How to increase profits By: Refat Homsi Management Expert & Consultant

How to increase profits

By: Refat Homsi Management Expert & Consultant

A ) Start with Sales and Marketing Issues

1 )Offer whatever the Customers want

You are expected to supply what the market

wants , Both by means of market research

and by listening and responding to the individual needs of each customer

2 )Concentrate on existing Customers

*It typically costs 5-10 times as much to acquire a new customer as it does to retain an existing one.

*Some companies can boost profits by almost 100% by retaining just 5% more of their customers.” Harvard Business Review “

3 )Utilize the Referrals

Encourage your customers to refer you and your business in their contacts

4 )Get more from every Opportunity

. Repeat Business: make sure that you get repeat business by rewarding customers for

their loyalty.

. Product range: extend your product rang to include complementary services such as installation, training, technical support,

servicing, repairs and extended warranties.

5 )Select the Product

Find exactly the right Make, Model or Version.

6 )Select the Supplier

. Value for money . After-sales support

. Availability and service

. Location . Attitude to quality

. Delivery time . Guarantees

.Credit terms . Reputation.

.Training

7 )Commission Schemes –Apply the good, Avoid the bad

*Good : connect commission with

Profitability Targets * Bad :Apply commission on Sales Amount

A bad commission scheme

Sales Deduct: cost of sales at $7 each

Gross profitDeduct: commission at 10% of sales

Total profit

1000 (700)

_____________________________

300 (100 )

_____________________________

200__________________________________

1125 (875)

______________________________

250 (112)

______________________________

138__________________________________

Selling 100Unit at $10

$

Selling 125Unit at $9

$

8 )Utilize the principle of Pareto

•*20 per cent of Your customers will generate 80 per cent of your sales .

•*Another 20 per cent , not necessarily the same customers, will

generate 80 per cent of your profits.

9 )Treat Complaints as an Opportunity, not as Threat * Of the customers who register a complaint, as many as 70% will do business again with your organization if the complaint is resolved effectively* This figure goes up to 95% if the complaint has been resolved quickly, * Customers who complain and get satisfactory

results are 8% more loyal than if no complaint at all

10 )Double your Advertising Budget

. Choose your Media ,TV ,Newspapers …etc carefully

. Look at the cost . Effective cost per thousand

of target persons

. Make up proofs for two or three Options

.Monitor the responses carefully

B) pricing

11 )Price for Profit

. Option A – they could increase their sales

volume by 20 per cent if they reduced prices by 10 per cent to $9.

. Option B – they could put up their prices

by 10 per cent to $11, but then would lose 10 per cent of their sales volume.

January profit and loss Account

Sales ) A: 1200 at $9 each ) 10,800

(B: 900 at $11 each ) 9,900

Deduct: cost of sales ( A: 1200 at $7 each) ( 8,400)

(B: 900 at $7 each) (6,300)

Gross profit 2,400 3,600

Deduct: fixed overheads ) 2,500 ) ) 2,500 )

Net profit / )loss)

Option AReduce price

$

Option BIncrease price

$

________

____ ____ ($100 )

__________________________________

$1,100__________________________________

C) Discount – the forgotten cost

12 )The Golden Rules of Discounting

. Set clearly understood limits.

. Monitor the total level of discounts given as a percentage of total sales value.

.Monitor the average percentage discount granted by each member of the sales team.

13 )Use Discounts Strategically

.Make sure that you only reward sales the company would not have made without the discount.

.Present your discount structure in as favorable a light as possible.

Sales$ Discount

$

Discount as percentage of

sales%

Up to $11,000 nil nil

$12,000 200 1.7

$14,667 733 5.0

$24,000 2,600 10.8

14 )Minimize Your Costs

.Pay less

.Use less

.Waste less

.Do things differently.

D) Cost of Money

* Interest charges are paid for the use of money borrowed .

*Interest charges and dividends are among the biggest elements of cost of a business yet

ABC Company incorporatedCost Structure

The consumers dollar 100%

Cost of money:

Cost of money in the manufacturers business

including interest charges and depreciation 14%

and maintenance of equipment.

cost of money for distributors rough 5%

estimate .

