Is it possible to increase profit without increasing price?
When I had my own Chartered Accounting Practice a few years back I ended up specialising in Business Development, as this is an area of business that I find more interesting and much more fulfilling than simple bean counting! I loved to work with business owners in devising strategies of how to improve profits or get better margins in their businesses.
Business Development encompasses a wide range of services and most of the time I would begin by looking at ways to Increase Business Profits.
However, the main objection I got from the majority of business owners, was that they felt the only way to increase profit was by increasing prices. However, this is definitely not the case, as in my estimation there are 7-Ways to Grow a Business, which will include increasing prices, but this is not the only way.
One of the key profit improvement methods which works well to increase profit without necessarily increasing price is to increase the average transaction value. The average transaction value is how much on average customers spend with you each time they visit your business. With this method of profit increase, I would always use McDonalds, as the example, as most of us have been to get a burger and chips, even if not for ourselves, but for our children or grand children.
At the point you order your burger and they ask you if you’d like to ‘Go Large’, this is a deliberate ploy by them to up the average transaction value. What’s more, the part that is ‘GOING LARGE’ is the fries part of the order and the bit that makes a higher margin over the burger, as the cost base is much lower, as there’s only one ingredient – potatoes! So if you say yes to this question, you have increased your average transaction value, but McDonalds did not need to increase their price to improve their profits, they simply got you to spend more during your visit!
I wanted to see what effect increasing the average transaction value would have on a business, but didn’t have a way to calculate this, so ended up designing our Increase Profit Software. This software is very easy to use and helps a business to focus in on their Key Performance Indicators (KPIs) and looks at the 7-Way to Grow a Business, including Increasing the Average Transaction Value.
After entering a few key pieces of information, which includes your key profit and loss amounts, like total sales, cost of sales and overheads, you can set about testing how much impact changing your average transaction value from £x to £y will have. You’ll be surprise too at how the smallest of increases in how much your customers spend with you, how much impact this has on your profits!
Once you have worked out what the impact is on profits, you can then set about working out how to achieve this, which in my mind is the fun part and you can get creative!
But Remember – You can increase profit without increasing price, when you invest a relatively small amount in our Increase Profit Software and spend a few hours of time working through the numbers – and it is FUN!