It sure seems to be a mystery as to how businesses become so wealthy, grossing millions of dollars each year. Is it stocks? An expensive, well-sold product? High-end service fees?
More likely than not, it’s one of the above – but not necessarily. When thinking in terms of gross income, it comes down to simple, third-grade mathematics – specifically multiplication. Think about it this way – if you want to make a million dollars, there’s a formula you can follow:
Sell a $200 product or service to 5,000 people.
Sell a $500 product or service to 2,000 people.
Sell a $1,000 product or service to 1,000 people.
Sell a $2,000 product or service to 500 people.
Sell a $4,000 product or service to 250 people.
In business, we all have business income goals, and making one million dollars seems to be an enormous milestone for most businesses. It also seems that more and more businesses are able to make a million dollars quite easily, although not as cleanly as the chart listed above makes it seem (e.g., retail sells many different items at many different prices, so it becomes a matter of addition and not multiplication).
If you’re not meeting your yearly income goals, there are a few things you may consider to increase your business profit.
Increase Your Online Marketing
When reaching out to our target customer, the small to mid-sized businesses that dot America’s cities and towns, we’ve found that a lot of businesses “don’t do” online marketing.
In an age where people want to instantly know the rating of a restaurant or café, they’ll Google it – and right there might be an instant “4.3/5”-star rating for that business. People then look for their Facebook page, or their Twitter feed. If that business is not active on social media, or inconsistently posts engaging content, then more likely than not that business will be losing tens of thousands of dollars of revenue each year because users cannot find what they perceive as legitimate feedback on that business.
By marketing your business online, you increase your credibility as a business. At this time in the century, the baby boomer generation of business owners is declining, and millennials are taking over – and we know social media. We also know when a business doesn’t look appealing, isn’t professional, and is not a very popular place to be simply because their social media isn’t maintained properly. It’s like a country club that never mows the grass on the golf course.
Lower Your Overhead
There are a few terms in the business world that you’re most likely familiar with, not the least of which are “profit margin” and “overhead”. Your profit margin is the percentage of profit left after you receive income from your customers, pay your company’s bills, compensate your employees, and set aside money to pay your quarterly taxes – and these costs are called your overhead.
How do you increase your business profit this way? Simple! By lowering your overhead, your profit automatically increases. It’s common sense, yet many businesses fail to do this and end up going bankrupt; they created a black hole monster that sucks in the business’ profits and only leaves a deficit each quarter.
If you lease a building to run your business out of, think about moving to a less expensive location. If you’ve hired too many employees (and especially if you’re not out there doing some of the work yourself), it’s time to let a few of them go and get your hands dirty. You have to pay yourself last anyway, so you might as well earn it if your business is sinking.
Change Your Prices
If the prices of your products may be the issue, the best way you can make sure that you’re not under-charging or over-charging is by matching industry prices. This at least puts you on an equal playing field with your direct competitors, and by increasing your marketing (hint-hint) you then get an edge over your competition because you’re more present in your customers’ hearts and minds. Once you’ve gotten more customers in the door, then you can slowly (slowly!) raise your prices and cloud them with discounts and deals (seems shady, but that’s just business, baby!).
In short, create a long-term financial strategy for your business so that you don’t have to close up shop. The bottom line is that you need more sales – if your prices, marketing, and profit-to-overhead ratios aren’t balanced, you’ll be sure to run into issues in the future.