I promised that this week I’d share how to use Kaizen to continually increase your profits, so I will. But it’s a big topic so this is part 1 of 3, and over the next 3 weeks I’ll be sharing with you some of my best stuff; things I teach companies when I train them on their finances.
So, a quick recap of what this is all about. It’s about taking small incremental steps on a continuous basis to make big changes to your business.
What is a good net profit?
Since I first started in business 14 years ago, average net profits have fallen from 10-13%, to just 1-2% during the recession. I’m talking here about the amount of net profit your business makes after tax and dividends, the amount of profit you keep in your business.
It’s really important to focus on your bottom line, as making and keeping profit in your business will give you the cash you need to be successful and keep your business safe in the long term. There’s no doubt that the numbers of companies in distress are increasing again, so having profit and cash is key to your survival.
And you need to have a tight rein on your finances to have profit worth having; profit has a tendency to leak away if you haven’t got your beady eye on it.
It can be easy to just accept the bottom line for what it is, thinking that we’ll need to do something big to make a real difference. But this is where Kaizen comes in.
The power of the 1% rule
Before I knew about Kaizen, I’d been using the 1% rule with my clients and on my training courses. It’s about finding ways to increase and improve areas across your business by just 1% at a time..
The key here is that the small and continual changes magnify when they combine and flow to your bottom line.
A business making a 2% net profit can double their bottom line by increasing sales, increasing gross margin and reducing overheads by just 1.5% each.
There are 3 main areas to apply this to, (hence the 3 weeks) and I’ll give you some ideas of specific things you can do in each area.
Increasing the top line
This week is about increasing the top line – sales. So we’re looking for ways that we can increase sales by just 1%. Not just once, but taking a continual approach to incrementally increasing sales.
- Price increases. Before you start this, check when you last put your prices up generally. You might find this blog usefu (link is external)l if you haven’t put yours up for a while
- Selective prices on certain customers or products where you know you just don’t charge enough. Maybe just start creeping these prices up gradually?
- Sell 1% more to your existing customers- is there a chance to just slightly upsell?
- Get a new customer
- Get customers to order just slightly more frequently
- Cross sell other products or services to your existing customers
- How often do you offer a discounted rate when you really don’t need to?
- Review any discounts you give, can you stop these or reduce them. Often customers take early settlement discount and still don’t pay on time.
- Charge slightly more for carriage
Next week I’ll be covering ways to increase your gross margin, and the week after we’ll be tackling overheads. So do stay tuned for the next exciting instalments!