Working towards Profits

If you want to earn profits from your business, you must focus on a few essential things.

Do effective Value Chain Management:

To start with – examine your total business value chain from beginning to end. Identify various primary and support activities in the chain and explore how you can transform each activity into a value-creating activity. Also, look for the cost drivers and product/service differentiators in the value chain.

Remember that unless you create value, communicate value, and deliver value to your customers and all other stakeholders – you are not going to make profits from your business. 

Cost-leader or Product Differentiator:

You can work on two different perspectives — Either take the position of a cost leader or a product/services differentiator.

If you take the position of a cost leader, you make cost savings through economies of scale, better supplier relationships, and process efficiencies. In this strategy, you offer your products at much lower prices to your customers and still make profits. But if you take the other position of a product/services differentiator – you can charge a premium price from your customers for offering them an exclusive product. To attain this status, you will have to invest in technology, R & D, and intellectual capital.     

Creating and Delivering Value to Stakeholders:

Irrespective of the fact whether you take the position of a cost leader or a product differentiator – you must create, communicate, and deliver value to your customers, employees, and other stakeholders as explained earlier. Let me explain this with a few examples. Can you improve the inbound and outbound logistics to enhance the experience and satisfaction of your customers and suppliers – and reducing the cost of these operations at the same time. Can you introduce certain changes in your manufacturing processes, systems, and shop floor practices so that the effectiveness and efficiency of your operations are enhanced. Can you do something to deliver more value to your customers for their money? Have you thought of strategies like attractive cuts, discounts, and freebies, high product quality, better delivery schedules, reliability, and flexibility in your services?

What is your customer-value proposition? Deliver more value to your customers for their money!

Cut Frills & Control Expenditure:

As a financially frugal/prudent entrepreneur, you must keep an eye on all avoidable expense items – particularly sales promotion, advertising, and interest costs. These may adversely impact and/or erode your profitability if not provided for judiciously.

Initiate proactive measures to cut frills and avoid all unnecessary expenditure — particularly expenses with respect to sales promotion, advertising and interest costs.

While there is nothing wrong in spending more on promotion and advertising if your business plan justifies the same – decision to indulge in such expenses must always be supported by proper cost-benefit analysis. By the same logic, an entrepreneur must try to minimize the interest burden on his/her borrowings. An entrepreneur should avoid the temptation to raise all kinds of secured and unsecured loans unless the same is necessary. 

Salaries and wages once started cannot be discontinued. It will therefore be necessary to build the organizational team in stages. Unless and until the enterprise can afford a full-fledged salary and wages bill, one should try to manage with retainers, part-timers, and outsourcing options.

Strengthen your Marketing Organization:

You should also do an internal audit of your marketing and selling functions. This will help you in identifying areas where you can cut expenses and add value. Engage with good agents, distributors and dealers who are resourceful, have an incredible track record, good payment history and are reasonably honest in day-to-day dealings. If you selected dealers with good life values and principles (like honesty, integrity) then the rest is easy. You can always train your dealers in your line of business, but you can never teach life values and honesty to them if they are inheriting a dishonest and fraudulent culture.

Remember that your dealers are your business partners, and they must be chosen with all possible care. 

Product pricing policies, margins allowed to channel partners, agency commissions, the pricing structure for distributors, dealers, whole-sellers, semi-whole sellers, and retailers are also crucial as these can improve or erode the bottom line significantly. Abundant care must be exercised while working out policy details with regards to volume bonuses, cash discounts, prompt payment discounts, goods return policies.

Customer Centricity:

Another important aspect in marketing will be customer-centricity.

Any unsatisfied customers should be compensated to ensure they will still consider you for future business. Happy customers are everything.

Purchase decisions almost always come down to value as explained earlier. Effectively providing value is integral to the long-term success of your company; not only does it assist in retaining your current customers, but also provides the highest-quality referrals you can ask for when attempting to gain new business.