Make Wealth Flow Towards You!

How to Increase Your Business’ Profits with Minimal Effort

Posted by on Mar 31, 2011 in Business Management | 19 comments

Today I want to teach those who have a Business or those thinking of starting a business a very simple, very powerful, and almost effortless way to increase profits. And although what I will explain is pretty obvious, most businesses would surprisingly go the complete opposite of what I will share. You might even be practicing this in your business or are planning to do this when you launch your business.

So if you want to increase your profits with minimal effort, then my dear reader, please read on.

Almost all businesses I know at one point in time will resort to discounting as a way to increase their sales.  In fact, this practice has become ‘gospel’ to starting and even growing businesses that it becomes the ‘go-to’ tactic when they want to get more sales. I myself have discounted a lot in the past and even though it gets additional sales, I slowly and painfully realized, that it does something that you will not immediately notice, it will inevitably decrease your overall profitability.

So over the years, I have learned how to increase sales and profitability without resorting to discounting. And believe me, this will be a lesson you would want to take to heart and try on your business soon. But first, let me share why you should take this simple lesson seriously by showing you the math.

Let’s say your product’s selling price is P50 with a profit margin of 30% or P15. Now, the number of people buying that product is 10 per day. So, if we do simple multiplication, your total profit for the day will be P150 (10 people X P50 X 30%) or ( 10 people  X P15 profit ).

Now you feel your sales are low and you want to increase it, and what do you immediately think of?  “let’s give a 10% off promo” or let’s do a “Buy 1 take 1 promo”, etc.  Am I right? Of course I am because I’ve done it myself many, many times 😉

So, let’s take a look at the 10% off promo. 10% off your selling price means your P50 now becomes P45 (P5 discount).  Now, let’s assume that your promo produces 1 more customer or 11 customers for the day, then your total profit will now be P110 (11 people  X  P10 profit). P10 because it used to be P15 but I discounted P5 so my new profit is now P10.

If you get 2 more customers for the day, then profit becomes P120 (12 people X P10 profit)

3 more customers, P130 profit

4 more customers, P140 profit

5 more customers, P150 profit

So what can we conclude in this simple example? If I give a 10% discount, then I would need to add at least 5 more people or 50% more buyers just to have the same profit of P150! What more if you do a buy 1 take 1 promo or a 50% discount? Well, you do the math and you’d be very depressed I assure you.

So here’s my first lesson for you to increase your profit without any effort at all. STOP giving discounts if you really dont need to.

Easier said than done you say? Well, read on as I’m not yet done. In fact, in my businesses, I will go a step further by doing the complete reverse of what most of my competitors will typically do, I increase my prices by at least 20%. Now I know what you are thinking — yikes! Less people will buy from me if I do that — Not necessarily true, but for the sake of argument, let’s take a look at the math again and see what happens when you start losing some customers:

The original profit = P150 with 10 people @ P50 @ P15 Profit. I increase my price to P60 (add 20%) @ P25 profit from P15.

If my volume drops by 1 person to 9 people/day then, my profit will STILL be P225 (9 people X P25)

8 people/day, P 200 profit

7 people/day, P175 profit

6 people/day, P150 profit still

Now even if I lose 4 people or 40% of my volume, I will still get the same original profit.

Okay and I know what you are thinking, increasing prices are in many, many cases viewed by a lot of businesses as “Taboo” or “Evil” or “Un-filipino-like”. And I would agree in some cases, but I do not in many. I do not agree that businesses have to resort to “I’m-a-good-guy-so-I’ll-price-it -just-to-get-by” pricing or “Buy-from-me-because-I’m-the-lowest-priced-in-the-universe”. Thinking that way will surely run your business to the ground sooner or later.

If you are worried about those very thoughts, I want to assure you that you do not have to be a Bad guy when you raise your prices. Far from it actually, and you certainly do not have to be the lowest priced for you to have top sales. What I have learned throughout the years is that price is NOT the only thing that the customer is concerned with.  Customers for the most part are  concerned with 2 other things and sometimes even more so compared to price. 1.)  Quality /assurance and 2.) if it solves their problem.

And so, the 2nd lesson I will leave you with in this article will be this: have the courage and the strategy to increase your price by communicating and even going so far as to guarantee the quality of your product and making sure that it solves a problem that the customer is willing to pay a premium for. If you can do that, you are on your way to increasing your profits with minimal effort.

 

PH Blogs

468 ad

19 Comments

Join the conversation and post a comment.

  1. Ellen C. Valencia

    Learned a lot from the article…been giving discounts in my shop, a strategy i thought as a solution to decreasing sale, now i know. thanks to you.

  2. Norlan Tuazon

    Nice article mark.You’re right! Decreasing the product price isn’t the solution to boost your income. It also downgrading the qualities of your product if you choose to give discounts to the customers.Better to offer them excellent service instead. More power to you.Thanks!

  3. markso

    Thanks for writing in Alvin. Yes, most of the time, those who want everything for nothing …plus a discount are usually those who take most of your time and will not produce the amount you should be profiting. Another article perhaps in the future on this from me. Best!

  4. manuel

    Thanks for the very useful information. How can this tactic help me? I have just started my videography bussiness with only 0ne prosumer digital videocamera. The sad thing is, if my price is high, no customer.

    • markso

      Thanks for writing in Manuel. The notion that high prices equals no customers is not true at all and is the exact train of thought that will lead you to discounting your service. Look at all angles before you think about lowering your price here are 2 things to explore immediately 1.) You might not targetting the right customer group in otherwords the niche you are targetting might already be over saturated (marami kang ka competensya) which is why you feel you can’t charge high. 2. Think in terms of providing more services or solutions that a customer will be willing to pay a premium for. Example free uploading to youtube or vimeo or facebook. Or add additional editing effects or something that makes the customer think that getting your service is ‘sulit’

      I discuss exactly how to do this in my proactive sales and marketing course. So if you are really interested, call us up and book a slot. 😉

  5. GraceA

    Thanks for sharing this Mark! We tried discounting before because we thought it would generate the volume we need – we were wrong; and then when we increased our price, profit actually grew by at least 7% even with customer fall-outs, so can attest to this. More Power!

  6. Peter Chua

    If i increase the quality of service then have to fully dress up my staff

  7. Mabel Deojay

    Some truly wonderful posts on this site, regards for contribution.

  8. aui esviva

    i agree very much with giving the client a quality product and meeting their needs or answering their problem through your product. price will follow.

  9. Grace Lee

    My mom always scolds me when I increase the prices of my baked goodies. She said that other bakeries are still maintaining their old prices and that I should follow the trend or else I would lose sales. But I always explain to her that since my baking supplies have increased then it’s but natural that I adjust my prices.

    Fortunately, my old clients have no complaints when I explained to them the slight increase in the prices… In fact, my client base have increased (through word of mouth) because my sukis have been spreading that my goodies have maintained their quality through my 14-years of baking…

    I have thought myself as a radical person in terms of my business principles…to increase price rather than cut on materials as other bakeshops are doing… but after reading your article, I feel that I’m on the right track.

    Thank you for your articles where we can re-view over and over again and remind ourselves to keep on the right path towards success!!! More Power!!!

    • markso

      Thanks for all the positive comments Grace, but more importantly, I am happy that you are also experiencing and applying the things I write about. It is my hope that others who read your comments will feel inspired to also act and improve their lives. Keep it up.

Leave a Comment

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>