How to Increase Profit: 4 Simple Steps

June 23, 2012 | By | 1 Reply More

One of the most common mistakes companies make when they are trying to boost their profits, is to try and get new customers. Typically this behavior is a reflection of their history. When they were new, they probably had zero or just a few customers. To survive, they had to get more. Getting new customers made sense.

For companies that are out of survival mode, and are instead trying to boost their profitability, acquiring new customers is not the best strategy. Studies by Cap Gemini and Gartner Group have shown that depending on the industry, it costs 3-7 times more money to acquire a new customer than to get an existing customer to make a new purchase.

counting profits

The best profit boosting opportunities lie in optimizing the relationships you have with your existing customers. Here are four simple steps to increase profit:

Step #1 Find and Strengthen Your Pillars

Do you know which five of your customers contribute the most to your bottom line each year? Can you name them off the top of your head? Can all the employees in your company name them? If not, that is a problem to be addressed, and addressed quickly.

Depending on the size of the organization, a loss of any of the top five customers can range from serious to catastrophic. These clients are the pillars supporting your company. Think of your business as a structure sitting in the middle of shark infested waters. Five pillars are arranged in a circle and your business balances on top of them. What happens if one or two of those pillars shrink. What happens if one of them goes away completely?




Part of the key to optimizing profits is securing your pillars. If you look at the amount of time your organization spends on customer service, and break it down by customer, would you find that your “pillars” are the five customers who get the most service?

Most likely they do not. “Problem” customers usually command the most attention, followed closely by efforts to get new customers. Change that. Focus a proportionate amount of attention to customers based on how critical they are to your business. Take the resources being applied to the problem customers and focus them on the pillars. Task those people with making your relationship with the pillars so strong, that they will never crumble. Challenge them to find ways to help the pillars be successful. Be a pillar to your pillars.

Step #2 Inventory Your Offerings

Starting with your pillar customers, take an inventory of all the products and services that you currently provide. Rank them in order of profitability. When all the offerings have been identified, categorize them from one to five. Ones should be the twenty percent of the offerings that are most profitable. Twos will be the next twenty percent, on down to five, which will be those products and services that are in the bottom 20% in terms of profitability.

Now comes the interesting part. Create a grid with clients across the top, and offerings down the left side. Arrange the clients in order of how much they impact your bottom line. The most impactful client should be the first one, and the least impactful client should be the last. For the offerings, which are on the left side of the grid, keep them in order of most profitable to least profitable.

When you have finished creating the grid, go through and for each client put check marks on the products and services you provide for them. This is your profitability map.

Step #3 Attack the Gaps

Look at your pillars. How are you doing in terms of providing your full suite of offerings to them? Any boxes without checks represent an opportunity for you to solidify your relationship. Start with the offerings that are ranked one, and not being used by your pillars, and focus on getting those blanks filled in.

Now look at the rest of your map. Where are the check marks? Where are the gaps? Every gap represents an opportunity to boost your profits. Start with the more profitable clients, and try to fill in all the ones and twos. Educate those customers about the additional products and services you offer. Find out what needs they have and identify ways you can fill them. These efforts will not only strengthen your relationship, but it will also make them more profitable clients for you.

Step #4 Learn From your “Lovers”

As you are implementing step #3, take another look at your graph. Find the five customers who use the greatest percentage of your products and services. These are the customers who just love what you do. They represent a tremendous learning opportunity.

There is some reason or group of reasons that these customers love you so much. If you can find out those reasons, you can apply that knowledge to the way you interact with the rest of your customers. Perhaps a particular salesperson has figured out something that is really working. Maybe the account representative or customer service contact is particularly good. Whatever the reason is, you need to know.

Interview those “lovers” and learn from them. If they say it is because of a particular person in your company, interview that person and find out what they do that is working so well.

Within those interviews lies profit boosting information. Gather it and then apply the learnings to the way you interact with your other customers. Again, start with the pillars and then work your way across the customer list.

Most organizations acquire customers by filling a single particular need. The key to boosting profits is not to go out and get more of those customers. Find and strengthen your pillars so that your organization is well supported, inventory your offerings, fill the gaps, and learn from your “lovers”. Because those four steps are the way to boost your profits.

 
Recommended Books on How to Increase Profit

 About the Author 

John P. Strelecky is the international best selling author of The Why Cafe and a highly sought after inspirational speaker on “How to Achieve Maximum Success with Minimal Effort.” His CD series of the same name has received rave reviews from listeners. A graduate of Northwestern University’s MBA program, John has served as a business strategist for numerous Fortune 500 companies. Through his book, CDs, articles, and appearances on television and radio, he has positively impacted the lives of millions of people. John can be reached through his website at www.whycafe.com
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