FIVE WAYS TO INCREASE PROFIT

UMPQUA WHITE PAPER

2017
Five Ways to Increase Profit
Small changes can mean big improvements
Successful small business owners are those who are
continually seeking ways to increase their profits. For many
small businesses, their initial first thought is to increase
revenue velocity.
However, it’s small incremental changes across a number of
business areas that create exponential improvements to the
bottom line. We’ve identified five steps you can take that if
improved together will generate substantial profit increases.
Here is how it works. Let’s aim for a 10% improvement
across these five steps:
• You currently have 1,000 customers a week walk
past, call, look at your website or just hear about your
business.
• You convert 20% of these into customers, providing 200
actual buyers.
• These customers buy on average 2 products, or hours,
or services, giving 400 sales.
• The average sale price is $50, which generates $20,000
in sales for the week.
• If net profit for the business is 15% overall, the business
has made $3,000 for the week.
Let’s now see what a 10% increase across ALL of these
variables generates in extra profit. Can you guess? 10%?
20%? 30%?
• Your 1,000 customers a week is now 1,100 (a 10%
increase).
• You convert 22% (10% increase in conversion) of these
into customers, providing 242 actual buyers.
• These customers now buy on average 2.2 products, or
hours, or services, giving 532 sales.
• The average sale price is now $55, which generates
$29,260 in sales for the week.
• Net profit for the business is now 16.5%, so the
business has now made $4,827 for the week.
That’s a 60% INCREASE IN NET PROFIT, by tweaking these
five variables by 10%.
How can you do this yourself?
Let’s get started.
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Executive Summary

Carefully review each of the five steps in this guide. If you Step 3: Increase the number of transactions
can improve on each one of them by even small increments, per customer
you’ll see substantial improvements in profitability. It’s the Learn the fine art of cross-selling, upselling, and bundling
multiplier effect that provides the value. products and/or services together.

Step 1: Increase leads Step 4: Increase the average value of each sale
Anywhere and everywhere look for more qualified leads. Get Identify where you can add value and gain that extra dollar
in front of as many customers as you can to feed them into from every customer.
the top of the sales funnel.
Step 5: Improve net profit percentage/lower costs
Step 2: Increase conversion rate
Reduce costs and improve your efficiencies to increase your
Identify what triggers a purchase and then ensure those overall net profit percentage.
conditions are amplified.

Remember that increasing profitability is something that should be continually worked

on. Get your key employees together and discuss how each of these five methods
should be in use on an ongoing basis, and get advice from your accountant and your
business banking advisor when putting these steps into motion.

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Step 1: Increase leads
The more leads, the more chances of converting them to
customers. This could be more traffic to your website, more
people walking past your location, more people calling your
business, or being invited to pitch for more contracts by
business customers.
Identify tactics to get more potential customers into your
business sales funnel.
It’s also important to implement and make use of a customer
sales system into which leads can be entered, tracked, and
analyzed, so you know which lead-generating tactics are
working and which are not.
Improve social media leads
Being active in social media will help more potential custom-
ers hear, see, and interact with your business. Leads may
be a slow burn, but more and more people are using social
media to learn and listen about businesses.
The Independent We Stand (IWS) campaign reports 97% of
consumers will research products and services online before
committing to a purchase. You want to make sure you are
on the list, and committing to social media is one way. Take
care not to use social media for hard sales; remember we’re
trying at this stage to get more leads. We’ll convert them later.
• Talk about staff, customers, and success. Facebook is
the most popular for this.
DID YOU KNOW?
Facebook Figures — Facebook is the
most visited website on the Internet with
over 1 billion users. It also has the greatest
influence on Google search rankings. 56%
of Facebook users check in daily, with 51%
of them more likely to buy the products of
the brands they follow online. And research
shows that the highest Facebook traffic
occurs midweek between 1–3pm, so that’s
a great time to be online.
UMPQUA CUSTOMER: NORTH, INC., PORTLAND, OREGON
• LinkedIn’s networking platform will help connect staff
on a professional level and is a great way of exchanging
information with partners and clients alike.
• Twitter will allow you to microblog and talk about daily
events.
• Sites like YouTube and Instagram allow you to distribute
how-to videos, product demonstrations – anything you
think would be of interest to your audience.
How to increase the chance of getting customers to
participate:
• Add a “share” button on your website linked to your
social media pages.
• Add a “like” button to written content on your website,
such as blogs or updates.
• Create events to make people want to connect, such as
running competitions, free demos, webinars, giveaways,
or customer stories.
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 Keep it simple.
DID YOU KNOW?
If you’re a social media newbie, don’t make the
mistake of trying to use too many platforms at once.
It’s best to start with just one, and when you’ve Forbes.com reports that over 88% of
got the hang of it and it’s getting you results, think
businesses use content marketing as part of
about expanding to others. Given the large following
of both Facebook and Twitter, you may be safest
their overall marketing strategy. Not only that,
establishing a presence on one of these sites. but they report that 85% say lead generation
Social networking is a process, not a destination, will be their most important content
and will take time and effort before it starts to pay off. marketing metric in the future.

