Chapter 12
“Turnover is vanity, profit is sanity, cash is reality.”
The meaning of this advice, in this context, is don’t fall into the trap of focusing all of your efforts on getting more sales at the expense of profits, unless you are engaged in a short-term customer acquisition strategy.
While businesses need sales in order to make profits, it’s very easy to have a large turnover without making any profit at all, as (at the time of writing) Amazon.com continues to demonstrate!
One of the easiest ways to improve profit margins is to increase your prices. To many business owners, this sounds risky, perhaps even reckless... but are you sure that you are charging as much as customers are willing to pay? Have you always charged what you wanted, or have you made compromises in order to win business?
In business, you want to compete on value and service as much as possible: not on price. Sometimes a price hike is a good way of seeing how many of your customers actually value your product or service. You should also find ways to reduce costs that don’t impact quality or service levels.
Another way to increase the overall profit margin is to encourage customers to buy goods or services that have higher profit margins.
Profits are often under pressure in a fast-growing business; a consequence of the increased investment in marketing, discounting to entice new customers, and the costs of increasing capacity; so it’s imperative that you are making healthy profit margins wherever possible.