Recently we talked about measuring and monitoring business success. The following is an illustration of how small changes identified through by measuring and monitoring can significantly improve your bottom line.
You may remember Air New Zealand's announcement of soaring profit reported recently.
This inspired us - and we want to help you to increase your bottom line - so how did they do it? Read on……
Air New Zealand had a number of strategies in place that led to the big increase. The main ones were increased passenger volumes and reduced fuel costs. Having said that, even though their net income surged by a whopping 45% for the year to June their revenue growth had only increased by a mere 1%. In other words much of the additional sales were added to Air NZs bottom line.
Improved performance is often the result of small gains in more than one business area, as the results of Air New Zealand demonstrate. Once you have completed your financial planning, you will be able to do some fine-tuning to see whether, by your good management, you can enhance the future performance of your business. We are here to help you with this process.
The table below demonstrates what small improvements of just 5% to four major areas can do collectively to your bottom line.
Level of sales
The Air New Zealand result reflects how small increases in sales can translate into improved profits. Additional sales can be created or come from many sources. The main source being your existing customers, and also from new leads (email queries, website hits, phone enquiries or simply someone walking through your shop door).
Air New Zealand has its star alliance loyalty programme or their grab a seat special offers for example. The goal is to increase the number of customers or increase the number of transactions per existing customer and most importantly to keep customers from using their competitors.
Air New Zealand formed new alliances which increased its reach and also offered new products by extending its destinations. Which poses the question - where could you increase the sales in your business?
Increase the average price per sale
Customer spend can be increased by making offers more attractive, raising prices or a combination of both. Many SME operators frequently undervalue their products or services and are later surprised by how smoothly price increases can be introduced. Gauge the benefits of such a move with your own data or talking to a professional such as your business advisor.
Garnering higher prices is an obvious way to increase profits, but to achieve this you often have to offer customers something they simply can't find anywhere else. You could make them feel special with a preview of future products, and train your staff in cross and upselling more expensive items. Check out your competition to find out what they aren't offering. Could you strengthen your point of difference to set you more apart from your competitors? Often it is simply offering consistently good service and building trust with your customers that will keep them coming back and allow you to charge better prices.
Increase the net profit percentage
You can also reduce your costs to improve your profit margins. Greater margins will enhance the funds you have to service overhead/administration costs which in turn increase your net profit. A good way to look at this is to go through each area of your business and review your expenses and the way you do business. Air New Zealand reduced its fuel cost through hedging and increased fleet efficiency. Are you able to reduce your costs? What cost improvements can your business sustain to give you your tail wind?
Small steps can lead to significant profit growth. It's amazing how some moderate tweaks can lead to a vastly different profit outcome. The small changes in the table above lead to an increased net profit percentage of some 15.1% or $16,675.
Create your own scenarios and see how much more your business could earn by making a few small, but smart, changes. You might be pleasantly surprised by the results.
Talk to a financial advisor. We can help you with your financial planning by providing assistance and guidance. We are trained at finding and talking you through opportunities for your business. We can provide an outside perspective and can vouch for what works and what doesn't.
If you're struggling for ideas on how to realise your own improvements, give us a call, we will be happy to help you though all the options. We are experienced business advisors ready to help you on your path for growth.
Adrian Ferris is a qualified Chartered Accountant, managing TvA's Commercial Team.
If you have any questions related to this article or would like to discuss how we can help you on your path to growth send us an email at firstname.lastname@example.org or contact Adrian on 03 578 3386.