Six Break-Through Ideas To Immediately Increase Profits
And Improve Cash Flow
by Salim Omar

Too often in business we get trapped into reviewing our sales numbers without analyzing the all important “profit” number. This is commonly referred to as the “bottom-line” of a business. After consulting with over 1,400 small business owners, I have seen a few ways that will dramatically impact your profitability and cash flow.


1. Under Pricing Kills Profits!

Many small businesses have thinner profit margins than larger firms do because they tend to under price their products or services. So why not just raise prices? I know the feeling—you’re scared that your competition might swoop in like a bird of prey and your customer base might shrivel overnight!

If you have thought about raising prices but haven’t done so, let me give you an example that may give you the confidence to do so. My client, Steve Lopes of Stanley Steemer based out of Edison, NJ had a positive experience from raising prices about a year back. After giving me much resistance to my advice to raise prices, Steve agreed it would be prudent to test it. The result? Sales and profit went up for the month in which he raised prices and Steve was pleasantly surprised at the little, if any resistance he got from his customers.

Since then, Steve has increased prices 2 more times. What happened to sales and net profits? Sales surged by 25% for that 12-month period and net profits for that same period skyrocketed by 84%. Since Steve’s sales are in the 7 digits, these sales and net profit increases equate to very significant numbers. Best of all, it allows Steve with a lot of extra cash to do things he wanted to do in his business and personally.

Still unsure about raising prices? Remember, you can always cut them back. More likely than not, you’ll be surprised at the positive impact it’ll have on your business, assuming of course you continue to provide the same or better level of service to your customers.


2. Is The Marketing Working?

Make your advertising accountable.

You’ve probably heard the familiar maxim: “Twenty percent of my advertising brings in 80 percent of my business, but I don’t know which 20 percent!” I see that as a common problem with many small-businesses. They don’t track their marketing to know what’s working, what’s not. This problem stems from a bigger problem and that is not being aware of the difference between institutional and direct-response advertising.

Institutional advertising, also known as image advertising, is all about you, the business owner. How great you are, your qualifications, years in business, “full-service” product line, etc. It’s the most common form of advertising. You see institutional ads every day in print or in TV. They’re often cute, creative, funny, utterly ineffective and not trackable. Simply put, an institutional ad has no way to track results and is there to keep the company name in front of the public.

By contrast, direct response advertising is all about your customer and his or her needs. Its purpose is to stimulate a phone call, letter or a visit. Best of all, unlike an institutional ad, it is trackable so you can make every dollar you spend on it accountable. This then helps to measure the effectiveness of each ad.


3. The Easiest Way To Profits

Keep a lid on spending! Resist the urge to spend freely. You may like the way a lavish office and expensive furniture looks, but does it really contribute to your business? In some businesses, a fancy office is critical; in most it is not. I once had a small business owner who spent $5,000 on his front office desk in a business operation that had no “office visits.” Needless, to say, this business owner did not survive too long in business due to this and other extravagances. Get as much value out of every transaction, whether you’re leasing office space or stocking the kitchen.

Important caveat: Don’t compromise when it comes to spending money on your own self-development. Small business owners don’t give this enough importance and thus spend far too little money in this area. This is a big mistake. As an example, in the next 5 weeks, I’ll be attending three conferences across the country and investing about $4,300 in seminar tuition fees, travel and boarding. Not a small chunk of change you would agree, but in my opinion, well worth the investment. You are the most important asset in your business. Take good care of you.


4. Have You Got A Back End For Every Sale?

Most small-businesses ignore the easy money to be made with a back-end sale.
Yet, the really smart business owner never forgets that the most profitable words in the history of business were: “Would you like fries with that?” I have read that these words instantly doubled the total sale.

Your biggest expense is reaching a new customer. If you succeed to winning him over to the point that he pulls out his wallet and gives you money. . . he will often continue to give you money if you offer something else. Yet, you do not need any expensive advertising to do this – he’s already listening to you. You simply have to open your mouth and offer him something else.

Savvy small-business owners will have something more expensive to sell, and something less expensive. Something else that fits in with whatever the initial sale was. . . and something else that just has broad appeal. But they will always have something on the back-end.


5. Outsource Judiciously

One of the battle cries in business today is to determine the one thing that your business does best, become even better at it, and outsource absolutely everything else. There is certainly a lot to be said for taking a careful look at every function in your business and asking yourself if you should outsource it. But take a hard look at the numbers before you decide to jump on the outsource bandwagon!


6. Knowing The Lifetime Value of Your Customers

The lifetime value of a customer is one of the most valuable things you as a business owner can know. It is simply the total profit of an average client over the lifetime of his or her patronage – including all back-end sales less all advertising, marketing, and incremental product or service fulfillment expenses.

Example: Let’s say that your average new customer brings you an average profit of $100 on the first sale. He or she repurchases three more times a year, with an average profit of $150 on each reorder. Now, with the average patronage lasting two years, every new client is worth $1,000: {$100 + (3 x $150) +(3 x $150)} = $1,000.

There are 2 important lessons here and understanding them will make a HUGE difference in your business. The first one is this: If the Lifetime Value of a customer is $1,000, how much can you theoretically afford to spend to bring a new customer in and still break-even? The answer is up to $1,000. This is an important number to know as you make important business decisions on what advertising medium to advertise in, how to compensate your sales people and what price/fees to charge for your product or service.

The second lesson is that the key to keeping customers is to develop a long-term relationship with them. A customer on your database is not just a name. It’s a real person with changing and evolving needs and wants. They are being constantly bombarded with a hundred other options. You need to do whatever it takes to keep them loyal to you. . . and keep them out of the competitors reach because the Lifetime Value of each customer is so great.

It has been said, “Sell the sizzle, and not the meal.” I say, Sell the sizzle BUT DELIVER THE MEAL! AND the salad AND the hors d’oeuvres AND the dessert AND the limo ride to and from the restaurant. Take care of your customers, there’s a huge bounty on their head!

Salim Omar is the leading authority for small-businesses in New Jersey. He is the author of a new book titled: Straight Talk About Small Business Success In New Jersey, now available in all local Barnes and Noble bookstores and on Amazon.com.
He can be reached at (732) 566-3660 or via email at Salim@OmargroupCPA.com