The Bureau of Labor Statistics’ Business Employment Dynamics has found that only 50 percent of businesses with employees will survive their fifth year in business, and that number drops to just 30 percent after 10 years.
If you don’t want to give up on your dreams of starting your own small business, follow these tips to increase your chances of survival.
What Is A Good Profit Margin?
To determine a company’s success compared to others in the same industry, investors look at the operating profit margin. This is the company’s revenue converted into profit. They compare this number to the same number for the industry as a whole or to a benchmark like the S&P 500.
A business whose profit margin is above 10% is doing better than the average business, while a business whose profit margin is below 10% is not doing as well as the average business.
To compare a firm’s overall performance to either the entire industry or a benchmark index, investors look at the firm’s operating profit margin.
Even if your profit margins are already high, you can still improve them to make your business more resilient.
What Causes Profit Margins To Decline?
Profit margins are determined by comparing expenses to revenue. If revenues fall or expenses go up, the margin shrinks. A drop in earnings could be caused by factors like a recession, a change in your customer base’s social habits, or an outdated business model.
Profit margins can fall for a variety of reasons. These reasons can be things such as economic conditions, which can include things that consumer behavior to interest rates. Another reason why profit margins may fall is because of disruptive new technology. Something as simple as careless accounting procedures can also result in a decline of profit margins.
Ways to Improve the Success of Your Small Business
Create Brand Personality
You are the best asset your small business has. You may not have the resources that bigger businesses have, but you have something much better: yourself.
I understand what you might be thinking; how can you possibly compete with people who are already so charming and have such a large following? The answer is simple: just be yourself. That’s what your customers want.
They are looking for an authentic person to connect with, rather than just a small business owner. Your down-to-earth personality, your values and your vision set you apart from others and this is what they find most appealing.
To build your brand’s personality, put more of yourself into your business. This can be as simple as being yourself when you’re writing a blog post, making a video, or speaking at an event. Share your vision and values on your “About Page,” or write an editorial explaining why you started your business.
It is important to develop a business plan, organizational structure, and operational support systems that are specific to your business, while still being flexible enough to change as your business grows and changes.
A strategic business plan is a blueprint of your business that outlines your business concept, philosophy, and mission.
A company’s organizational structure refers to the way its different parts work together. This includes job responsibilities and disciplinary procedures. Having a strong organizational structure in place can help to ensure that a company runs smoothly.
Operational systems can help small business owners by taking care of routine tasks, like scheduling meetings or tracking cash flow. This way, owners can focus on tasks that will help their business grow.
The 85/15 Rule states that 85% of problems are due to systems, not people.
Focus On Strategic Innovation
There are very few companies that offer their customers something genuinely new. Most successful businesses build on existing ideas, but they do it in a way that is useful and appealing to their customers – they come up with strategic innovations.
If you want to understand how to increase profit margins for your business, you need to identify who your customer really is. Who is this person and what need do they have for your product?
An example of a strategic innovator is Netflix. They saw that people wanted a way to have home entertainment, and they found a way to make it even more accessible. If you have an innovation culture, you’ll be able to expect more profits.
Create An Incredible Team
Making more money for your business is partly about the quality of the product or service you offer, but it’s also about building a good team. Do you have people working for you who are completely dedicated to your success? People who know your company well and are willing to tell others about it and bring in new customers?
Building a team of employees who are passionate about your brand will make it much easier to be successful.
Identify What’s Not Working
You need to take an objective look at your business and identify gaps if you’re not happy with your profit, growth or margin. Even if your company is successful, you can make it more profitable by looking at expense reports, personnel reviews, and current sales to identify areas that are lacking. If there’s a noticeable gap, address it.
Why did your business spend $10,000 on office supplies last year when nothing major, like your copy machines or computer chairs, has been updated?
Have you stopped identifying ways to get new customers?
Assessing the current state, and possible shortcomings, of your business will help you create a better plan to move forward and increase profit.
