Reducing prices at this time of year may benefit your customers and increase their purchases, but make sure you know, what the cost will be to YOU, the business owner.
One risk to your business from discounting heavily or having a sales campaign such as ‘Black Friday’ is that you potentially pull forward sales at a much lower margin than you would have achieved if you had kept your pricing stable. Maybe you gain some market share or capture sales from your competitors but is it worth it in the long run?
Secondly, you may have increased costs, either with paying for extra staff or overtime to be able to deal with the enquiries, distribution or delivery of your service offer. Hence adding a higher cost of sale when you’re also generating a lower margin in the first place due to discounting.
Finally, a higher volume of sales can also affect cash flow, as you’ll likely have to have higher stock levels if selling products, and/or capacity issues dealing with all the service delivery and follow up. Then, this discounting period will be followed by a few months of lower sales due to bringing sales forward.
So make sure you know your numbers!
We all want to increase turnover, but not to the detriment of the bottom line. So, what is the most profitable way of achieving further sales?
In fact “not everyone buys on price”, in many cases the buyer makes key decisions if the seller; clearly understanding and fulfils the customer’s needs, ensures easy accessibility of the product or service, delivers a professional high level of service or on sharing recommendations from other customers.
Unless you have deep pockets and the finances to compete on price, focus instead on those areas where you are different to your competition. Don’t undermine all the effort you may have put into recruiting the best staff, their training and development, continued service delivery improvements or spending your marketing budget by then just reducing your prices to match the competition. It’s easy to get caught up in the euphoria of discount sales campaigns, however it won’t be sustainable in the long run.
2 key areas worth analysing within your business:
- Understanding what products or services you offer which generate the highest gross margin
- Clearly understand your target customers, by size, sectors, demographics and those customers that would obtain a high value from owning your products or using your services
Chase Margin rather than Turnover. Focus your marketing and sales efforts building relationships, improving communication and customer service levels to increase sales and market penetration to your targets customers with the objective of selling more of the products and services with high margins.
What would you rather have? A £5,000,000 turnover business making £200,000 or a £1,000,000 business making £250,000? And what business would be easier to manage and control?
We can all be busy fools, so remember:
Turnover is Vanity, Profit is Sanity and Cash is Reality
If you are looking to grow your business, Business Doctors Cumbria offer a free business health check where we can help you to set a clear vision and understand the steps you need to take to fulfil your aspirations.
Contact us for more information on 07966 686 112 or email email@example.com.
You can also visit our website at https://www.businessdoctors.co.uk/business-consultant/cumbria.