If you’ve been in business for a while chances are you’re making some very costly mistakes that you may not even be aware of. And while everyone makes mistakes, some mistakes – like the ones below – can have very detrimental effects on your profits.
If you’re new to owning a business you’ll want to pay attention here too so you can avoid these mistakes altogether.
Here are the five costly mistakes you may be making and how you can fix them so you can maximize your profits.
1) Selling too low. Most small businesses start out with low prices in order to compete with other businesses in their industry – either competing for the lowest price, or to be in the right ballpark with their pricing in the first place. But, when you compete on price the business with the lowest price wins.
There are certain businesses who can do this very well. Wal-Mart is one of them. According to Business Insider, Wal-Mart was able to use the low price strategy to it’s advantage because it positioned itself as a company that offered every day low prices. This opposed companies that only offered low prices during a sale.
The problem with being a small business with the lowest price is that you don’t have the same amount of room that Wal-Mart does to make up the difference. Wal-Mart has thousands of products, so it’s easy for them to sell a few products at rock bottom prices and make it up on a few other products by marking them up a little higher.
You also aren’t doing the volume of business that Wal-Mart does. They can afford to sell that screwdriver at a rock bottom price because they’re selling thousands of them or more every month. You might sell a few – maybe 50 or even 100 in a good month, but not enough to compete with Wal-Mart.
Another problem for the small business owner is that there’s always the chance that some other small business will come along and offer an even lower price. How low can you really afford to go before your low pricing begins to eat away at your profits?
Selling at a low price also gives your marketplace a very different perception of your business, products and services than selling at a higher price does. A lower price can give a perception of an inferior product, whereas a higher price can give a perception of fine quality.
Revlon – a cosmetics company – is a good example of this.
Charles Revson, the man behind the Revlon company, refused to compete on price with his cosmetics. He understood that he wasn’t just selling a lip stick. He was selling romance – the chance to turn heads and be seen across crowded rooms.
So, Revson decided to play up the value to the consumer in order to sell at higher prices. During the great deperession, he was able to sell his nail polish for 50 cents when other nail polishes sold for 10 cents. And, his lipstick sold for $1.00 while competing brands sold for just 49 cents.
Although Revlon is a big company this technique works very well for small businesses who can’t afford to compete on price.
The fix: The fix for this mistake is easy. Unless you know that you’re already charging the maximum your market is willing to pay, you need to raise your prices. You can do this immediately for immediate results, or you can do it over a few weeks time or by category of what you offer – such as raising prices on the screwdrivers first, and the hammers next.
In order to do this you need to know the value that your market gets when they do business with you. Just as Revlon sells the hope of romance, you need to figure out what your market really gains by using your products or services. Once you know that you can raise your prices based on the value that you offer.
2) No lead generation or customer acquisition system. A lot of people go into business without ever giving any thought to how they are going to get customers or clients. They seem to think that all they need to do is offer the market their particular product or service, put up a website or lease a space, and the customers will find them.
It doesn’t take long for most people in business to figure out that they’re going to need to do more than that. So, they start trying all sorts of various marketing techniques to bring in the customers, and it’s all hit and miss. Sometimes they get a customer and sometimes they don’t.
What’s worse is often they don’t know what worked and what didn’t, or why. They just keep blindly plugging away, hoping that this time whatever they’re doing will work.
This leads to a lack of sales which is the top reason small businesses fail.
The fix: Every small business owner needs a reliable lead generation or customer acquisition system, which will continually bring in new prospects. This not only ensures customers for today, it also ensures customers for tomorrow as not every customer is ready to buy the first time they hear about your business.
An online based business can easily set this up on auto-pilot by using a free lead magnet offered from their website – such as an ebook, ecourse or report – and capturing names and email addresses to follow up with.
An offline business with a website (you do have a website, right?) can do the same thing.
Leads can also be generated through referral programs, as well as through many various marketing methods from coupon and card packs to offline and online media advertising to direct mail sales letters and postcards.
Figure out what fits your budget and what works best with your market, and develop a system around it that works for your business. Then keep it going.
3) Not keeping in touch with your prospects and customers. While your particular spin on what you do might be unique, your products are services probably are not. This means you’ve got competition – and your prospects and customers have choices for where they do business.