And 88% of consumers who search for a

business online will call or go to that business
within 24 hours.
Gather more leads from your website
Add lead-generating tactics that encourage points of
contact, rather than just having a standard site with standard
information about what you do. The importance of SEO
The best content in the world won’t do you much good if it’s
• Develop a customer database by offering incentives and
not ranking well with the search engines. That’s why Search
reasons for potential customers to give you their details
Engine Optimization (SEO) is crucial for effective content
such as:
marketing. There’s no point in spending time and money
creating top-level content if no one can find it. When
• An e-newsletter (a great relationship building tool)
building your website, get some expert advice so that
talking about your business
when your content is being created, the relevant keywords
and phrases are being used properly.
• A sign-up to receive unique content such as
product white papers

• A sign-in to receive free demos, free samples, free
reviews, video explanations, or quotes

• Create a blog to build interest in your business and

position yourself as an expert in your industry.

• Ensure your site is mobile optimized. Research through

Smart Insights shows that mobile digital media time in
the US is now significantly higher at 51% compared to
desktop at 42%.

• Include a customer feedback section.

• Keep your site regularly updated with news, blogs, dis-

count offers, customer loyalty programs, new products
and services, and what’s happening in your industry.

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Advertise to create awareness among new
customers
You can’t always rely on your website or online traffic.
You may find that for your particular business, traditional
advertising will still drive new leads such as television,
newsprint, trade journals, direct mail, and radio. They all
require different budgets and vary in their effectiveness.
DID YOU KNOW?
Journalism.org reports that as of March
2014, local television advertising reaches 9
out of 10 US adults, while the Content
Marketing Institute reports that print and
offline promotion is still the #1 paid platform
for content marketing distribution.
You might try some practical alternatives such as:
• Trade shows — these are a great way to promote your
products, engage with your customers, and get a good
look at the competition
• Public relations — including press releases for building
your reputation over the long term
• Merchandising — specifically targeting point-of-sale
purchases
• Personal selling — with the intention of building relation-
ships with high-value customers
• Direct mail — using a mailing list that closely matches
your target market
Your advertising budget will dictate which of these options
are viable. Choose a variety of methods so you can tackle
potential customers from more than one direction.
Check out the competition.
Take note of what your competitors are doing to sell
their products or services. How effective are they?
Can you think of a way to advertise that’s better
than theirs?
Identify new sources of customers and
markets
Can you attract new leads from developing new customer
targets and markets? Consider who else you can sell to,
such as:
• Moving from selling to consumers to business, or vice
versa. If your business focuses on consumers (B2C),
consider whether your products or services would
interest businesses (B2B).
• Teaming up with another business with a strategic
alliance that can open up a whole new market.
Think how often you see Subway or other fast-food
businesses attached to a gas station.
• Government or institutions that may offer contracts for
products or services. Find out more about them at
Government Contracts USA.
• Wholesaling where your business imports products
directly and sells them to other businesses.
• Consider drop-shipping rather than inventory to expand
your market.
• Franchise if your business model is one that can be
easily replicated and there’s a significant demand for
what you sell.
• Research new products and services that could open
up a new type of customer.
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 • Consider exporting to find new customers. The US Online distribution means you’re not limiting your sales
Small Business Administration has a section on to business hours. On average, retailers that have both a
exporting for taking first steps. Consider these facts physical store and online presence report an average
from the International Trade Administration: growth of 23%.

