Do you know which products you sell are making your business the most money?
In this Series, we’re reviewing the 6-Step Plan to run your business from Donald Miller’s latest book, How to Grow Your Small Business, and the online platform at businessmadesimple.com. The analogy of an airplane helps describe the 6 Steps and this week, we’re continuing with Step 4, the Wings, your Products.
Ramping up your marketing and sales effort is key to increasing revenue, but there is a way to make more money and it’s this: optimize your product offering. In this blog, we’ll review the first aspect of the Wings of your business airplane (Your Products) by using the Product Profitability Audit, as a process you will go through to determine where your money is coming from. Once you evaluate your products, you’ll be able to adjust the “lift” you get by selling more of your best products and propelling your small business airplane to new heights.
Step 4 – The Wings (Your Products) – Generating Maximum Lift by Knowing Your Most Profitable Products
The Product Profitability Audit
Whether you have just a few products or more than you can easily count, making sure you understand which ones provide your business the most profit is extremely important. Too often, small business owners use their gut, rather than taking the time to gather and evaluate real numbers.
Ranking your products using the Profit Profitability Audit will do two important things for you:
- It will show you where the money is really coming from in your business.
- It will inform you where to spend more of your sales and marketing effort.
If you’ve never reviewed your products and evaluated their costs, it can be eye-opening. Taking the time to consider additional expenses beyond the simple acquisition costs of your products can also uncover some unexpected insights.
Conducting a Product Profitability Audit involves 3 steps:
Once you’ve got the hard data, you’ll have a few questions to consider as you move forward armed with this new knowledge. You’ll be able to look at how much time, energy, and money you are spending to produce, market, and distribute products that aren’t very profitable. What might be possible if you stopped selling those products? It’s hard to think about discontinuing a product when it’s had recent sales, but if it’s taking away resources from products that are dramatically more profitable, it becomes a situation of addition by subtraction. Remove those products, redirect those resources, and make more money!
By reviewing the list, you can see how your marketing and sales efforts compare to your profitability rankings. You can use the data to better align your marketing and sales efforts to the products that will generate the most profitable return. If you allot more of those resources to increase sales on your highest-profit items, you’ll see an improvement in your business as your product mix shifts.
Focusing your Team’s efforts on the products that provide the greatest return will take your business in a more profitable direction. One small exception is the products that you may use as “lost leaders” to attract Customers and make it dramatically more likely that they’ll buy the higher-priced, higher-profit products, as well.
You’ll be amazed to discover how using the Product Profitability Audit on your products will help guide your marketing and sales efforts more effectively. Spending the most time, effort, and money on your best products, while reducing the resources spent on low-profit products, will shift your business in a positive direction. Armed with data, instead of just your gut instinct, you’ll feel terrific when you see your sales grow on your highest profit products, adding more to your bottom line.
Step 4 from Donald Miller’s book, How to Grow Your Small Business, is the Wings – Your Products. Your use of the Product Profitability Audit is the first half of Step 4 and will give you the data to properly rank your products so you’re engaging your company’s resources to your maximum effect.
The second half of Step 4 of Growing Your Small Business will aid you as you consider new products to add to your mix, helping you with the proper checks and balances to ensure the new products will rank high for profit while ensuring they are desirable for your Customers. When your new products meet the proper criteria, your winds will be strong and provide tremendous lift so your “plane” can fly far and fast.