As the year is coming to an end, now is the time to start planning for next year’s business success. Regardless if you hit your sales and profit goals or not, analyzing this past year’s successes and challenges will bode well for your business in the coming year.
Because we are all so busy, very few entrepreneurs take the time to analyze their businesses and then look ahead to plan for the coming year(s). So going through this exercise will position your business ahead of most.
The following are metrics that you should analyze with possible steps to move toward.
Profit by Category
Analyze your profit by sales category, such as types of food dishes if you’re a restaurant; product category, like seafood, meat, cereal, toiletries, etc. if you’re a grocery store; or service categories, like teeth cleaning, dentures, invisalign, etc. if you’re a dentist. Once you’ve done that you can look to see which sales category brought you the most profit and which one may have held the business back.
Once you have your products or services analyzed by category, you may need to itemize your list further. Pay attention to those categories in which profits were not as strong as you would like. Decide if this category could stand to have a price increase and see how that would affect your bottom line even if your sales volume does not increase.
Cost of Goods
Another reason your profits are lower than anticipated is that your cost of goods may be higher than planned. Do some research to see if you can bring those costs down without sacrificing quality. It may even be possible to increase quality while lowering your costs. By finding ways to reduce your costs, you will increase profits, without gaining an additional customer.
As you analyze the profitability by category, you may find that you are spending a lot of time marketing for high volume, low margin items and paying very little attention to low volume high margin items. A little shift in focus, spending more time marketing for those low volume, high margin items, can significantly increase your profits with relatively little increase in effort or expense.
An often overlooked area of marketing is customer retention. It would prove highly beneficial if you analyzed your retention rates. In other words, what percentage of your customers are returning for a repeat visit? Let’s say it is 50%. With a little bit of effort, increasing that retention rate from 50% to 60% could increase your profits significantly. So take the time to engage each new customer and give them a reason to return. (i.e. membership, coupon, special promotions for existing customers, etc.)
Focus on What Works
The best form of marketing is the one that works. So find out how your customers are finding out about you and put more effort into those areas. Whether it is social media, newspaper ads, mailers, infomercials, etc., if you’re spreading your marketing dollars over multiple areas, but you find most of your customers are finding you via mailers, for example, shift more of your marketing dollars to that area. With the remaining marketing dollars it might be best to consolidate that money into the second best marketing approach and drop the other methods.
What if your customers are finding you through word of mouth? Then give your existing clients another reason to tell a friend like special prizes or gifts for referrals (before or after the fact). In other words, show your appreciation. It doesn’t have to cost you much but will pay huge dividends.
These are six basic steps that every business should follow at this time of year. Doing so will put you in a position that when the clock strikes midnight on December 31st, you will be ready to sprint out of the gates on January 1st. After you watch the parade and the Rose Bowl of course.