Avoid Common Mistakes
One of the best ways to increase your chances of succeeding is by learning from other’s mistakes. And, here are some of the more common mistakes small business owners makes:
- You overestimate demand for your product or service. Let’s say that you still receive DVD’s in the mail from Netflix. Just because you can’t let go of this now-outdated technology, doesn’t mean that starting a DVD rental business will work. Between Redbox and streaming services your chances of survival would be slim-to-none. Vet your ideas to your friends and family or conduct some primarily market research.
- Entering a competitive market. On one hand, at least you know there’s a demand. On the other hand, the market may be oversaturated. The only way this works is if you have a distinct competitive edge.
- Not taking into account overlooked costs. Expenses like your salary and renting an office and purchasing equipment are obvious. But there are plenty of overlooked costs when starting a business. Not factoring these expenses could lead to not utilizing your resources or throwing your budget out-of-whack buying things you don’t need.
- Not planning for profitability. If you want to succeed, then you have to know your profit model. This means being aware of your gross margin on sales, net margin, and how much you need to make to break even. These numbers based on Key Performance Indicators (KPIs) will let you know how your business is actually performing.
Become Connected To The Community
When customers support a local small business they are not only improving the local economy, but they are also more likely to receive benefits like better customer service and a more personalized experience. Furthermore, supporting local businesses helps to keep the community unique.
There are many ways to give back as a small business owner. Through volunteerism, hosting a fundraising drive, or sponsoring a non-profit organization, you can make a difference. Attend local events and just engage the community by soliciting feedback or highlighting your loyal customers. Getting involved with the community is a great way to help your business thrive.
Fine-Tune Your Production Processes
The principles of physics also affect business, and speed is important. The shorter the time between receiving an order and delivering the product, the lower your costs and the faster you can earn revenue. In other words, if you have fewer steps in the process and can complete them quickly, you can increase your profit margins.
Automation can help you speed up your production processes from your first contact with a customer to when your product is delivered. You can use automation for repetitive tasks and customer service roles to create efficiencies and improve your margins.
Waste Not, Want Not
The appeal of investigating how to upgrade benefits for an organization is that advantages are for the most part proportions. You don’t really need to build your benefits to improve your edges – you’ll probably discover achievement in diminishing your costs also. Consider all the various ways your business spends cash.
Are you losing money due to spoiled, scrapped, or wasted product? Is your forecasting inaccurate, causing you to buy too much raw material? Are there quality control issues with your product? Is your product selling so slowly that it becomes outdated? Are your distribution channels effective? By carefully considering all your options for minimizing loss, you can cut your costs and increase profit margins.
Put Your Employees First
Happy employees are more likely to stick around and do their best work. When you take care of your staff, they’ll take care of your business.
No matter how you prioritize your employees, they will be your strongest allies and help your business grow quickly.
Capitalize On Other People’s Resources
Marketing guru Jay Abraham believes it’s all about mindset and thinking big. Most business owners’ mindset falls short when it comes to increasing profit margins. He believes that while most companies think a 10x growth strategy equals success, they are actually capable of much more – up to a 100x internal growth model. The key to this, according to Jay, is mindset and thinking big.
In order to increase profit by a large margin, Jay suggests taking advantage of another company’s resources. This could include their money, time, experiences, ideas, and customers. One way to do this is by acquiring smaller companies, working with influencers, and creating cross-promotional campaigns.
Don’t Just Acquire Customers, Retain Them
Your customers are the lifeblood of your business. As such, you need to acquire and retain them by:
- Promotions and premiums like discount coupons, free trials, or promotional swag.
- Referral programs where existing receive an incentive for referring your business to someone else.
- Providing top-notch customer service.
- Building a brand that customers want to support — think Apple.
The best way to reach your target audience is to advertise in local newspapers, TV/radio, ads, direct mail, trade publications, and directory ads. You can also list your goods or services on the internet, or participate in event or charity events. If you partner with suppliers, you can participate in co-op advertising.
Study Your Competitors
This doesn’t seem like a disreputable business tactic. In fact, it’s something that most businesses do in order to try to improve their own small businesses. Why? Because taking a close look at what your competition is doing can show you where their weaknesses are and what they’re doing that’s better than what you’re doing.
By understanding your weaknesses, you can direct your attention to areas where you can excel or make market improvements.
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