• More than 70% of the world’s purchasing power is

located outside the US.
• On average, sales grow faster, more jobs are
created, and employees earn more than in
non-exporting firms.
• Competitive advantage — the US is well-known
globally for its high-quality and innovative goods,
customer service, and sound business practices.
• US companies that export not only grow faster, but
are nearly 8.5% less likely to go out of business than
non-exporting companies.
• Small and medium-sized businesses account for
98% of US exporters.
Implement a professional sales system
To increase leads, you need to have a good customer sales
system to manage and analyze customer interactions and
data as well as an easy way to count how many leads are
coming into your business, and which lead-generating
tactics are working.
When you’re considering what system to use, remember
that it should:
• Register leads and contacts
• Allow you to track all customer interaction
• Capture the important data about your customers

• Remind you of key dates regarding specific customers

so you know when to contact them and why

• Work with any current systems

• Be easy to use, come with good support, and have

Talk to us about your exporting plans. adequate training available
When you’re considering exporting, talk to us
• Be mobile; research conducted by Innoppl Technologies
about our international banking for global
showed that 65% of sales reps who adopt mobile sales
commerce solutions. We’ll arrange letters of credit,
systems achieve their sales quotas
help organize payment solutions, talk you through
foreign exchange, and serve as your documentary
collection agent, to name just a few. We’ll help
make sure that your entry into the international
marketplace is a successful one.

Build an online distribution channel

With online distribution, you can open up your business
to customers outside your current location and region.
Sell products you offer online with inventory that is held
by a distributor. You don’t even need to see the product
as it’s delivered.

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One of the most commonly used systems is Salesforce. This
very popular cloud-based system offers a range of solutions
that will suit almost any business, large or small. There’s
been a huge increase in cloud-based systems — six years
ago only 12% of US businesses were using them, a figure
that’s now jumped to a huge 87%.

HubSpot is another popular choice. This is an inbound-mar-

keting solution that helps you track prospective customers
with landing pages, calls to action, and personalized email.

Next we will outline how to increase your chance of conversion.

Decide how you want to track and measure leads (number of phone calls, number
of people that download a demo), and then set in motion a series of planned events
to drive leads. Yes, they need to be qualified leads, and this first step revolves around
getting more possible customers into the top of your sales funnel.

