ENTREPRENEURSHIP / OCT. 08, 2016
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Long-term Profitability: How to Create a Sustainable Business Plan

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It is hard to achieve long-term profitability for any business. Even huge companies start making a loss eventually! This article should help you out!

When first establishing a new business venture, there are numerous steps that you can take to ensure that it is profitable. From creating a clearly defined and unique value proposition to successfully translating your product’s key features into consumer-friendly benefits, these short-term measures enable you to shift merchandise quickly and at viable margins.

Maintaining these measures can be difficult as the market and your business evolve, meaning that you must consider a long-term strategy if your venture is to drive sustainable profitability. After all, throwing a fresh coat of paint on the wall is believed to add up to 3% to the value of a property, but only for as long as the visual impact is sustained and initial sheen remains.

See Also: 5 Small Business Ideas That Will Always Generate Profit

How to Sustain Long-term Profits within your Business

To sustain long-term profit margins, you will have to create strategies that can be implemented regardless of any external, economic conditions and the performance of your chosen market. This is easier said than done, but fortunately, some tried-and-trusted methods will enable you to succeed in your aim.

1. Pay Attention to Your Pricing

Aside from being invited to appear as an investor on the Dragon’s Den, the cultivation of a consistent and profitable pricing plan remains the Holy Grail for entrepreneurs. This requires some independent and creative thinking, however, as well as an ability to remain calm in the face of slow or diminishing sales.

After all, it would be easy to react to stagnating sales with a series of volume discounts, but this can have a counterproductive impact on your businesses bottom line. This is particularly true if you initiate a diverse range of promotional offers for your customers, as this variable pricing is hard to track while it also eats into your overall margin and increases the expectations of clients with regards to future deals.

In this respect, promotions and volume discounts should always be carefully considered based on consumer behaviour trends, rather than as a knee-jerk response to a sudden dearth of orders.

So what is the alternative, we hear you ask? Interestingly, studies show that businesses with a viable value proposition and an existing consumer base actually benefit more by raising the prices, with McKinsey and Co. revealing that a single, 1% increase can lift operating profits by a staggering 11%.

This measure can be implemented quickly, and when done strategically it can also have an immediate impact!

2. Smaller Customers Should Not Benefit From Reduced Prices

The first tactic enables you to sustain (and in some cases improve) profit margins despite depreciating sales. This is crucial for SMEs, who will often experience some form of decline or hardship during their first year of trading in particular.

Another way of achieving this is to analyse your business invoices, comparing those relating to your biggest customers to others that have been paid by smaller clients. While you would expect to find that high-volume customers benefit from your most favourable terms, many companies discover that a disjointed approach to negotiating contracts and price points has left smaller clients with similar deals.

This is a huge issue and one that can cost your business hundreds and thousands of pounds on an annual basis. The key is to ensure that you have a transparent and consistent pricing policy dependent on volume so that smaller customers pay the highest rate while regular clients benefit from predetermined discounts.

Even correcting this error retrospectively can have an incrementally positive impact on your bottom line, driving higher margins without the need for increased sales or a rosy economic climate!

3. Understand Consumer Behaviour

Have you ever wondered why the average man spends three months of their annual salary when buying an engagement ring for their partner? While there are many potential reasons for this, what cannot be denied is that this is a proven consumer behavioural trend that jewellers tap into when pricing their products and optimising margins.

What this highlights is the importance of developing a clear customer profile for your target consumer, as this helps you to predict their behaviour and ensures that your pricing is designed to capitalise on this. As a result of this, it is far easier to forecast potential peaks and dips in consumer spending, which in turn allows you to create viable pricing strategies that maintain at least minimal margins at all times.

Striving to understand your consumer’s behaviour has other advantages too, particularly when it comes to customer retention. Not only is it far more cost-effective to retain customers than acquire them in the first instance, but this is also estimated to increase bottom-line profits by between 75% and 95%.

Regardless of the product or service that you sell, an innate and in-depth knowledge of your customers will translate into incrementally higher and more sustainable margins. This is why analytical CRM systems represent such a good investment, as they deliver a significant return over a sustained period of time.

Ultimately, if you want to create a business legacy and establish profits that can be sustained during good times and bad, you will need to consider the type of strategic steps listed here. Otherwise, you run the risk of losing momentum and having your margins squeezed once your sales begin to dwindle.

Have you used any of these methods to achieve long-term profitability? Let us know in the comments section below...

See Also: How to Drive Successful Customer Acquisition

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