Increase your profit without any additional expense – starting tomorrow morning!
This means that you have the remainder of today and tonight to start using `The 5% Rule’ and increase your profit by up to 35% per year.
By simply focusing on 3 aspects of your business you can easily increase your profit and this includes putting your prices up!
I came across this method some years ago and can not remember who needs to receive credit for the idea. Having introduced The 5% Rule to many small businesses in the past, significant changes have returned extra profit for the owners or managers that have implemented this concept. At first they found it hard to believe that you can do this and to get away with putting their prices up but you will shortly find out that this is not as bad as it seems.
(To some degree this concept can also be adapted to service based businesses).
What you will need
You need a printout of your expense accounts relating to:
- Your overheads
- Cost of goods sold
- Total profit on your products
You will also need a clear and creative mind. Be prepared to talk to your staff for their ideas as well and especially if you are struggling to come up with some simple options by yourself.
How does it work?
What you will do is:
- Reduce the cost of goods sold by 5%
- Reduce the cost of overheads by 5%
- Increase your profit margin across all products by 5%
You may not be able to reduce the first 2 by 5%, you may initially only find 3 or 4% but that is better than not at all.
Some ideas to get you started…
Reducing Cost of Goods
- Can you squeeze your supplier for a 5% discount?
- If you are are paying interest as part of your terms with your supplier can you negotiate a discount?
- Can you get a better price on your delivery charges?
- Can you use a different delivery method/courier at a better price?
Where else can you reduce your costs?
Do you use too many biros in a year? Do they all seem to disappear into a mysterious black hole?
Buy all your staff a nice but bottom of the range Parker pen and inform them that there will be no more plastic biros. If you lose this one, you buy the next one.
You will suddenly find that firstly they feel just that little bit more important and professional using a `nice’ Parker pen. They will not lose it and they will definitely ensure that customers do not suddenly walk out the door with `my’ pen.
Use printing paper that usually goes into the shredder and turn it into note pads, rather than buying pads.
Are you giving your employees free personal calls, on your phones?
Its a nice gesture but those calls are not increasing your sales and profit. It is actually unnecessarily adding to your expense and most people already have their own mobile phones now. If you have given employees a work mobile, do they use them for personal calls? This costs you even more.
Can you reduce your electricity costs?
Turn off unnecessary lights and computers overnight or at the least put your computers on the hard disc hibernation setting. Turn off the electronic cash register, appliances and anything that definitely does not need to be on after hours, including anything on standby power.
[Start some lateral thinking about your expenses. One business that I worked with complained that within the last 3 months their sales had quickly dropped off, for no apparent reason. They had filled their street-front windows with display boards to show their new clothing lines. Passing foot traffic started to slow for 2 reasons. The display boards showed clothing to a narrowed consumer taste, deterring shoppers from looking further into the shop. The display boards also meant that passing trade could not even see into the shop. The owner removed the display boards from the windows, allowing shoppers to see the entire range of clothing and accessories as they walked past. Sales increased but they also found that by removing the display boards from covering their front windows they only needed to use one third of their internal lights, as they had now let all the light back in through the front windows. They also unexpectedly found that their electricity cost had now reduced dramatically.]
Can you improve the effectiveness of your yearly advertising/promotional strategy so that you pay less for improved exposure or for better targeting of your market?
(See other articles on this site for new strategies)
Now go through your business and start looking at where you can reduce both your overheads and your cost of goods, each by 5%. If you can make it even more than this figure then all the better.
Increase your sales profit margin by 5%
Most people will immediately panic at the thought of just arbitrarily increasing their prices by 5% but what you are going to do is actually increase only the profit margin by 5%. If you do the maths on your products you will find that increasing the profit margin hardly increases the retail price by that much at all. In fact it is usually hardly noticeable to even the discerning regular customer unless your products are extremely price sensitive.
For example, this means that with an item retailed at $123, the price may only increase to $125 (inc GST).
But you have increased the profit margin on all items on every sale by 5%… get out the calculator and see how much additional income you have just created across 12 months.
Combining the savings from the Cost of Goods and from your overheads to this price increase and there are quite a few thousand dollars extra in your bank every year. The reduced costs have converted savings to your bottom line but also stopped eating into your profit margin and actually become additional profit.
Find the motivation for this exercise
To see how much extra profit you can have , use last year’s financials and start working that calculator. See how much more profit you will have by subtracting 5% from last year’s overheads expenses and subtracting 5% from last year’s Cost of Goods expense.
Now add 5% to last years gross profit.
What is your total extra profit and is it worth aiming for this over the next 12months? Some small businesses have reported back an additional $20-50,000 the next year and now they try to find additional cost savings every year.
If you have employees and you want to reduce your overheads, involve them with a push to be much more environmentally friendly and start reducing the wastage. Get their ideas on cost savings as well and then reward them with a bonus from the additional profits.