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Step 2: Increase conversion rate
Once you’ve got more people discovering your business,
it’s time to convert them into customers. It’s important to
measure your current conversion rates, so that you can then
apply tactics to improve this ratio.
First, research what triggers customers
to purchase
Find out what causes most customers to make the decision
to purchase. What is the main compelling reason that your
customers buy from you? Once you know what influences
buying behavior, you can take steps so those triggers are
present whenever customers interact with your business.
So how do you go about finding out what those
triggers are?
• When communicating with your lead (either online or
face to face), use their name, ask what their problem is
and how you can solve it. Don’t hard sell right away.
• Create a profile of your perfect customer and identify
what their triggers are. It may not be the end customer;
for example, according to research conducted by
Marketing Mel, 85% of consumer purchases are
controlled by women.
• Conduct surveys to get feedback. Ask your customer
base what they think about your business.
UMPQUA CUSTOMER: BOB’S RED MILL, PORTLAND, OREGON
• Email your customers an online survey. There are
various options you can use. One of the most popular
is Survey Monkey.
• Have staff ask every customer directly why they made
the purchase and feed it into the sales process.
Once you start uncovering why people buy, you just
might find out why they don’t. Long lines, unavailable
staff, difficulty finding products, difficulty in making a
purchase are only some of the many reasons.
Use social media to uncover triggers
Social media should be part of how you see what customers
are thinking and discussing. Encourage this by:
• Offering incentives to join and participate in your
social media, such as competitions, special offers, and
free samples
• Asking for feedback and talking to customers directly
• Reviewing competitor social media conversations or
complaints that may trigger an opportunity to provide a
solution or see what they’re doing well
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Second, improve your chances of sales
conversion
Set up sales training
Customer conversion isn’t one of those “you’ve either got the
knack or you don’t” skills. It helps if you have a natural talent
for selling, but it’s also something that can be learned. If you
rely on your website to sell, then the same principles apply.
Organize training that will:
• Set targets so everyone can see results, as well as
which tactics work and which don’t
• Involve your staff about what they think would improve
conversion rates and get them to share results
• Motivate your staff using incentives for reaching and
exceeding their targets such as bonuses, a half day off,
vouchers, or a donation to their favorite charity
• Show successful sales tactics and allow staff to role-
play a customer conversion scenario
• Offer proof; ensure you have customer testimonials,
case studies, white papers, demonstrations, and any
evidence that making a decision to buy is a sensible one
• Provide guarantees — what can you promise that com-
municates a key benefit?
If everyone’s had some training, think of it not just as a busi-
ness metric, but a simple measure of how well everyone as a
team is doing at convincing customers to buy.
Offer incentives
Offers, deals, discounts, and limited-time options are all valid
tactics if you need to “nudge” a customer to buy. Take care
that it’s in the interest of the customer and not a hard sell. You
can experiment with:
• One-time discounts with a limited run
• Points or reward programs — some studies claim that
up to 69% of customers buy more products or services
when enrolled in a loyalty program, including a rise in
visit frequency, customer spending, and satisfaction
• Bundling products and services together
• Bulk purchase discounts
• Buy one, get one free or half-price offers
Make customer payments easier.
Customers like to be able to use the latest in
payment technology. Mobile and online payment
options are especially popular, and they benefit
your business because you’ll see the cash in your
account faster. Plus you’re providing your
customers with a payment solution they prefer, so
talk to us about our merchant services for quick
and simple sales.
Third, set up a sales funnel
Not everyone is ready to buy, and you will find some potential
customers are gathering information (especially online).
Customers that are converted days, weeks, or months later
still count. A sales funnel will allow you to convert these
customers over time.
Keep these leads by:
• Inviting them to register for your e-newsletter, blog site,
or social media
• Offering white papers, free reports, demo videos,
research, or special insights about your industry
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 • Setting up a contact campaign where you arrange to • Measure the effectiveness of your social media posts
call them on an agreed date through feedback about the number of people who saw
the post (the reach) and the number of clicks, likes,
• Online contact with automated emails and reminders retweets, and other engagements your posts get.

• Becoming a thought leader, someone who’s considered
the “go-to” authority in their industry — conducting
demonstrations, workshops and seminars, speaking
at industry events, and exhibiting at trade shows are all
great ways to become a thought leader in your field and
an authoritative voice on what you think will happen in
your industry in the future
Tip: Research by Business 2 Community indicates that
over 50% of B2B marketers consider thought leadership
an intrinsic part of a content marketing strategy.
• Facebook Insights lets you track interaction on your
Facebook page. From this you can determine a number
of things, such as the best time of day to post, and what
type of content is proving most popular. You’ll see the
Facebook Insights tab on your business’s profile page.
By understanding the entire lead-nurturing process with the
right CRM system, you’ll be able to enhance your business’s
efficiency, increase revenue, and better those customer
relationships.

Fourth and finally, track leads and customer

conversion
Not everyone is ready to buy, and you will find some potential
DID YOU KNOW?
to convert your captured leads into revenue. You’ll need to
track them from the moment they interact with your content
According to Aberdeen research, high-
until the point where you sell them a product or service:
performing sales organizations are 38%
• Use customer relationship management (CRM) software more likely to use sales analytics to collect
to track, manage, and nurture your leads at every stage customer data that informs ongoing
of the process. customer interactions.

