Two ways to increase profits without new business

When business owners seek to enhance profitability, the initial inclination is often to reduce operating costs. While this approach may seem reasonable in theory, in practice, there is a limit to how much costs can be cut before compromising the quality of products or services. Consequently, a reduction in value can negatively impact customer satisfaction.

On the contrary, increasing value for customers may lead to higher business costs, as superior products and services come at a price. However, there are two potential strategies for increasing profits that may be overlooked:

1. Upselling to existing customers:

Upselling, a strategy effectively employed by companies like McDonald's, holds significant potential for boosting turnover. Rather than solely focusing on attracting new customers, businesses should consider the untapped opportunity of upselling to their existing clientele. Research shows that acquiring new customers is six times more expensive than upselling to current ones.

To explore this avenue, business owners should ask themselves key questions, such as:

• What is the average sale value, and is there room to bundle products or services to increase it?
• Can special offers be proactively communicated to customers before they inquire?
• Are customers aware of the full range of products and services available?
• Can the selling process for smaller-sales customers be elevated to match the approach used for high-value customers?

2. Prioritising higher-value customers:

A common mistake business make is accepting all customers without considering the value they bring. While turning away potential clients might appear impolite, it is essential to recognize that some customers can be more trouble than they are worth. These "problematic" clients often demand excessive resources, leading to decreased profitability.

To address this issue, businesses can classify customers based on the value they contribute and identify customers who cause difficulties as "D" category clients. The approach with such clients can be two-fold:

• Re-education: Communicate with them politely, expressing the challenges faced in managing the relationship, and work toward a mutually beneficial resolution.
• Parting ways: For clients deemed unmanageable, consider amending terms or conditions to address the challenges they pose and communicate this in a courteous manner.

By mitigating the impact of troublesome clients, businesses can focus their attention and efforts on high performing "A++" customers. These valuable clients should receive special care, including regular communication, exclusive offers, and opportunities for upselling. Satisfying their needs may lead to referrals from similar high-value prospects, expanding the customer base.

Ultimately, increasing profits goes beyond merely cutting overheads or attracting new customers. Businesses should leverage their existing assets and prioritise customer value to maximise profitability.

For further guidance on assessing market positioning and developing or revising business plans to elevate your enterprise, reach out to your Mazars advisor. Alternatively, you can contact our experts via the provided contact information for specific locations.

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