How we increased profit without losing quality.

Where did all the profit go?

I think we both know the answer to that question.

- Increased cost of goods

- Increased cost of salaries

- Increased cost of services

The list goes on and includes nearly every line item on a company's P&L these days. 

But no one is talking about how you can combat it?

It means people are either:

- Avoiding it

- Don’t know how

- Or don’t want to share solutions

In my business, rising costs have hit hard too.

Unfortunately, I avoided taking massive action for over 18 months. 

I couldn’t bring myself to increase prices across the whole business and apply more pressure to an already struggling industry. 

Instead, we found other levers to pull on initially to help balance our cost percentages.

And today, I thought I’d share an overview of the first steps we took to increase profitability.

But before I dive in, let’s talk about the mindset you might be in right now. 

During the last few years you’ve watched your costs increase but you haven’t increased your prices at the same rate, or at the same time.

You’ve waited...

Hanging onto the idea of trying to do 'the right thing' for the customer.

Some of you are shit scared of losing customers.

Others are terrified of being confronted with an angry phone call from someone who’s purchased from you for years.

That feeling of fear is stronger than the urge to solve the problem.

So, you freeze. 

You do nothing and just absorb the costs, grit your teeth and work a bit harder while slowly getting behind.

I did the same thing.

And if you’re going to do this, at least tell your customers you’re holding costs for another quarter (or month). 

It’s something I regret not doing. 

See, we missed an amazing opportunity to deepen trust and build goodwill.

And it would have made it easier to increase prices later because we would have told them 18 times prior that we were holding prices for them for another month. 

So if you're holding prices, turn it into a positive.

As for the rest of you who want to restore profit faster and maintain quality, let’s jump into some high-level ideas:

1. Make better products. 

If you’re going to increase the prices, one approach is to launch better products at a higher price instead of just sticking up the prices of your existing ones and pissing people off.

When you factor in all of the fixed costs your business has, adding a premium offer for a higher price means you get more bang for your buck. 

But the product/service has to be valued by your core audience. 

So make sure you work backwards from customer insights and then compare it against what products are profitable for you to make.

 2. Negotiate Hard

I’m not going lie, hardcore negotiating makes me uncomfortable. 

It’s a skill I recognise I don’t have at the highest level.

So I outsourced it. 

And the results?

Insane!

But it’s not always about getting things cheaper.

Sometimes it’s better to negotiate terms. 

To extend your credit with key suppliers or ask for financial assistance. 

For example, we asked one of our main suppliers to pay for some key equipment for us so we didn’t have to take out a loan.

It meant signing on with them for 3 years which we were happy to do anyway and they funded a key piece of equipment interest free that helped us grow.

3. Cheaper and Better

My rule is to find things cheaper, at the same or better quality.

It's something people initially think can't be done.

But when you take that approach, it forces creativity. 

It means looking waaaaay harder for alternatives and not just calling the obvious suppliers. 

Often it’s about going direct to importers or manufacturers to bypass the middleman and save a few percent.

Either way, it relies on you taking a more curious approach. 

For example, we ask suppliers how we can purchase from them in the most economical way FOR THEM.

If you try to help them with their costs, then the savings reveal themselves. 

And you can ask for that to be passed to you.

So solve their problems to unlock savings for you.

 4. Most Bang for Your Buck

Focus on the biggest wins first. 

Things you make a lot of, or spend a lot on. 

Because a little time spent looking at alternatives means you’re likely to see big savings. 

Even if you don't intend on leaving, doing research on it gives you leverage for a pricing discussion.

Just remember, be careful to not reduce quality or impact your brand. 

Which leads me to…

5. Go Hard On Low Value Things

I’m a little more ruthless with pricing on things that my customers don’t care about:

To figure out what they are, I ask myself:

‘Would our customers pay more for this?’

Things like a particular brand of disposable napkin, the answer is probably no.

So we look for anyone who’s prepared to do it cheaper factoring information in the other points above.

A key brand partnership on the other hand might be a yes, so use that to to the following...

 6. Increase Prices

I know I’m stating the obvious, but just putting your prices up normally solves everything.

But it can often backfire if you’re not prepared. 

One of the best ways to do it is to make sure your product is different. 

(not just better)

If they can get the exact same product, service, experiences at a dozen other places then you'll struggle to charge more.

Instead, you might need to come up with a more unique product or service first that people want lots of or will pay a premium for.

7. Stop Buying Things

Sounds simple right?

But the fastest way to save money is to stop buying things you spend money on. 

Old subscriptions, recurring purchase orders and software you aren’t getting the most out of.

But it’s also about looking at things differently.

For example, installing a few used hand dryers to avoid buying disposable paper towels every week.

Every little thing you do like this has a big impact long term.

8. Diversify Revenue

We split our revenue across retail and wholesale to make sure we have different types of income. 

When it comes time to increase prices, you've now got more parts of the business you can spread the increase across based on timing. 

For example, when we were hit with a 30% increase in flour, we should have put our bread prices up to clients. 

But it felt like the wrong time.

So we increased coffee instead which was under the market rate and it plugged a profit hole.

I hope you’re still with me!

I know this has been a long one!

But hopefully it has a few insights.

There's one last thing...

For most of us who have team, the biggest cost is employee salaries. 

It’s a massive topic and a little more complex than jotting a few points in a weekly email. 

So I might break this one down later.

But to get your juices flowing, it’s good to consider that a business is like an elite sporting team.

It’s about assembling the best players for that season/period.

I’m not going to lie, it’s a hard job.

But as the team leader and main recruiter, you are responsible for curating the ideal team to win.

Identifying gaps and weaknesses.

Positioning people based on strengths.

My point is, it’s not always about carrying someone just because they’ve been there forever.

Some people think this is cold approach.

But the flip side is you’re doing everyone else on the team a disservice by keeping people who don’t perform or resist changing with the needs of the business. 

It's not about you. Or them.

Everyone is there for the customer!

And your job is to assemble the best team to deliver those excellent customer experiences.

That’s the real game we’re in.

But we'll cover this some other time.

Okay… (phew!)

Let’s leave it at that today. 

Thanks so much for sticking with me for this one. 

I hope it helps generate some ideas.