• Conduct A/B testing. Experiment with different

messages, promotions, and offers to see which
generates the most conversions; don’t rely on just one.
Over time you’ll know exactly which combination
generates the most conversions.

• Rank your contacts in order of sales readiness and

prioritize them according to their engagement and level
of interest. Spotlight your business.
Help more potential customers find your business
• Calculate the average time it takes to move a potential with our local spotlight.
customer from the inquiry stage to a sale. According
to Marketo, the faster you respond to a lead, the more
likely you are to qualify that lead.

• Track your analytics throughout the process to see

where potential customers might be dropping off.

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 UMPQUA CUSTOMER: STEVEN SMITH TEAMAKER, PORTLAND, OREGON

Step 3: Increase number of transactions

per customer
Once you have more leads, and more are being converted
to customers, the next metric is to increase the number
of things they buy from you. It can be products, hours,
services, warranties, insurance, anything where a customer
is encouraged to buy two things rather than one. It’s a
simple enough goal – you’re encouraging your existing
customers to buy more from you, thereby increasing the
total value of that customer.
• Keep track of what your best customers are buying and
when they buy, so you can tailor special offers to bring
them in more often
• Build goodwill and keep them loyal with targeted “thank
you” promotions and giveaways based on their pur-
chase history
Proper analysis of your sales data means that you can look
at what your customers are buying and then think of other
products or services that could be sold along with them.

There are five popular strategies to increase the number of

transactions:

1: Predict customer needs using your sales data
If you’ve got a good professional selling system in place
(see Step 1), then you’ll be able to capture sales data that
will help you predict customer needs and suggest comple-
mentary products and services. In most cases, you’ll also be
able to achieve this using good accounting software.
Customer sales data can be used to:
• Identify trends such as seasonal fluctuations and items
frequently bought together, therefore helping you plan
marketing promotions
DID YOU KNOW?
Learning how to harness your sales data to
encourage customers to buy more can give
you an advantage over your competition.
According to a survey by Alteryx and
RetailWire, 81% of businesses gather data,
but only 16% consider themselves experts
in using it.

• Break this information down into profiles, allowing you

to isolate different groups of customers with different
buying habits

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2: Upsell and cross-sell
You’ve heard the old saying “Would you like fries with that?”
Learning to cross-sell is basically convincing your customers
that whatever they’re buying from you would be better if they
DID YOU KNOW?
bought a complementary item.
Failing to take advantage of cross-selling
The great thing about cross-selling is that it has genuine means you’re probably losing out on a large
benefits for the customer as well. You’ll often find that your
chunk of revenue. Research reported by
customers actually appreciate the suggestion that they buy
a complementary item, because they may not have thought Forbes.com showed that 48% of airline
of it themselves and are impressed that you can offer it. passengers and 59% of hotel guests would
be interested in an upgrade or complementa-
Effective, tried-and-true cross-selling tactics ry product if it were offered. So if you’re
neglecting cross- and upselling options,
• Tempt customers to spend just a bit more in return for you’re leaving money on the table.
a reward. For instance, you might offer free shipping on
orders of more than $150. So if a customer’s already
spent $140 with you, they’re likely to go ahead and
round that up to $150 if they get free postage.
Your insight can then help you to:
• Offer a discounted second product which is only
available if customers purchase a prime product (or • Stock premium versions of an existing product — you’ll
service). Make sure you don’t reduce margins. be surprised what people will pay if offered higher-priced
items
• Combining products and services is a great method if
the primary part of your business does one thing, but • Identify any new products or services that you could add
you can complement it with the other — hairstyling on but currently don’t stock or provide, and continually
salons will often sell the products they use on your hair, review what you sell
and appliance companies might offer free installation of
a new oven. Widening your product range also encourages customer
loyalty. If you can add new products or variants of your
• Think about your products and services and bundle the existing ones, not only are you selling more to existing
ones that can be offered together, making sure staff customers, but because you’re providing a greater choice,
are aware or are incentivized to sell. You don’t want to they’re more likely to be loyal to you and to tell others
improvise when you’re actually interacting with custom- about you.
ers — part of the art of cross-selling is confidence that
the complementary item is exactly what they need.

