Eight areas to focus on for increased profitability

January is regarded by many as the leanest month due to low currency circulation after heavy expenditure in December and the high cost of sending children back to school.

But the remaining two months of this first quarter are important to many entrepreneurs in indicating the trend and profitability of the business.

Failure to meet the first quarter targets may mean lack of adequate cash to support the budget for the rest of the year.

Increasing profitability is a process that involves addressing key areas essential for overall performance.

Eight key areas have been cited as business hotspots that any entrepreneur who is keen to increase profitability must pay attention to daily.

1. The first is prospecting, which is the process of looking for people who are capable of being your customers. Your ability to identify, isolate and pursue quality prospects is the best way to increase profitability.

2. Increase your conversion rate. This refers to the number of prospects who end up being your customers as a result of your effort. For example, if you target 100 customers and only five become customers, your conversion rate is five per cent.

You can increase your conversion rate by profiling your ideal customer, eliminating prospects that do not seem to fit and by improving your selling skills.

3. Purpose to sell more to your existing customers. Customer acquisition is costly and most business hardly make profit from first-time customer. Selling more to your customers is easier and more profitable than getting new customers.

The Pareto Law says that 80 per cent of your revenue comes from roughly 20 per cent of your customers. Spending more time and resources on this 20 per cent can significantly increase your profit.

4. Figure out how to increase your margins. The best way is to increase efficiency to lower costs rather than increasing prices, which may elicit resistance from your customers or give competitors advantage.

5. Reduce the cost of customer acquisition by focusing on cost effective ways of adverting, sales calls, sales presentations and other marketing activities. Effective use of technology can give you leverage.

The most effective and cheap marketing method is through customer referrals. Develop a system of encouraging your satisfied customers to refer their friends to you or introduce you to others who can benefit from your products.

6. Focus on profitable products. Most businesses that offer multi-products could be making losses on some products. Do a cost analysis to establish the profitability of every product or activity with a view of eliminating those that does not give you profit.

7. Do a thorough follow-up. Some sales people send out marketing messages, proposals and even sales presentation but fail to do effective follow-up. Having a clear follow-up on the customers you approach, those who show interest, however slight, as well as past customers.

8. Equip your staff with relevant skills to enable them perform their duties. Your employees are the greatest asset and you need the cooperation of everyone in your business, irrespective of the department they are stationed.

This requires good training and motivation to work as a team, and with passion and enthusiasm that brightens the face of your customers.

Mr Kiunga is the author of The Art of Entrepreneurship: Strategies to Succeed in a Competitive Market. Email: [email protected]