Every small business owner has a lot to do but little time to accomplish everything.
Time conflicts start when you sit down to write a business plan for your business. You want to plan, but you also want to get started as quickly as possible.
And things get more hectic when you evaluate everything you have to do to start a business. There are many moving parts, and while some are optional, others must be done before you launch.
Ultimately, whether your business succeeds or fails comes down to one thing. In the long run, successful small businesses find ways to improve their profitability (the amount of money remaining after all business expenses are paid). That’s the only way you can build a sustainable business.
But short of raising prices and alienating customers, it’s not always easy for a small business owner to take the time to focus on profitability.
Unfortunately, failure to do so can doom your business.
Here are eight practical tips you can implement today to increase the profitability of your small business:
1. Evaluate what’s working and what isn’t working.
Wasted time could be a small business owner’s worst enemy.
Your time – and your employees’ time – is limited, but you have a great deal to accomplish every day.
It’s OK to have occasional unproductive days, but most successful small businesses figure out what works and what doesn’t – and focus on the things that work for them.
For example, a considerable amount of your effort may be spent on daily activities that aren’t contributing to building your brand, sales, and profits or accomplishing the other meaningful goals you’ve set for your business.
It might be fun to spend two hours daily on Facebook or Twitter hunting for customers, but the more important question you should be asking is whether your prospective customers are looking for you on those social networks.
Here’s another typical example: some small business owners are so protective of their accounting that they will resist the need to bring in a part-time accountant to help them to maintain their financial records.
While this appears to be prudent – after all, you’re saving the cost of paying a part-time accountant – such decisions turn out to be very short-sighted for many businesses.
If you’re running a solo business, you could be focused on sales during the hours you devote to accounting. Or you can be working to improve your product or service.
You should personally do the things you do great and outsource (to your team or vendors) everything else.
How you can start today: Start by listing on a sheet of paper – or in an electronic document – all of the tasks you do regularly (hourly, daily, weekly, monthly). Do your best to break these tasks into logical areas, such as sales, accounting, marketing, inventory, etc.
Second, assign times to each task. How long does it take you to pay your bills every week/month? If you have to maintain inventory, how long does it take you to review your inventory and order replacement inventory?
Do this for each task to begin to understand the time you are spending on each activity.
Third, assess whether each activity is essential. You’d be surprised how many things we all do during a typical day that add little value to our business. Once you understand the importance of each activity, rank the activities (or logical areas) to understand better where YOU should be focusing.
If you’re like me, you’ll find plenty of activities that are only modestly important – but those activities sometimes take the most amount of time to accomplish. Determine whether those activities are sufficiently important to continue – or whether you need to find someone else (part-time or full-time) to help you with those activities.
We all have areas in which we excel. And we all have areas in which we don’t. Focus on the areas where you bring the most value to your business and find the right people to fill the gaps in areas you don’t.
If you focus on the things that work, you’ll be more efficient and productive, and you’ll see a meaningful impact on your bottom line.
You can also look to see what’s working and what isn’t in specific marketing channels. For example, if your website looks like it was designed in 1999, consider a redesign—more about this in 10 Important Web Design Best Practices and Tips for Small Business Websites. If you’ve been running your business for a few years, your visual identity is deficient, consider rebranding.
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2. Experiment with hyper-local advertising.
Many small business owners don’t know that it’s possible to target prospective customers on Facebook based on the language they speak and where they live and work. This means that a bakery can advertise to people who live within a certain mile radius of the bakery.
A language tutor can advertise to families who speak Russian or Chinese – within a 10-mile radius – to target families that may want to hire a tutor for their kids.
How you can start today: Advertising on Facebook can be inexpensive and, more importantly, measurable.
When you place a print ad in your local newspaper or a Yellow Pages directory, you are rarely able to determine whether the cost of the ad is justified.
However, when you run ads on Facebook, you’ll get reports that will tell you exactly how much it costs you. By combining your Facebook advertising with your analytics reports, you’ll be able to measure the effectiveness of this type of advertising.
I am not suggesting that hyper-local advertising will work for you – but you should give it a try by setting a small budget and experimenting.
3. Study your competitors.
Most small businesses are so focused on their activities that they never take the time to understand and evaluate their competitors.
This is a mistake.
While you no doubt are operating your business better than many of your competitors, you’ll always learn from studying your competitors.
Sometimes, you’ll learn what you can do better. Other times, you’ll learn about what you should NOT do.
How you can start today: Here are ten tips to help small businesses evaluate their competitors.
4. Set meaningful goals.
Most small businesses – even successful small businesses – fail to grow because the owners don’t take the time to set meaningful goals.
I’ve talked to thousands of small business owners. Most want to work for themselves and operate a business that will provide them and their families a good standard of living.
But those aren’t the goals I’m talking about.
Most small business owners fail to set quarterly or yearly goals for their businesses. They operate the business, focusing on day-to-day activities, without establishing what they hope to accomplish within a certain amount of time.
While your overall goal can be to make a ton of money and find enough free time to enjoy other activities, you should establish operating goals for your business. For more on this, read Lean Marketing 101: Setting Goals.