3: Widen your range

Widening your range can mean adding new products or
services, or expanding the range of what you already
offer. Review suppliers and identify if there are gaps in
what you offer.
When it comes to deciding what to offer, base your deci-
sions on solid market research. In other words, providing
what you know your customers want. Encourage feedback
through surveys, social media, email questionnaires, and just
chatting with customers directly.
Funding product expansion.
If you’ve decided to expand your product range and
you need some capital to fund it, talk to us about
our small business loans and lines. We can help
you tailor a lending solution that meets your needs
for expansion and growth.

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4: Use virtual warehousing and online sales
If increasing the number of products available is
uneconomical, sell online and use virtual warehousing,
where the supplier holds the inventory and you only buy it
when you’ve sold it. This allows you to diversify and extend
your product range without needing to invest in more stock.
With virtual warehousing, you can offer your customers
greater choice while keeping your costs low.
Online sales
Take a good look at your products or service and think of
ways you could offer additional items online.
From speeding up production or improving systems and
processes, a boost in capacity will allow you to deliver more,
faster.
Look at how you can boost capacity internally by:
• Ironing out small inefficiencies by streamlining systems
and processes, such as properly delegating work, using
technology, ditching unnecessary tasks, and making
sure staff are working efficiently
• Upgrading equipment, moving to larger premises, or
using new software to help in expanding your capacity
to offer customers more

• Maintaining the right staff critical for business growth; it

DID YOU KNOW? could be that hiring staff with specialized knowledge and
experience is justified, especially if it boosts your com-
petitive advantage

Once you’ve reviewed what you can do internally, consider

According to research by Business 2
if you’ll need extra funding to boost your capacity to where
Community, online spending is expected to you really need it to be. We’ve got a range of business loans
continue to rise on an annual basis, increas- that can be tailored to help you improve your capacity, and
ing exponentially every year. In 2016 alone, as an approved SBA lender, we can also help you navigate
consumers worldwide spent an estimated that option with our SBA lending service.
$1,888 trillion on online retail. That’s a very
lucrative figure to be missing out on, so
think about how your products and/or
services could be upgraded to include
an e-commerce option.

5: Increase capacity and capability

Another option to increase the number of transactions is to
be able to produce in larger volumes. Have you ever had to
turn down work or an order simply because you don’t have
the capacity to take on the work or the amount of products
in stock? If this is happening more frequently, it could be
time to look at increasing your capacity and capability so
that you can meet the kind of orders you’d previously been
unable to service, and to sell more.

