Most companies see their profitability reduced for various reasons, despite the success of the brand, products and services. So, the question remains: what are we doing wrong? There is no unambiguous answer to this question, but there are several factors that lead to a company’s loss of profitability.
Often, companies are “shooting in all directions” and do not focus their strategies on the right customers or, then, are taking measures that do not directly reach their problems. To guide you on the path to high profitability, we have produced this post. We hope you enjoy reading!
Know your market
The first thing you must do to increase your company’s profitability is to know exactly which customer profile you want to reach. With this, you can create unique and relevant solutions for them.
To know your audience, the main tools must be market research, which you can order. In them, you ask your target audience what their main problems are, what solutions they want from you, what are their dissatisfactions with their competitors, etc.
In addition to potential customers, you must also know the dynamics of the market very well: how competitors interact, who are the best suppliers, and also what are the best sales channels and negotiations.
Segment your audience
All of the work in the previous item will produce a great report on who your company should be focused on. Let’s assume that you realized that your product was better received by “women between 30 and 45 years old, single, with a university degree and working in leadership and management positions”.
Initially, it won’t be worth making products and marketing campaigns outside of this audience. Thus, you optimize the cost-benefit of your business. Without focus, each R$ 1000.00 investment in marketing would attract 1 customer, for example. With a good segmentation strategy, the same amount could attract 3 to 5 customers.
This point will also be essential in product development, which must be constantly improved to better serve its segment. After all, if you try to please everyone, various complaints may arise, since you will not be able to meet all the demands of the audience. By focusing on strategy, however, you will build an army of followers who will spontaneously recommend your product.
Learn how to get to the root of the sales problem to increase company profitability
Now, let’s explore some common situations and their respective solutions:
High sales rate and excellent profit margin
In this case, your company will not be able to relax, as today’s success is no guarantee of future success. Therefore, you must start a cycle of healthy nutrition — always optimizing expenses, investing in customer loyalty, motivating your employees, creating new products and optimizing old ones, etc.
High sales rate and small profit margin
There are two essential actions in this case:
- Check if your product is outside the supply-demand balance point. Perhaps, you are offering a very cheap product, but without a positive return for the company’s finances. So it might be more advantageous to raise the price and end up losing some customers.
- Analyze your production cost, as it can be so high that it ends up eroding profit rates. If that’s the case, you’ll have to rethink your production processes and see where costs can be cut.
Low sales rate and big profit margin
Unless you target your products to a well-selected and narrow audience, this situation is not ideal. In the future, your business will be fragile to market fluctuations, as each lost customer could represent a substantial drop in profits.
Again, the question of the price curve in relation to supply and demand is essential. After all, you might be selling a product at a higher price than much of the market wants to buy.
On the other hand, the problem may be related to another sore point: you are not taking enough action to drive sales. So, have you been investing in marketing? Have you been doing promotions? Have you adopted a proactive customer attraction strategy?
Low sales rate and even a low profit margin
This is certainly the most difficult situation to resolve, as it is often multifactorial: the company invests little, has high costs, does inadequate marketing actions, does not offer quality products, etc.
So, the first step is to make a diagnosis of the company’s weaknesses and then determine which are the priority areas. The previous tips provide a good guide to get you started.
Reducing costs is the surest way to increase profitability. After all, when we raise prices, we can end up losing customers. This will generate a cascade in which your competitors take advantage of the opportunity left by you and bring down your business.
Cutting costs, therefore, should be a constant goal of your business — both in good times and in bad times. With that, you start a positive cycle of efficiency, which can be a huge competitive advantage.
Thus, in a crisis, your competitors will have to restructure their entire business model, while you will be prepared to beat them with a more aggressive strategy. Simple talk, but where can I cut costs?
When we maintain a supplier for many years, we end up postponing the time to negotiate prices again. Thus, inputs become increasingly expensive and erode your profit margin. Yes, it takes work to call several suppliers and negotiate better conditions again. However, this is an essential task for the health of the business.
Cutting costs in human resources is always a very delicate task and your company should be careful:
- Fire unproductive employees: never keep them in your business if they don’t respond to your encouragements and warnings. This will be the opportunity to hire better employees .
- Never cut the benefits of good employees: When you cut the benefits of doing good work, the result is a very large drop in productivity.
- Search for benefits that bring a real increase in productivity : nowadays, the area of management and administration has advanced a lot in research. With that, there are several studies that show which are the incentives that give the most return to the company.
These tips are essential to start increasing the profitability of a company. After all, its fall is a complex problem that should be addressed with several solutions. So, keep following our posts so that you can read the best ways to resume the high profitability of your business.