As a small business owner, we must consider the unexpected ways to increase value. On a day to day basis, we concentrate on increasing Sales to reach the next level. Increasing sales beyond a certain level becomes expensive if your business doesn’t scale well, or becomes inefficient as the business grows. Here are 4 important tips that help increase operational income, by looking at different aspects of your business that are often overlooked!
Tip 1: Packaging/Packing Materials Cost
Oftentimes overlooked, material cost such as packaging, materials & ingredients make up a substantial portion of operation costs. The Gartner Group estimates that a five percent reduction in material cost can have the same impact as 30 percent increase in sales. Look for new or alternate products for your grocery store to overcome the material cost by reducing excessive packaging of your products. You have to reconsider all the products you buy for your business and try to reduce the cost of each type. Julien Boyssou, CEO of BillXperts says “For small business owners, make sure you scrutinize your material expenses and look for opportunity to simplify your process”. Used / Recycled materials play both a role in helping the environment as well as keep costs low, and who knows, customers may appreciate the gesture!
Tip 2: Sub-Supplier Cost
Many grocery store or supermarkets often have more than one supplier for their necessary products. You can always reduce cost by introducing competitive bidding for these contracts. You have to discuss your specification and requirement for each product and solicit bids from several possible supplier for each product. Look for their production capacity and lead time. Having one selective supplier and requesting greater capacity of products can always lower your cost. In the earlier stages and in small quantities, it makes financial sense to consolidate orders, this allows for better logistics costs, packaging and even volume pricing. Consolidating suppliers is another way to achieve this, by selecting alternative products but combining the order from a single supplier to increase your bargaining leverage. Looking for a new supplier or multiple suppliers? Look for them in Socialwalk Trends!
Tip 3: Marketing Cost or Lead Acquisition Cost
Small Medium Business (SMB) can easily be fooled by all the new marketing metrics out there. When it comes to marketing efforts, the best thing for small business owners to know is what counts as a solid lead and how much you are paying for that lead. Mark Sullivan, Director at CallRail says if there is only 1 number for you to track as a business owner, track the metric Lead Acquisition Cost, LAC, counts the number of leads that lead to sales and divides it by total marketing costs. Once you gain perspective of their Lead Acquisition Cost, you can start to eliminate unsuccessful marketing efforts and increase profit margins by comparing it with your existing LAC. Discuss with your suppliers to come up with co-op marketing strategy. You would be pleasantly surprised that suppliers often proactively create seasonal/holiday campaigns or perhaps campaigns centered around certain production peak periods! Ask and find out!
Tip 4: Efficiency and Labor Cost
As a small business owner, you’d be surprised at the amount of money that organizations often invest and lose in organization inefficiencies. This can come in the form of actual inefficient employees, that under perform. The old adage comes to mind “hire slow, fire fast”. Keep a watchful eye out, which is still very manageable for most small to medium businesses, by walking around the office space to observe, and talking to the team. Another form of inefficiency that needs to be address is organizational roles and process that are failing. Sometimes these processes were setup to accomplish an initial goal or task and as the organization grows, the process is not able to keep up. This is very commonly observed in areas of logistics processes because what works for a small shop stops working for a large outlet or dual branches! Again, it’s your responsibility as the business owner to keep an eye out and start to notice when processes start to take a dip and produce inefficient results. Sometimes the fixes are not as drastic or expensive as one may imagine as there are numerous technological and entreprenurial solutions in the market today, from software, to marketplaces to services to delivery solutions! Most parts of a business can be outsourced in a scalable manner leaving the core business to you, which is what you do best! Keep yourself updated and informed about such solutions in the market!
Blog credits to: SocialWork