No one goes into business to lose money. Check out these six tips to help improve profitability.
At a glance
Here’s a snapshot of the tips from our interviewee:
- Use financial management tools to show you what's coming in and what's going out each month.
- Attracting new customers is important but expensive. Retaining them can be more cost-effective.
- AI is here to save you time and money. Explore its possibilities.
Making a profit is key to a small business’s survival. Use these six tips to get the basics right and help your business grow.
1Understand your numbers
Knowledge is power, and having a thorough understanding of what money is going in and out of your business at any one time can help you detect any cash flow issues as they arise – and also plan for the future.
Financial management tools such as Xero or QuickBooks Online can get you organised and analyse your data, advises Anna Jonak, founder of The Elevatory business coaching.
“Then it comes down to pulling your monthly reports and understanding what the numbers mean so you can make strategic decisions,” she says.
2Make sure your marketing is effective
“Marketing is the lifeblood for most businesses but it’s only worthwhile if it’s effective in attracting new customers,” says Anna.
Otherwise, you’re just wasting time and money.
Some of the best marketing methods for business owners on a small budget include networking in their local community or running small events, working with partners and collaborators, and using micro-influencers to help create viral social content, she suggests.
Product businesses should focus on Instagram and TikTok while service-based businesses should concentrate on Instagram and LinkedIn. But gaining good traction is “a lot harder than it used to be”, adds Anna.
“So it’s vital you’re tracking what content is working and what isn’t.”
Google Analytics and Shopify analytics can be helpful while for socials, Meta Business Suite, Later, Tik Tok Ads Manager, LinkedIn Analytics and Hootsuite can all tell you which content is banging – or clanging.
And this can all be done in-house, says Anna.
“Upskilling team members to run and analyse your marketing is cheaper than outsourcing to an agency.”
3Focus on customer retention
“Lots of businesses focus on attracting new customers but retaining them requires a lot less cost and energy,” explains Anna. “Businesses can only really grow through retention.
“Product-based businesses may want to look after current customers with discounts, loyalty and reward programs, VIP offers and new launches. For service-based businesses, think about check-in points, automated emails, releasing new content, referral schemes and a clear ascension model through your programs.”
To retain customers, businesses also need to provide top-notch customer service (ensuring staff in these roles are well trained), plus simplify their customer experience through support systems and automation.
Email marketing to an established list of contacts can also help to nurture relationships.
“This is about providing value-based content, whether a checklist or a short-form article driving to a blog post, or video content driving back to your social media. It’s also worth sharing a bit about yourself so your customers understand the human behind the business.”
4Make the most of AI
From writing product descriptions and email sequences to social media posts, and blog articles and using the right hashtags, AI is there to help small businesses, says Anna.
“If you feed AI the right information and teach it about your business, who you are and how you talk, then it can start to talk like you. You can literally task it to write a four-part abandoned cart series or a nurture sequence that you can then tweak. Just be careful to fact-check and make it your own.”
AI is also helping small businesses with ideas and research, in customer service and support through chat functions on their website, and in data analytics.
“If you’ve done a customer survey, run the data through AI and ask it to take out the key points or pain points of customers that you can then leverage in your marketing,” says Anna.
5Get the price right
Overcharging for your products or services can drive customers away while undercharging could drain profits.
Prices should be based on the total cost of sale (including production marketing, sales and all overheads) plus margin or profit, not how much the competition charges for similar goods or services. You may also want to consider setting prices that align with the quality of your work if you can communicate that value to your customer base.
Revisit your pricing regularly – and each time shipping, material or staff costs increase, Anna advises.
“Business owners need to spend time looking into market position, business costs and margins to ensure their price is sustainable.”
This article was originally published in 2018 and has been updated with new insights and interviewees.
6Invest in a coach
While investing in staff training is important, investing in your abilities as a business owner can have an even greater impact on your business, preventing you from making costly mistakes and helping create long-term growth.
“Business coaches are a fresh pair of eyes who can see gaps and opportunities that you can’t,” says Anna.
“By stripping everything back and reviewing the numbers, they’ll advise you on business structure, strategy and processes. They can help set up your marketing, help you see what’s possible and often, double your revenue.”
This article was originally published in 2018 and has been updated with new insights.
Speak with one of our small business lending specialists about how a Prospa Small Business Loan could help you increase profit and achieve your business’s growth goals in 2024.
