Tax & admin · 22 May 2020

Three ways to boost your bottom line – top tips for small product businesses

Retail expert, Catherine Erdly shares her top tips to help small product businesses boost their bottom line, even during coronavirus…

At times like these, it’s important to not only look to grow your topline sales, but to also take care of your bottom line.

How much stock do you have?

Do you know how much stock you are holding in your business? If you make your products, how much money do you think that you have tied up in materials?

Healthy stock management is the absolute cornerstone of any product business. If you don’t know how much money you have tied up in your stock, you will struggle to manage your cash flow.

The faster you can turn your stock, the better your cash flow will be. And the first step in this process is knowing how much stock you actually have.

Set yourself a challenge – tell yourself you cannot buy any more stock until you’ve gone through and worked out what you already have.

If working out the value of your entire stock holding sounds exhausting, break it down into sections, so that you are working on counting your stock for a few minutes each day.

Once you have worked out how much cash is in your stock, now is the time to think about how to reduce the amount you are holding. What isn’t selling? What did you buy too much of? Where can you slim down, reduce or eliminate products that aren’t performing?

Can you have a “last chance to buy” session on your Instagram stories to clear through some of the remaining pieces? How about a stock clearance event once or twice a year where you get rid of any underperforming pieces?

Managing your stock correctly is the easiest and quickest way to free up trapped cash in your business.

When was the last time you went through your bills?

Another area where many small businesses can lose money is through unnecessary bills. Take a look at your last three months of business expenses, and check that for every item you bought, or bill you paid, that you are 100% sure that this is an essential expense.

Ask yourself:

  • Is this a must-have or a nice to have?
  • Are there cheaper alternatives available?
  • Is this something I still use or need?
  • Does this contribute to the sales in my business in a meaningful way?
  • How many products do I have to sell in order to cover this expense?

Housekeeping your bills 1-2 times a year is a good way to keep a close eye on your expenses. And for every new expense that you are considering, make sure you ask yourself the same questions.

How much profit are you making on each sale?

This is a really key element of boosting your bottom line. Ultimately, you can control your expenses as much as you like, but if you are not making enough profit per sale, then you will not be able to grow a sustainable business.

Make sure that you are breaking down every cost that is associated with getting your products from the supplier to the customer, and put each one of those direct product costs against your product price to understand if you have a profitable business or not.

Include your materials, the cost of manufacturing or making the product, shipping and duty charges, packaging and postage to the customer.

Once all of these expenses have been taken off, you should be making around 60% margin, or closer to 70/75% if you are thinking about wholesale.

For every new product that you want to introduce, make sure you do this calculation before you commit to any stock. That way, you can be sure to keep a healthy profit margin in your business, and avoid it dipping when you add less profitable products.

In summary

Every small product business owner has to carefully manage their bottom line in order to grow profitably. By keeping an eye on your stock levels, reducing your outgoings and carefully monitoring your profit margins, you can take small actions that over time will
add up to big improvements in your bottom line.

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ABOUT THE EXPERT

Catherine Erdly has over 19 years experience working with product businesses of all sizes from high street names (such as Paperchase, Laura Ashley and Coast), all the way down to brand new businesses with just a handful of customers.

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