Profits before taxes : of manufacturer, wholesaler, and retailer ) but excluding, as it cannot be known, profit of material suppliers )

11% 30%

__________

The cost of money 30%

»Thirty per cent represents the cost of money in the price of a product

Hidden Cost

15) Take care about Hidden Cost

E) Cost of Delay

A delay of six months in getting an equipment means, in effect that six months

production is lost .

Cost reduction by absorbing overheads Sometimes, it may be a wise policy to accept an order even if there is no profit in it but it

must cover ( plus Direct & Variable Costs ):

Hidden miscellaneous costs

Packaging, Storage, Transportation, Movement and Distribution.

Often conventional accounting records will not show important costs such as cost of movement

the cost of idle time or the cost of delay.

The cost of movement of materials in the cost of an engineering product could be as high as 30%.

That is why layout of a factory and the movement of materials have to be very carefully examined , a little extra thinking may save

millions of dollars..…

ABC company incorporated The consumer dollar 100%

Physical movement of material and goods:

(A )From materials supplier to factory ; from warehouse to machine and through the factory5%

(B )From machine as finished goods through packaging , crating , shipping , warehousing to wholesaler7%

(C )By distribution

(wholesale and retail) 6% 18%___________

This is a good example showing the high cost of physical movement.

16 )Save Money by spending Money

The cost of additional fuel, The cost of additional maintenance of vehicles, the cost of time wasted of nervous strain – all very

real and all caused by bad roads.

F) The cheapest is often the most expensive

*Cheap equipment is very often the most expensive as it leads to serious loss of

production owing to breakdowns

* Research and development expenditure could be entirely high for three or four years. But when something developed it might be of enormous advantage to the

company

17 )Remember Parkinson’s law

* Every extra worked employed has a snow – balling effect . There must be people to pay his wages , to keep his leave records ,his loans & expenses

* All this creates more work and in it is turn , leads to even more staff

* the more people you have , the more work you create

18 )Manage Your Debtors

*New customers

A customer who can not pay is worse than no customer at all.

* Your best protection is to make proper credit enquiries which include:

.Name and address of business

.Type of trade.

.Annual Turnover

.Length of time in business.

.Name and address of bankers.

.Name and address of two local trade

referees.

19 )Stick to Invoice time

* Give customers your invoices as soon as you have finished the sale .

* Find standard supplier payment policy

20 )Consider to discount your Bills

Banks Will lend you up to 80 per cent of the value of your outstanding invoices. utilize

this service when required.

G) Business Threats

21 )Consider Cash is King

Running out of cash is the biggest single reason why companies fail.

22 )Don't over-borrow

. Never borrow more than you know you can afford to repay .

. Take account of the worst-case scenario, not just the most optimistic .

.Never borrow to finance projects that don’t make sound business sense.

23 )Don’t over-invest

Pay attention to ROI , Return On Investment Ratio . Do not accumulate your over Assets as it will make your ROI down . You have to make balance between your Sales Turnover and Assets value including Working Capital to secure a good Assets Turnover Ratio

24 )Manage your Risks by avoiding:

. Over- dependence on key members of staff.

. Key staff being attracted by your competitors.

. Disclosure of sensitive information to your competitors.

. Over-dependence on computer systems.

.Over-dependence on key customers.

.Over-dependence on certain suppliers . (This doesn't necessarily mean your largest suppliers. It could just as easily be a small supplier whose product or service is critical to the success of your own business .)

. Over-dependence on one key product.

. Interruption to your normal business activities should any of the above

disasters occurs by:

1 -Take action to minimise the chances of their occurring in the first place .

2- set up systems and mechanisms to minimise their effect if they do happen 3- if it can be cost effective, adopt insurance to provide financial compensation should

the worst still happen.

25 )Money is not every thing but also …..

. Number of customer complaints

. Proportion of orders delivered on time

. Proportion of sales leads converted into customers

. Number of items rejected by quality control

. Staff turnover

. Machine down time

. Your own customer satisfaction index

H) And Finally

26 )Work for Continuous Improvement

* Continuously review and improve your objectives , activities , processes , plans and programs .

* never accept the one - way to do things for ever