Once you understand the basics of making profit it is important to understand how you manage your income. This is a key component in growing your business and increasing your profitability.
Here I will list a few points on:
This should be one of your top priorities as a business owner. An income strategy is a plan that focuses on increasing revenue over short and long terms. When developing your income strategy, you should consider the following areas:
Ensure your income plans match your own vision for the business, have a clear understanding of your goals and what your business will be in the future. Remember what the business does and why it is important. Revisit your company mission, strategy and your values, principles, beliefs and aspirations. Make sure these alight with all areas of your income strategy. After all you clients also will have the same or very similar values and beliefs.
Delivering customer value is key to maintaining long-term relationships with existing customers and earning new business. It’s an important part of meeting customers’ needs and expectations and learning how they change over time. Customer value is not just about the money, more often it is about quality and convenience which summarises time, energy and emotional costs. Make sure you can deliver as least two of the three: Low price; High Quality; Convenience.
Identify and develop KPIs / Key performance indicators/ to help you track your progress and your performance. Make sure these are achievable and measurable.
Utilise relevant research and evaluation tools to measure your results.
Assess if your current revenue level is meeting your targets. Identify potential problems and ways to resolve them so you can improve and grow your revenue. Regularly review your cashflow, profitability and margins. Evaluate how success fully you are controlling your costs.
Assess if there are any opportunities in your market, that your company is not taking advantage of at the moment. Review your customer base to analyse how your business retains loyal customers and generate repeat income / check point 2 – Customer value/. Try to evaluate your overall profit and ROI /return on investment/ against key competitors and industry benchmarks.
Consider if your current internal structure needs changing to better suit your income goals. Do you need extra staff focusing on marketing? Do you need to train your staff for better customer service? Assess capacity within your business including the skills you need to maximise your income.
Define your sales processes and review them against your objectives on a regular basis. Think about your sales and marketing approach you will need to achieve your overall business goals and make sure they alight with your vision and values. Ensure your staff understand the revenue path and sales process. Review how your business communicates with customers and develops relationship, this ensures unified approach from initial lead generation to evaluation and analysis.
When reviewing revenue strategies, take advantage of your team's skills and knowledge by incorporating their ideas, perspectives, and experiences. Be open to all contributions – it's not just key decision makers who should shape your sales processes and revenue strategy.
It is important to research and identify the potential of new tools to add value to your income. Automating your sales process, using social media marketing, having online meetings with clients, using software for reporting and analysing, increasing productivity with task management are only part of the possibilities. Regardless of which technology you decide to invest in, make sure it adds value to your income strategy, and that it saves you either money, or time (ideally both). Technology investment should be viewed as either a cost reducer (e.g. automation), or revenue creator (e.g. social media marketing).
Having a clear picture of who your customer is, what motivates them, what problems they need solved and what they are willing to spend money on is crucial. You should review your target markets frequently and not only as a one-off task when you start your business. Markets often evolve, customer expectation change and trading environments are dynamic. Not adjusting your strategy over time means it will become outdated quickly.
Forecasting is something every small business should use for projecting future revenue. This allows you to estimate how your income and profit are likely to develop over a period of time. Your estimates will be based on historic data, present sales, and external factors which are likely to impact revenue and demand. Your revenue strategy should be constantly reviewed, adjusted, and updated, and so should be your forecasting. This will give you an ongoing awareness of how emerging trends, impacts, and developments are affecting your future profits. Forecasting is a proactive approach to planning, so you can maximise your opportunities in advance.
The right pricing makes a big difference to your income and profit. From the date collected from your market research identify and define a spending profile of your ideal customer. Think about what is their income, what are their spending habits, what do they expect to pay for your product/service, what is their perceived value of your product or service, when and how they make purchases and what influences their decision. After thinking about the above questions, develop a price point for your products or services and consider your ideal profit margin. You could also develop a profit margin range, which starts from the lowest possible price you could offer while still making a profit, through to your most ideal price point. You can then use this range as your scale to know how much you can adjust, if you then choose to offer discounts, sales, or experiment with changing your prices.
An important aspect of your revenue strategy is how you manage your revenue. Revenue management helps you to take full advantage of your business potential by using information and data as a decision-making tool to avoid missing out on opportunities. Effective revenue management means making the correct business decisions at the right times to maximise profits. For example, selling the right products to the right customers at an efficient cost to your business.
Revenue management tools include using performance data and analytics to achieve sustainable revenue patterns, and which allow you to grow your business.
Useful sources of data include:
• your business's previous performance data
• current sales data
• industry or sector insights and performance data
• other benchmarking data.
Once you have a strategy in place, continue to adjust and optimise your processes as industry trends change and to stay ahead of the competition.
To forecast as accurately as possible, it's important to follow these steps.
Define the period of your forecast – most business forecasts are monthly.
Collect past financial statements – the most accurate way to predict future sales is to use the data you have from existing trends because historic data tends to repeat itself. To make this easier in the future, keep accurate records around your pricing, sales, and revenue cycle, and keep them accessible for later reference.
Incorporate the impacts of future events you know will affect your sales, especially if these trends haven't previously affected your historic data. You should pay attention to industry trends, and how developments in the areas of politics, economics, social, and technology could impact your market.
Research and analyse revenue trends that include commercial and non-commercial events, for example:
bank holidays
weather events
local events (e.g. concerts, sports games)
political decisions (e.g. Brexit, changes to taxation laws, travel restrictions).
Include all future cash inflows, remembering that cash flow (e.g. loan repayments, selling an asset) may not be tied to sales, but should still be positioned in your forecasting.
Continue to adjust and update your forecasting as you go, so that it remains accurately aligned to the dynamic changes your business may encounter.
Review your forecasts against your actual revenue, so you can confirm if it aligns with your initial predictions at the start of the period.
