Profitability is a goal that every business will strive to improve, enabling them to fund internal growth while enjoying the associated rewards of success.
In order to successfully enhance profit, you need to focus on turnover growth (sales).
However, growing turnover often comes at a cost. As your operations expand to facilitate higher levels of demand, achieve higher sales rates or incorporate new functions, you will need to absorb more expenses – including increased overheads, supplies, staff salaries, premise costs and investment in equipment.
If improved profit is your ultimate intention, you therefore need to enhance turnover while maintaining or reducing these costs. This means your business will generate more income through sales without your efforts being cancelled out by rising expenses.
This blog explores how to keep the balance between turnover and costs, so your profitability is supported.
How to improve turnover
There are many ways a business can improve turnover, though most of them are associated with increasing either the number of sales you make or the value per sale. We’ve listed some standard methods for growing turnover.
Utilising marketing
Marketing is a valuable tool in making the public aware of your brand and its offering, allowing you to target leads and convert people into customers. By employing an effective marketing strategy that sends the right message about your business and reaches the right people, you will see a knock-on effect on your sales as more people are encouraged to buy from you.
This can have a slow-burning effect, too – the more that your reputation and visibility grow through marketing, the more people that will purchase from you and become loyal customers.
Introducing sales incentives
Another tip for driving sales is introducing incentives, including discounts, bulk deals and freebies. These can make the price of your products or services more affordable and give a sense of exclusivity and time sensitivity that convinces prospects to buy.
It’s also an excellent tool for recruiting new customers or rewarding existing ones, so they are compelled to re-purchase.
Cross-promotion of products and services
If you already have an established customer base, your focus may be to grow the value of orders rather than the volume. One way to do this is by encouraging those who have already bought with you to buy again through the promotion of other products or services that may benefit them.
For example, assume you have a customer that has bought a laptop for your business. You might also sell laptop cases, stands and other accessories that would heighten their experience. So, you want to promote those additional items as much as possible for a more considerable sale value.
This will enable you to get a higher lifetime value from every customer and improve sales income without having to acquire new customers.
Increase your product/service portfolio
Another option for growing sales is to add more products or services to your repertoire so that you can fulfil different needs in the market and generate increased demand accordingly.
Look at any gaps your value proposition has and ask how they can be fulfilled. This will help you identify the best way to expand your portfolio, ideally with products and services that suit your existing operations without dramatically rising costs. This might include third party products or services as well, also known as affiliate marketing.
Provide a better customer experience
Customers are likely to buy from and spend more with businesses that have a reputation for being good. This means offering quality products and services alongside stellar customer service that exceeds expectations.
By providing a better customer experience, you will improve your customer retention, enabling you to grow a healthy customer base and secure repeat sales. Furthermore, it will also help you to grow custom through word-of-mouth marketing and positive recommendations.
One-up the competition
Increasing your market share will grow turnover by ensuring more customers come to you over your competition. This means gaining the edge of your competitors and offering something they can’t: whether it be better products or a higher quality experience.
By one-upping others in your sector, you can divert their sales towards your company, with the effect of improving your turnover.
Diversifying
Finally, you may choose to diversify the audience that benefits from your products and services. This includes finding new niches or customer segments who may value your offering, thereby growing your customer base and sales potential.
If you’re a local business, it may also include widening the areas you operate in, so that more people can access your offering.
What costs could impact growing turnover?
If you are serious about growing turnover, you will need a certain level of investment into your business, enabling you to set up new processes that facilitate more sales. The costs associated with this can put increased pressure on your cash flow, especially in the early days while you await the financial rewards of your efforts. These are an example of some of the costs you may need to absorb.
- Marketing and sales costs – including investment in new software, team members, advertising and other related activities that seek to target more customers and increase sales
- Staff salaries – enabling you to expand your workforce to fill new functions and meet the increased demand you experience
- Supplies and overheads – offering a more comprehensive range of products and services, or providing existing ones to more people, will require increased costs, including supplies and energy
- Equipment – adding new processes to your business or scaling up will require investment in equipment, including machinery, company vehicles, software and so on
- Growth costs – if you are aiming to increase turnover through growth, there will likely be costs associated with this, including the acquisition of premises or the repayment of loans (if using external funding to facilitate your expansion)
These expenses may be a necessity depending on how you intend to increase your turnover, and they can also empower the long-term growth of your business. If you want to avoid them minimising your profitability, you must ensure they’re balanced against your income.
How to focus on profit
To ensure your rising turnover is going towards higher profits, rather than just rising expenditure, you need to manage your costs. Here are our top tips for doing so.
- Calculate the costs associated with your turnover boost and make sure your predicted sales growth counteracts them. By understanding the expected costs of your plans to improve turnover, you can make sure that they are balanced against the resulting increase in revenue. Setting these ahead of time will also enable you to see if things are on track – including if costs are unexpectedly higher or if your sales do not grow as you predicted – so you can take action.
- Look for competitive deals. Another way to improve profitability is to keep your costs as low as possible. This means shopping around between providers to access competitive deals, so you can obtained the necessary resources you need to fuel turnover. It may also include coming up with cost-effective processes or utilising economies of scale by bulk-buying materials.
- Ensure variable costs are worthwhile. While some expenses are fixed, such as staff wages, variable costs will fluctuate as your operations scale up – like additional supplies, agency staff or sub-contractors. When these costs rise, it’s essential to check that the increase is warranted and in line with your expectations, whilst adding value to your business. Similarly, if you find yourself adding costs you don’t truly need, seek to eliminate them.
- Review your pricing model. When your expenses increase, and there is nothing you can do to minimise them, you need to consider passing the cost onto your customers. This typically will mean adjusting your pricing model. You must do this reasonably and with full disclosure to your customers to avoid alienating them, as well as trying to offer a competitive price in line with the rest of the market.
By doing everything you can to minimise costs and ensuring they are accounted for in your finances, you can guarantee that as much of your additional turnover as possible will drop to your bottom line.
Conclusion
Attempting to grow your turnover means undertaking the necessary steps to target more customers and encourage sales. You should see your turnover increase by incorporating factors like marketing, incentives, diversification, and an extended product/service portfolio.
However, if you want that improved turnover to translate to a higher rate of business profit, it’s essential that you also manage your costs. By maintaining or reducing your fixed and variable costs while your turnover rockets, you will be able to retain more profit allowing you to reinvest in your business – such as to fund long-term growth and push your growth and profitability further.
If you’re looking to improve profit in your business, speak to one of our advisors to find out what measures you should take and how to build an effective strategy. We can also point you toward external funding that can move you towards your goals without inhibiting cash flow.