Actively planning to make a profit is essential to growing a small business

The ultimate reason for going into business is to make a profit, but this primary objective is often not effectively planned for by small business owners, says Standard Bank.

The first step towards ensuring that you are building a profitable business is knowing your numbers. This needs to be followed up by active planning to make a profit.

“Generally, many small business owners try and increase profitability by controlling costs. However, by cutting costs, one rarely adds more than 10% or 20% to the business’ bottom line. More time should be invested in income generation than reducing costs,” says Clive Pintusewitz, Head of Small Enterprises at Standard Bank.

Building sustainable profits requires:

• Generating business leads

This means knowing where your leads are coming from and how many you currently have. The easiest way of finding this out is by simply asking customers where they heard about your business.

Advertise your product or service in local media and create a website for your business.

“Use referrals and testimonials to build a database and ensure those who supplied the referrals are rewarded for doing so when business is written,” says Mr Pintusewitz.

“Create strategic alliances with other businesses that target similar markets and share leads with them, and attend networking events to build relationships that could lead to sales or alliances.”

• Converting leads into business

This is about getting people through your doors and then getting them to buy. It is essential that you record every successful sale so you can compare it against the total number of leads to work out your percentage conversion rate. It also pays to map your sales process so that you can work out exactly where sales are made.

“It helps to use a sales script to deliver consistent sales messages and promote the benefits of your products or services effectively,” Mr Pintusewitz says.

“Make it easy for customers to buy by having facilities for them to use credit cards, debit cards, cheques and online payments, in addition to cash,” he advises.

Access to these facilities and a business account is made easy by using custom-designed packages like Standard Bank’s BizLaunch, which offers a one-stop service that includes an affordable business account with no hidden costs; Pastel My Business Online; an affordable insurance offer, and access to expert advice and other support. Point-of-sale devices at discounted rates are also part of the practical solutions offered.

Don’t be reluctant to ask for the sale and use prompting questions like: ‘Can I wrap that for you?’

• Increasing your average number of transactions per customer

It costs six or seven times more to get a new customer than to keep an existing one, so it pays to get to know your customers and sell to them as often as possible.

“Get customers to come back by under promising and over delivering,” Mr Pintusewitz says. “Look into launching a customer loyalty programme, which will mean that you will always have your most important customers’ details close at hand.”

• Increasing your average rand value per transaction

This can be achieved by checking if your prices are similar to competitors’ and increasing them if there is space to do so. You can then increase the value of your sales by:

- Upselling and getting the customer to buy a more expensive version of a product by highlighting the benefits of the item.
- Cross-selling by interesting a customer in a product that complements the one he is buying (e.g. a shirt and tie when he is buying a suit).
- Taking advantage of impulse buying by putting items near the tills for your customers to throw in their baskets.

“In most businesses 80% of sales come from 20% of the customers. Maximising profits means identifying the most important customers and spending time on them. This will guarantee better returns than would be achieved by spending too much effort and time on customers who don’t really contribute much to your sales.

“The major lesson to be learned is that building profitability requires a business owner who is intimately involved in creating and implementing strategies designed to maximise business opportunities,” says Mr Pintusewitz.

                         
Note to the editor:

The topic of ‘planning for profit’ will be covered in the fifth webcast in the Business Coach Webcast Series, airing today at 17h30. The webcasts have been structured to bring on-tap support to SMEs, making it easy to access practical advice on topics from starting a business to complex matters such as company law and planning for profitability.

The series runs at 17h30 on a fortnightly basis until 2 October 2013.  Access is free, and viewers are requested to register at www.standardbank.co.za/bizconnect.  Viewers will also be able to communicate with business specialists in real-time while viewing the webcasts and pose questions online or via Twitter by following @SB_Bizconnect or #businesscoach.