Are You Looking To Improve Your Bottom Line? Start At The Top.
Looking to improve your bottom line? Start at the top.
What is the biggest number on your profit and loss statement? If you said “taxes” please jump to my contact details at the end of this article and give me a call! Joking aside, the biggest number should be your revenue, closely followed by your gross margin. And yet all too often when companies feel some sort of “profit pressure” the first place they look is at their expenses. “Cutting” your way to profitability might provide some short-term relief but generally it is not a winning long-term strategy. Here are 7 ways you can drive your bottom line by focusing on your top line:
1. Understand your most profitable products or services. Don’t assume that all your products and services are created equal. Look for costs that might not be readily apparent. Depending on your industry these might include warranty costs, inventory carrying costs, implementation costs, rebates and royalties, etc.… Once you understand which are your most profitable products and services you can start the process of figuring out how to sell more of them. Which customers, in which segments, at what price?
2. Understand who are your most profitable customers. Closely aligned to #1 you might be surprised at which customers are driving your profitability. The 80:20 rule dictates that 20% of your customers may be driving 80% of revenue. While this is not a hard and fast rule it is worthy of consideration and should be looked at not simply as a revenue issue but as a “margin” analysis. Are those 20% of customers also driving 80% of your gross margin? Possibly not.
3. Make sure that you review your pricing strategy at least once a year. Don’t be afraid to increase prices if the market supports it. Yes, there are customers with long term pricing built into their contracts, but for new customers you don’t have to keep pricing at the same level (well, unless you are dealing with the government!). A small increase across a broad customer segment, can add significantly to the topline.
4. Identify the drivers of customer churn? Identifying the factors that lead to customers not renewing can have a huge impact on your ability to grow revenue. And don’t be surprised if it is not what you think. Identifying early triggers to customer retention can provide you with valuable time to correct the deficiency. One might conclude for example that any contact with customer service is a bad thing and that the more a customer calls in to the customer service department the more problems they are experiencing and the higher the probability they will leave. This is not necessarily the case. If you have a product that requires a certain level of “implementation” or “customization”, those calls in to customer service may be an indicator that this particular client is actually using the product and is seeking guidance on how to implement it properly. Which contrary to what you first thought, is a good thing!
5. Pay reps more for profitable revenue. Introduce a commission scheme that has an increased level of focus on profitable revenue. There are many ways to accomplish this. Two of the simplest are through the addition of commission “multipliers” or through some type of SPIFF.
6. Review your sales processes regularly. This is really about making your sales teams as efficient as possible. Are you hiring the right people? Is your marketing team driving leads that are converting? Are deals being properly “qualified”? Is the rep on-boarding process running smoothly? Have you identified your top performing reps and understood what they are doing differently so that these best practices can be shared? Is your commission plan driving the performance you need?
7. Finally, simplify your product portfolio. If your business has been in operation for a while, it is likely that your product portfolio may have expanded, sometimes far beyond what is required, making it time-consuming to perform upgrades and adding confusion to reps and support staff when developing quotes. Look for ways to streamline your product set by potentially bundling certain products together or simply by removing under-sold items.