Let us begin by defining profitability earned in very simple terms. The price of your product less the cost of producing your product gives you the gross profit you will earn per unit of product sold. If we multiply the profit per unit by the number of units sold, we get total gross profit. This implies that there are three distinct ways of boosting your revenue i.e. by increasing the price of your product, reducing the cost of your product or increasing the number of units sold.
Care needs to be taken when altering any of these variables to ensure optimization. For example, when increasing prices, if demand falls more than proportionately in comparison to the price increase, then overall revenue declines. Similarly a decline in cost should not be accompanied by a quality decline otherwise sales and brand equity will suffer. Your task then is to find the right mix of price, cost and quantity sold to optimize gross profits. Some very solid, tried and tested ways of optimizing gross profts are given below.
- Understanding Buyer Behavior: Today’s buyer is extremely sophisticated and aware. She uses a variety of methods when evaluating your product. With just a click of a button, she is able to get reviews and detailed information about your product’s strengths and weaknesses. This means that instead of one way marketing communication, you have to engage the prospective buyer in a meaningful dialogue to understand her needs and pain points.
- Call Tracking: With call tracking you can identify which marketing channels generate the most productive leads. As a result you are able to reallocate your marketing dollar to the channels that yield the best results. Hence, you optimize your marketing dollar for the best return on investment (ROI).
- Trial Offers and Samples: In some cases, giving your product for free serves to increase sales by such a significant amount that your overall revenue rises. This is particularly true of products that are either new to the market. For example, Starbucks often gives free samples of new flavors it introduces. AvidTrak also offers its prospective buyers a certain amount of credit in their account for testing the product. This is free of any obligation to buy. In this way, the prospective consumer who is interested in the product but not willing to make an upfront monetary commitment, is able to try and experience the benefits of your product usage.
- Flexibility: In today’s environment responsiveness to the changing customer requirements needs to be built into your organization’s hierarchy and systems. A delay in implementing solutions could give your competitors an edge and could cost you a loss of market share. Hence, if your organization’s approval system needs to be flexible enough to respond immediately to changing customer needs.
- Adding smart product features: Additional product features that are difficult to copy can create effective barriers to entry for your competitors. For example, as a restaurant owner you might want to offer a sample of your dessert at the end of a meal to customers.
- Forming Alliances: It is highly unlikely that you have all the expertise needed to successfully run every aspect of your business. In this case it becomes critical to form strategic partnerships with the right kind of people. These people share your vision and organizational objective and also complement by providing the expertise that you may lack.
- Customers as Partners: Not only can you form alliances with other service providers but you can also start treating your customers as partners. Research shows that when consumers are involved in the production phase of a product, service or solution they are more willing to pay a higher price. Threadless is an excellent example of a company that used its customer base to solicit ideas for T-shirt designs. The key here is to reward and keep the customer partners motivated to keep contributing.
- Employees as Ambassadors: Most businesses understand the importance of understanding the customer’s unique needs and preferences. However, far fewer seem to understand the reality that the same holds true for employees. Each employee is a unique individual with different motivational needs. More often than not employees are lumped into categories such as high achievers and low achievers. Traditional performance appraisal methods often neglect the individuality and uniqueness of each employee. As a result, employees of larger firms sometimes feel demotivated and lost in a crowd. Attempting to understand each employee on a one-to-one basis is key to a motivated workforce which in turn has an impact on performance and revenue. A happy worker will be the best brand ambassador for your company. Techniques such as incorporating sessions of practicing mindfulness at work have now been introduced by some companies that recognize the importance of keeping its employees happy.
All in all then, if you want to open the door of long-term proft growth, the key lies in meaningful alliances and smart data driven marketing.