How you can start today: You can start by asking yourself where you want your business to be six months from today? One year from today?
If you are the sole owner/employee, do you want to have five employees in one year? If you have five clients, is your goal to have 15 in six months? If your revenues are $30,000 this year, do you want to have revenues of $75,000 next year?
For example, when we evaluated whether to participate on social networks, we looked at five goals: lead generation, building a community, building brand awareness with a new audience, managing brand perception, and customer service. You can read more in Can Social Media Help My Company?
You can also leverage goal setting in the products you use. For example, if you use Google AdWords, you might not know that they have a “smart goals” feature that can help you meet your marketing goals.
5. Find time to develop a strategy.
Most successful small businesses develop intelligent strategies and execute those strategies.
Yet, many small business owners confuse decisions and strategy.
Every small business owner makes decisions about their business. For example, they decide where to market, how to market, how much money to spend on marketing and sales, what types of products and services to market and sell, etc.
These decisions are important – but they are not a strategy.
These day-to-day decisions are like the moves we make in a game of chess. Knowing how to make a move lets you play the game.
It takes strategy and execution to win.
How you can start today: You can start by making sure that you set aside sufficient time every month or quarter to assess and develop your strategy.
We made a mistake when we first launched crowdspring by focusing solely on day-to-day activities. Because we were swamped, we didn’t set aside sufficient time to develop a strategy. We mistakenly assumed that our daily decisions were executing our strategy (but we later realized they were not).
When you develop a strategy, you’ll want to focus on your goals (it’s impossible to develop a strategy if you don’t understand your goals). Assess your product/service offerings and determine whether you need to expand or reduce the number of products/services you offer. Some questions you might ask about your business:
- What is my current strategy?
- What is happening in my industry or with my competitors?
- What are my growth, sales, and profitability goals?
- What products and services do I currently offer?
- What products and services do I want to offer in the next X months?
- What will I need to do to sell these new products/services?
- How will I compete against X, Y, Z competitors?
6. Market to your existing customer base.
It’s substantially cheaper to market to your existing customer base than to find new customers. Some experts estimate that it costs between 5 to 25 times more to acquire a new customer than to keep an existing one.
How you can start today: Look at how your customers are using your products or services. Are they staying with your products/services for a long time or using for a short time and leaving (this is called “churn”).
A churn rate is the percent of customers who terminate their relationships with your company in a specific period (a month, for example).
Once you establish a baseline churn rate for your business, you can start assessing why customers are leaving and which customers are more likely to leave or stop using your products or services.
The mistake many business owners make is to think of churn as a given rather than an opportunity to improve.
Churn rates can offer many interesting insights into your business. For example, a high churn rate could mean that you need to focus on improving your company’s products or services. It can also mean that you’re simply marketing to the wrong customers and using your marketing budget unwisely.
7. Audit your expenses.
Take a close look at your expenses.
For example, it’s not uncommon for business owners to sign up for online services and then stop using them or reduce usage.
Sometimes, a cheaper plan is perfectly sufficient, saving you hundreds of dollars per month in fees.
Other times, you’ll find you no longer need the product you tried using six months ago and then promptly forgot to continue using.
For example, I regularly audit our vendors and find that we can save from hundreds to thousands of dollars every month by reducing specific monthly plans and eliminating other products that we no longer need.
When it comes to outsourcing things like custom design services, don’t assume that you’re getting the best value. Look for pricing sweet spots. Use this cost of design guide to understand better what custom logo design, website design, and other custom design services should cost.
The significant advantage of cutting expenses is that for every dollar you save by eliminating a cost, you gain an extra dollar in profits.
How you can start today: Look at the paid products and services you use and eliminate those you do not need.
Don’t hesitate to negotiate with vendors if you’re paying for certain recurring products every month – many vendors will entertain a discount if the alternative is to lose you as a customer.
Also, take a close look at your employees to be sure they’re correctly trained. It’s not uncommon to have extra expenses because your staff is incorrectly trained and is doing certain things that could be done differently and for less money.
8. Ask your employees for ideas.
Your employees sometimes know your business better than you know it.
Chances are they’ve been talking with customers and have their ideas to cut costs or to increase revenue. But they’ve stayed silent because they’re busy doing the jobs for which you hired them, and nobody asked them for their opinion.
Leverage your team – ask!
We have only one weekly meeting at crowdspring. It’s our “roadmap” meeting, where we discuss and evaluate suggestions from our team. We’ve done this for 13 years, and it’s one of the reasons we continue to innovate and lead the market.
How you can start today: Make sure to acknowledge employees who offer suggestions – even if you ultimately decide not to use those suggestions.
It’s crucial that employees feel you are listening to them – not just asking for ideas.
Otherwise, they’ll hesitate to offer suggestions the next time you ask.
And if you implement an employee’s idea, make a big deal out of the fact that they suggested that idea. And importantly – find a way to track all suggestions and what you’re doing with them. A simple spreadsheet or document is sufficient (we use Asana to track ideas we generate internally and Basecamp to discuss those ideas asynchronously).