The year 2020 was extremely difficult for many companies, and 2021 may continue to present problems of its own. The effects of the coronavirus pandemic have been far-reaching in every area of our lives. Many types of businesses have seen their revenues fall and have had to lay off a large portion of their employees.
However, the economic news isn’t bad for everyone. E-commerce has made a stunning leap over the past year, rising by over 36 percent since the third quarter of 2019. It stands to reason that many e-commerce companies are still making tidy profits despite the severe economic situation.
How can companies increase their profit margins in 2021? Marc Zboch, a business expert and philanthropist, lays out five strategies that can help businesses of all types increase their profits and bolster their chance of survival.
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1. Focus on the Competition
When increasing profit margins is the goal, many companies believe that they should focus solely on price competition. Experts from the Harvard Business Review found that focusing on making a product or service better than the competition was more likely to increase profits.
When companies focus on what their competition is doing to succeed, they can discover ways to make their products and services better. For example, streaming services like Netflix, Amazon Prime, and Hulu have exploded over the past few years. Netflix remains at the top of the heap even though they have among the most expensive fees per month. Customers believe that they are getting their money’s worth because Netflix has a better slate of movies and TV shows available to stream, especially high-quality original programming.
Other streaming services like Disney+ are trying to compete with a smaller selection of shows. They have not caught up despite setting their price at about half of Netflix’s most popular plan. In this case, Netflix is showing that competing on quality is a better move than competing on price alone.
2. Prioritize Increased Revenue Over Reduced Costs
Companies should focus on increasing the money they take in rather than focusing solely on cutting costs. When companies cut costs, they could reach the point where their products’ quality suffers. Companies are encouraged to diversify their product lines, put as much research and development as possible into their offerings, and raise prices as much as they can to keep from turning customers off.
3. Acquire New Clients
One of the best ways to increase revenue is to attract new clients. Make sure that your team responsible for new client attraction is looking for the right kind of customer. It is counterproductive to try to attract customers who do not have the resources or needs to become regulars.
Another common mistake is spending too much time dealing with the wrong contact at a client’s firm. Companies that want to make sales need to pitch their products not to mid-level procurement personnel, who have little to no actual control over what they buy, but to high-level executives who can make large purchasing decisions.
4. Making Existing Clients More Profitable
To make your current customers more profitable, it is a good idea to do a deep dive into their needs. It may be that one of your regular customers’ needs a specific product or service that is offered by a competitor. If you can find a way to offer a better version of this service, do so.
5. Retaining Current Clients
Tied in with making your current clients more profitable is the concept of retaining current clients. The customer you already have is almost always the most profitable since you don’t have to spend any more time or effort convincing them to buy your products. Existing customers should be treated as well as new customers. Some companies forget about this and shunt their existing customers’ needs to the back, creating resentment and possibly setting up an opportunity for customer churn.
Cable and internet companies are a good example of this problem. Cable companies tend to run specials for their newest customers which expire in two years. Rather than accepting the rate hike, customers who have other options are likely to pull out of the contract and go with another provider with an introductory deal. If promotions were tied to customer loyalty, the cable industry might be able to make their current customers happier.
Understanding How Profits Rise
Marc Zboch presents these examples and encourages companies to look into increasing their profitability through surpassing the competition, prioritizing increased revenue, and maximizing the potential of current clients. Whenever companies are making major business decisions, they should sit down and go over these points. Marc Zboch believes that these strategies could pay off for companies that sell a wide variety of products and services.