5 Ways You May Be Hurting Your Holiday Profits Investing a lot of effort servicing unprofitable customers or selling unprofitable products can be disastrous.
By Dawn Fotopulos Edited by Dan Bova
Opinions expressed by Entrepreneur contributors are their own.
Last year the sales numbers came in strong for the fourth quarter, but there was only one problem: as revenues rose, profits plummeted. How does that happen?
When small businesses invest a lot of effort servicing unprofitable customers or selling unprofitable products, holiday promotions can have disastrous financial outcomes.
Related: What's in Store for Christmas? Depends Who You Ask.
Who in their right mind would do this? Millions of small-business owners who have no idea which products or customers are profitable. Here are five tips to help grow revenues and profit simultaneously this holiday season.
1. Don't lower price just to sell more.
Lowering prices to sell more units is easy to do, but can destroy profits. Sell on value such as convenience, uniqueness or after-sales service support. Lowering price usually attracts a price sensitive, non-loyal customer who will never buy from you again.
Focusing on other ways to get more people into your store usually means more client hand-holding, but it may be worth it in the long run.
2. Don't give away a dollar for a dollar in promotions.
If you want to bless your customers during the holidays or incent them to buy from you, give them something that costs you $5 that represents a $10 value to them. One boutique owner I worked with wanted to give her best customers a 20 percent discount on everything. She was essentially putting her profit and loss statement on life support by directly sacrificing revenues.
I suggested the next time a loyal customer came in, give her a scarf or belt as a gift. The customer received the $100 gift that only cost the boutique owner $50. That's a lot less money to invest in an important customer relationship than the $400 the owner would have sacrificed had she offered the 20 percent discount.
The beauty is, the relationship with the loyal customer is stronger than ever.
3. Don't worry about finding new customers. Leverage existing customers.
Time is of the essence for everyone at the end of the year, including your customers. If you're spending too much time trying to close new business, you'll miss the important relationships already in your ecosystem.
Related: Rid Your Business of Zombie Stock Before the Holidays
Most small-business owners invest very little time reaching out to existing customers. Did you know that according to the Harvard Business Review, a 5 percent improvement in the retention of a profitable customer can improve profits from 25 to 85 percent? Don't miss this opportunity.
4. Focus on high-margin items and services in the fourth quarter.
Not every product or service you sell has the same gross profit. What does this matter? Because if you had the choice to sell one T-shirt that delivers $10 in gross profit or one pair of jeans that delivers $20 in gross profit, focus on the jeans.
You need to know what the gross profit is of every product or service you sell. If you don't know, ask your bookkeeper or accountant to pull a report that will show you. Promotions should always focus on the higher gross-margined products, that way, for every product you sell, you'll be protecting the bottom line too.
5. Make it easy for customers to find and buy from you online.
It sounds pretty basic, but you'd be amazed at how many business websites don't make it easy for customers to complete a transaction online. The navigation is poor, load time is slow or the transaction connections with the payment provider are not smooth and seamless.
Have three people test your site to make sure you don't lose more than half of the sales that are attempted. It's hard to believe, but many sites lose as much as 60 percent of their revenues due to visitors that abandon transactions.
If your website offers fewer features and fewer products but easier navigation and sales completion, your revenues and profits will win the day for your small business.
The National Retail Federation estimates that 20 to 40 percent of sales happen within the last two months of the year. Optimize this selling period by following these five tips. By making these few small adjustments, small-business owners can make sure to maximize profits, and end the year strong.
