I just don’t know which half.” As with any major expenditure, you need to understand your return on investment (ROI) or, in this case, return on marketing (ROM).
Unless you have a way to measure the success of your marketing to help achieve your goals of selling more, attracting more prospects, and building your brand, you’re likely wasting money. Before using a marketing firm, ask how results will be measured. Then start tracking where your sales are coming from, and how often and how much your customers are buying.
The next common profit mistake is not selling to “low-hanging fruit.” In their quest for new prospects and customers, businesses frequently miss opportunities to sell to the easiest people to target — the people they already know.
Current and past customers are a great example. If they’re currently buying something, offer them an additional product or service. You experience this upselling yourself whenever you order a hamburger and the clerk offers fries or a drink to go with it. Continue to stay in contact to let them know about the current products and services you’re offering, or anything new on the horizon. Simply assuming your customers know what you offer can cost you profit.
The fourth common mistake when it comes to profit is failing to control costs. This sounds obvious but unless you’re careful it’s easy to let costs run amok, and a lot of people get burned this way. Negotiate for good prices. Slow down the purchasing process to make sure you’ve done enough research. And make sure you really need the item you’re buying. Whenever possible, run an ROI on any purchase over a certain amount.
The final profit mistake is failing to manage taxes. Every dollar overpaid in taxes is lost profitability. Money is frequently left on the table because business owners either don’t take the time to understand their taxes, don’t want to spend money on a professional, or wait until it’s too late to implement tax strategies. The options to lower taxes are too numerous to mention, but it’s almost guaranteed that if you’re not planning your taxes, you’re paying too much in taxes.
When it comes to making more money in your business, learn from the mistakes others have made. It isn’t enough to sit back and wish your business were more profitable. You’ve got to take steps to make that happen.
Laddie and Judy Blaskowski are partners in BusinessTruths Consulting, Inc.