If you’re looking for ways to increase business profits, but you’re not in a position to expand your business, you might be considering raising your prices. There’s nothing inherently wrong with this approach. After all, everyone raises prices periodically to keep up with rising costs and inflation. However, raising your prices isn’t technically a profit strategy. Any gains you experience will be small and temporary.
Here are some better ways to increase your profits that will support long-term business growth and customer retention.
1. Look for ways to recover lost funds
Every business leaves money on the table. This is unavoidable because there are too many variables to keep track of and calculate. For example, your drivers might be getting gas at the expensive gas station, costing you $5,000 more per year. However, you don’t have time to calculate daily gas prices to make sure they’re fueling up at the right station. Even asking them to use a gas price app won’t work if it takes them out of the way and slows them down on their route.
However, there are a few common ways businesses lose cash that don’t take much effort to recover. For example, warranty reimbursements are often left unclaimed because they are forgotten. You buy some equipment with a warranty, and a year later it breaks. You don’t know where the warranty is, so you call a tech and pay them to fix it for you. It seems hassle-free, but this is costing you money.
The first thing to understand about warranties is the money you can recover is actually included in the initial price of the machine or device. For instance, vehicle warranty reimbursements are factored into the overall price of the car. You pay for all the covered services at the time of purchase.
Start using software to track warranty information so you always know what’s covered. You might be surprised to see how much money you can save. For example, Gulf Relay, a shipping carrier, increased their monthly warranty reimbursements from $1,150 to $9,000 using Cetaris fleet management software. That’s a significant increase. If you want similar results in your business, start using software to track your warranties.
2. Improve product quality
Arbitrarily increasing your prices is never a good way to sustainably increase income. However, you can improve your product in ways that justify higher prices. Or, you can create a higher end product with a higher price point specifically to reach a wealthier market.
You can see an example of this by comparing dollar store items to quality items designed to last much longer. Although wealthy people do shop at dollar stores, they’re not going to buy things that they prefer to be of high quality. For instance, they’re not going to buy a plastic tablecloth for Christmas dinner for $1. People who make high-quality, beautiful table cloths will get those sales.
3. Offer multiple tiers
Sometimes, having several different options is the best way to sell your higher priced items. For example, when people are given three choices, they’re more likely to choose one of the more expensive options, especially if it has more features.
However, before you start creating a higher-priced option, consider that adding a low-priced option might actually be more effective.
Research has shown that when people are given three choices, they are more averse to the lowest quality option than the highest priced item. Introducing a third item of lower quality actually helps to sell the higher ticket items. This is known as the “decoy effect.”
Whatever you sell – physical goods or services—experiment with the decoy effect to see how it impacts your sales. Just by adding in a lower tiered option, you can potentially generate more overall sales without doing much of anything.
4. Sell digital products
Digital products and services are the easiest way to generate a steady stream of income without ongoing hard work. You’ll need to invest your time and effort in the beginning to create your products, but once they’re done, you can set them up for automatic access.
The easiest digital products to sell are pre-recorded videos and webinars, as well as PDF guides and ebooks. However, they need to be exceptionally well made and provide immense value or people will request a refund.
Increasing sales doesn’t have to be exhausting
Before trying to expand your business, look for ways to cut costs and increase existing sales. Tighten up your ship first and then expand to maximize your sales long term.