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Step 4: Increase average value of
each sale
If you can increase the average value of each sale, then
it multiplies nicely when combined with the previous
three steps.
Try the following:
Increasing prices
The easiest tactic to increase the average sale is to simply
increase your prices, which is easier said than done. If you
have price-sensitive customers who will notice any change
and possibly move to a competitor, it can be tricky.
Tactics to consider:
• A small increase such as 5% across the board. It’s
small enough not to cause too much disruption, but if
it’s every product and service then the volume could be
enough to show significant gain.
• Pricing differently to customers, assuming that prices are
confidential (such as closed contracts). Assess carefully
if you can increase your hourly rate, or add on legitimate
charges you may previously have done for free.
• Use an external event to justify a price increase, such as
wage increases, fuel or power increases, a fluctuating
US dollar, or increase in your supplier costs. Take care
that these are accurate, and that it’s applied fairly. Often
small business owners face a rise in costs themselves,
UMPQUA CUSTOMER: TESTAROSSA WINERY, LOS GATOS, CALIFORNIA
and then don’t feel like they can pass the cost on. You
should.
• Take a look at your range of products and services and
increase those that are not price sensitive.
Products that customers view as necessary also tend to
have a low price sensitivity. For example, people will pay
more for gas and tolerate a price increase because it’s a
necessary expense.
Before you increase your prices
When you’re increasing your prices, try to stagger them over
time instead of raising them all at once. It’s also important
to consider:
• Is there sufficient demand to justify a price increase?
Consider your market position and what the
competition’s charging. If an increase tips a customer
over to your competitor, then think again.
• Emphasize your unique selling points, such as great
customer service, free delivery, or superior product, so
that your customers agree you’re worth paying more for.
You’ll also reduce the risk of them going to the competi-
tion if you can convince them a price hike is justified.
An increase in prices will always increase profit, but it
needs to be carefully considered, so as not to cause a
loss in demand if the market is price sensitive, or to let
competitors undercut.
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Develop premium products and services • Your existing customers will know other people just
like them who could benefit from your products and
The average sale will increase if you start selling higher-
services. Setting up a formal referral program may be
priced items. Try reviewing your suppliers and identify
beneficial. However, many customers are more than
those that can supply more expensive items to sell.
willing to refer business your way if you simply ask.
A premium product or service could also be something
you’re already selling, but with new features, especially if
you’re providing added value to the customer that’s greater
than the cost to you. So if you’re manufacturing custom-built

DID YOU KNOW?

entertainment units, you could offer in-home installation of
the unit and the technology it’ll house for an increased price.

And it’s not just a product that people are willing to pay more
for. Research conducted by Oracle reports that 81% of con-
sumers are willing to pay more for better customer service. A recent marketing study showed that
Either see which services you are currently offering for free although only 39% of marketers use referrals,
and determine if you could now charge for them, or develop 43% of those who do acquire more than 35%
new additional services to offer that you can charge for. of their new customers with it. Social media is
also a major asset, with over 70% of market-
New customers who’ll pay more
ers using Facebook to gain new customers
Find new customers who are less price resistant and will pay
more, especially if they’ve found you through word-of-mouth
and have heard how great your product/service is.

Revisit your marketing strategy and see if there are pockets

of customers that you can target with higher prices. Some
tactics to consider:

• Get your brand out there by attending conferences,

networking, and surveying your loyal customers to
gather their opinions.
• Reconnect with your online efforts, making sure you
have a presence on any relevant websites (such as
online review sites) and social networks; evaluate and
optimize your existing social media platforms, consider
adding a new platform that your ideal customers use
or will connect you with a new market, or try out new
methods to attract more followers.
Budget effectively with the
right accounts.
When you’re considering your marketing budget,
talk to us about the different business accounts
we can offer you. We can help you separate out
your marketing budget so you can plan for investing
more in product promotion.

16

Step 5: Improve net profit percentage/
lower costs
Finally, it’s important to look at how lowering the percentage
of costs compared to sales can help boost your profits.
There are two main tactics that you can implement at the
same time: improve gross profit margins and lower costs.
Increase your gross profit margin
How can you widen the gap between what you pay for raw
materials, stock, or components and the final selling price?
Take a look at your ongoing, variable costs. Chances are
pretty good you’ll find ways you can cut back, such as:
• Reducing cost of goods sold (COGS) by using lower-
cost materials where possible, without affecting quality.
Research lower-cost providers, or ask for your current
supplier and their competitors to pitch for your business.
That’s not always easy if you’ve built a strong relation-
ship, but it’s common to overpay suppliers because
“you’ve always dealt with them.”
• Talk to your suppliers about renegotiating your terms. It
could be that they can offer you discounts or updated
payment options. If they’re not willing to renegotiate,
start researching new suppliers who can offer you
more options.
• Reduce waste. Conduct an operations exercise to spot
any areas where there is excess waste, and then devise
UMPQUA CUSTOMER: THE TABLE, SAN JOSE, CALIFORNIA
ways to minimize. Buy only what you need. This also
includes wasted hours by employees underperforming.
Recycle and reuse any waste materials you can, and
make sure your employees are doing so as well. Just by
recycling you’ll save money on supplies.
• Eliminate unnecessary product features that could pres-
ent a significant production cost yet customers don’t
really care if the feature is there or not.
• Take advantage of supplier bargains. Ask if you are able
to get discounts for paying on time, paying early, or
buying in bulk. If you have the cash in reserve, then use
it to drive your costs down.
• Use new ingredients or materials if they do the same
job, yet are cheaper.
• You could look at importing your materials instead of
sourcing them locally. Often, you’ll find it’s cheaper
without compromising the quality of your products.
You won’t find that every product or service you use in your
business can be lowered or renegotiated. At times it’s worth
paying a higher price for on-time delivery, no returns, the job
done right the first time, etc.
17
Lower costs
These are mostly made up of your overheads. A similar rule
applies, where it’s common for a business to pay the same
suppliers the same amount without regularly checking.