No matter how great your products or services are, and no matter how wonderful your prospects and customers think your business is when they discover and buy from you, you are vulnerable to their forgetfulness.
There is an astounding number of advertisements and marketing messages being thrown at everyone today – through television, radio, newspapers (for those who still read them), newsletters, email, social media, search engines (such as Google ads), and so on.
Yankelovich, a market research firm, estimates that the average city person sees as many as 5,000 ads per day. That number is probably even higher, given that we now have online advertising as well as offline.
Not only that, but when someone searches for your type of product, service or business online they are give many choices of what to click on. Your business can be on the first page of Google and still not get a click through to your website.
All of this makes it tough to get that prospect or customer in the first place, so once you’ve got their contact information you need to stay in touch with them and build a relationship so they don’t forget about you.
The fix: Send your prospects and customers email and/or snail mail regularly. Don’t just send promotions and ads. It’s ok to send these once in a while, but most of the time you should send them good information that they’ll appreciate. Remember, your goal is to build a relationship with them that creates loyalty to your business.
Send them a card on their birthday and/or at holiday time. An e-card will do if you don’t have their physical address. Another idea is to create an offline newsletter that you send to their physical address.
Whatever you send, make it personal. You’ve probably heard the saying that people do business with people they know, like and trust. The key part of that phrase is that people do business with PEOPLE, not businesses.
Nobody can relate to a business. We all relate to other people. So make your correspondence personal. Use their first and last name, and write as if you are writing only to them, not to a large group or your entire audience.
4) No sales system is in place. Just as every business needs a way to systematically bring prospects through the door or to a website, every business needs a sales system.
A sales system, often called a sales funnel, is the process that new prospects and customers will go through to buy from you and continue buying from you.
Without a sales system you are allowing your prospects and customers to decide whether they want to buy and when they want to buy. You have no control over this process.
A sales system will allow you to take control over the sales process so that you can dictate to the prospect or customer when to buy from you, how to buy from you and how much to buy from you.
Businesses that don’t have a sales system in place get prospects and then don’t know what to do with them. They might make a sale and they might not. A sales system will increase the odds that the sale is made, and lead the customer to the next sale and the next.
The fix: Put a sales system in place immediately! If you’re just starting out this can be as simple as having your prospects go from your lead magnet (that free item they opted into your email list for) to a small purchase to a larger one.
If you’ve been in business a while you’ll probably need a more complex sales system.
Either way, what you need to do is figure out what the logical buying process for your customers should be. What should they buy first? Second? Third? Can you create any upsells for them? And if they don’t take the upsell will you offer them a downsell? Will you bundle products together to give them a better deal and make a higher profit?
Having a sales system means you’ll be able to answer these questions and you’ll have complete control over how your customers do business with you. If you don’t have one, make the time to create one today.
5) Lack of a continuity or membership program. Every business needs regular income and the easiest way for a small business to get it is through a continuity (subscription) or membership program.
Contrary to what you might think, these types of programs work just as well for product oriented businesses as they do for service oriented businesses.
But subscription, membership or continuity programs aren’t just better for you. They’re better for the customer too.
A growing number of customers prefer the convenience of subscription programs.
Creating a continuity or membership program means having a predictable income month after month after month in your business. It means you don’t need to worry about getting as many new customers in the door because you’re continually selling to the customers you already have.
Without a continuity or membership program you’re missing out on a ton of money every week, month or year, depending on how you would structure such a program for your business.
The fix: Implement a continuity program for your business today!
In order to set this up, you need to decide what you can offer to your market on a regular basis. Will it be a book of the month? A weekly coaching call? A yearly service fee paid up front?
Then, you need to find a way to automate the payments and delivery of the service or product. There are many online payment processors that will let you automate credit card payments, including Paypal.
There are also services that will handle shipping for you on a regular basis, and some companies will do both – take payment and ship for you.
A google search will help you find these companies.
If you’re going to offer a service on a continuity basis you won’t need to worry about shipping. All you’ll need to do is set up the payment processor and deliver your service. And if your service is online and can be automated, so much the better!
If you’re making any of the mistakes on this list correct them quickly and you’ll see your income rise.
Dedicated to your success,
PS: I welcome your comments!