How Bookkeeping Makes Your Small Business More Profitable: Knowing your Customers and Increasing your Profitability

If you’ve been keeping up with our recent blogs you’ve already learned the foundation of small business profitability - your expenses and your income. Now it’s time to expand on this foundation to create sustainable changes in your business that lead to long term success.

It may seem like the above covers almost everything about making your small business more profitable, and we did cover a lot of very important things that will make you a smarter business owner, but there’s even more you can do to create an efficient and profitable business!

Knowing your Customers

Love, hate, or something in between, you need your customers for your small business to thrive!

When you’re just starting out, you’re thankful to have any clients, and you probably aren’t worried about retention or sales trends. But now, you’re smarter and you understand the money flowing in and out of your business - so it’s time to take your small business from successful to supreme.

So how do you go about maximizing your profitability through your customers?

1. Recognize your best customers - they may be the easiest to work with, the ones that always pay on time, or the ones that buy a lot of your product.
2. Focus on your most profitable customers (this may mean letting some of your less profitable customers go).
3. Work with your customers
4. Expand

Recognizing your Ideal Customer

While the cost of your services plays a role in your profitability, so do your customers, or more specifically, the type of customers. Find the customers that are responsible for the majority of your sales - whether its one or two people buying a lot of your service, or a large amount of people buying one specific service - and go from there.

Get to know your best customers: what they buy and when. Knowing what trends your customers follow will help you nurture your relationship with them.

Focusing your Effort

If you have a few customers that bring in a large amount of your profit, you are definitely going to want to focus your efforts in that direction. It may be leading more customers to that high profit service, or it could be finding a way to get this reliable customer to purchase different services.

Likewise, if you find that you have a group of customers that are providing you with low sales and low profit, it might be best to direct your energy to other customers that are providing higher sales or high profit.

Of course, there are more than just two ways to focus your effort into creating a more profitable business based on your customer relationships. When you know what type of customer is the most profitable to your business, you can find a way to get more of that type of customer!

Speaking of which...

Development and Expansion

So you’ve recognized your most valuable customers and your high and low profit services. Now things really start to get interesting!

There are several incredible things you can now do with your business once you’ve mastered your understanding of your business basics. Well-armed with knowledge and hard numbers, you can choose to develop and expand your business.

Be calm! I’m not talking about starting another location or tripling your size; this is still on the same magnitude of work as the rest of your profitability work has been! 

There are several things you can consider, and by all means, you could do all of the following, we just recommend not doing them all at once:

1. Increase your customer base: Now that you know who your ideal customer base is, you can focus on getting more of them!
2. Pricing: Sometimes low profit from a service may simply be the result of you underpricing your service. Some things may be worth more (or less) than you’re currently charging.
3. Change your services: Increasing the type of services that you offer to your clients is another way to increase your profitability. Developing new offering around your best clients is a great way to increase the profitability of current clients and bring in new customers.

These are steps that you can repeat over and over again - in fact, we encourage you to review these areas of your business on a semi-regular basis. That way, you can maximize the efficiency of the time you spend working on your business and have more time and energy to work in your business!

We Hope to See You Soon!

Now that we've laid out every major aspect of profitability the next step is understanding how to turn your new profit into long-term success! And of course, drop in to our Master Facebook Group and share your trials and tribulations of small business growth with your friends.

Disclaimer This article presents general information and is not intended to be tax or legal advice.  Refer to IRS publications and discuss possible tax deductions with your tax preparer.