The sixth strategy in this business growth series is all about “margin”.

In the previous four articles of this series we have covered:

  1. Increasing Customers and Clients
  2. Increasing Transaction Frequency
  3. Increasing the Transaction Value
  4. Effectiveness of the Sales Process
  5. Making things Flow (Run Smoothly)

In the next two articles we will consider how to increase the margin that you make on sales and the dramatic affect it has on your bottom line … and I am not just referring to business that sell actual products!

The margin of a business can be affected in predominantly two ways:

  1. Selling price
  2. The price you pay for items you on sell

Selling Price

The one thing that I hear regularly from clients is “we can’t raise our prices because we won’t win any quotes or our competitors charge the same amount”.  I accept that there are instances such as competition that allows no room to increase pricing. For instance 12 years ago I purchased a new Commodore S Pack. Today I could purchase a current model Commodore S Pack for the same price.

The first question I ask is “How do we know that we can’t increase prices?”. Usually there is no actual evidence of this … rather a fear.

When reviewing many businesses the owners say they are working too hard. Further investigation shows that they are winning more than their fair share of quotes.  If your customers usually gather three quotes for a job and you are winning more than 1/3 of your quotes it indicates that you are performing better than average.

Consider the following, if we were to raise our prices by 5%, how many clients would we have to lose to be worse off:

  Transactions Value Total
Before Price Rise 200 $100 $20,000
After Price Rise 192 $105 $20,055

So, if you lost 5% of your customers you would still generate the same income, but importantly you would have more time … 5% more time!

If you are currently working a 40 hour week, after the price rise you would only need to work a 38 hour week … what could you do with an extra 2 hours per week?  Attend your son’s football match, watch your daughter’s gymnastics, go for four half hour run/walks to improve your fitness and overall health, or take your partner out to a movie. Maybe losing a few clients would actually be a good thing!

As a business owner there is the constant pressure to bring in more work. Often this results in pressure that we put on ourselves to chase the sale, not value it correctly and discount.   Rather we need to take time to sit back and evaluate our sales process to make sure that we value ourselves and are confident with pricing.

Car makers demonstrate this very well. There is a car in every price range! Ferrari are not concerned about their pricing, they make significantly less but superior vehicles than other manufacturers and are extremely profitable.

If you would like to explore changes to enable your business to flow more effectively and any other business growth strategies, please feel free to contact us.

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