So you could consider:

• Looking around for better deals on costs such as

energy, internet, and telephones. These types of
consumables have multiple providers where the
product is undifferentiated (the internet is the same
thing regardless of who hosts it for you).

• Reducing energy costs by conducting an energy audit

(and turning off what’s not needed).

the perfect solution if you’re looking to purchase busi-

ness real estate.

Go Green • Moving staff from full-time to part-time roles. You may

Being Eco-friendly can be good for the environment,
and your bottom line. Talk to us about our Greenstreet
business loans for energy-efficient projects and
improvements.
be surprised how many would take you up on the offer.
• Outsourcing administrative tasks such as payroll to
companies that will charge a monthly fee instead of
a salary.

• Hiring equipment only when needed instead of leasing

• Making the most of technology to streamline processes
and become more efficient. For instance, you can make
use of Skype for meetings instead of spending money
traveling.
• Becoming a more virtual business; for example, allow
employees to work from home. You could save on rental
costs and office expenses.
• Outsourcing full-time employees that are not always
needed, and contract them in only when needed.
• Changing location to reduce rent costs, especially if
location is not mission critical to your business.
• Buy your premises; it may be cheaper in the long run to
own your own location if interest costs are less than the
lease. Talk to us about our commercial real estate term
loan, which has great terms and no annual fee —
on a yearly basis.
When it comes to reducing your fixed costs, it’s a good
idea to sit down with your accountant and go through your
expenses. They’ll have ideas about where savings can be
made, and they’ll also steer you in the right direction so that
your cost-cutting doesn’t impact quality.
For retail-based businesses, your customer base is typically
the homogeneous population at large. Retail profit is driven
by having the best profitable product mix, i.e., if you are
going to sell 100 items a day, make them the most
profitable items.
It’s important not to confuse this with having the widest
product selection.
• Identify the gross sales/square foot of retail display for
the store

18
• Identify the top 20% of product types sold that have the
larger gross margin and:
- Increase the square footage you provide for these
products types
- Determine the sales per square foot by type
- Determine the percentage of sales in the products
- Consider allocating more square footage for these
products based on their gross
• Identify the bottom 20% of product types sold:
DID YOU KNOW?
In a study done by the Harvard Business
Review, 15% – 20% of businesses weren’t
managing their overheads properly. In some
businesses it could be stationery, in others
it could be kitchen supplies. Check to make
sure you’re not spending more than you
need to on miscellaneous costs, and try to
eliminate those that aren’t necessary.

- How much square footage do you provide for

these products?

- What are the sales per square foot by type?

- Do you need to allocate less square footage for

these products based on their gross margin and
percentage of sales?

• Drive the profitability of the store by increasing the gross

profit through product mix.

19
 SMALL BUSINESS ADVICE

Here at Umpqua Bank, we’re as keen

to see your small business succeed
as you are. Contact one of our small
business advisors to learn more about a
range of cash management and lending
solutions to help your business grow.

Umpqua Bank
P.O. Box 1820
Roseburg, OR 97470
1-866-4UMPQUA (1-866-486-7782)
umpquabank.com
localbusiness@umpquabank.com

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