Today, we are going to talk about only selling what is profitable.
Every business has a gateway product or service—one that you and your staff know inside and out. What makes this particular product or service special is that it is highly effective in bringing in new customers. It may not even be all that profitable, yet it is vital to your business because of its ability to draw people in.
This isn’t the type of product or service I’m referring to when I talk about only selling what is profitable. It’s the exception to the rule.
You should, however, be giving thought to all of the other items in your product mix that aren’t necessarily essential to your business. Do these products and services generate sales? More importantly, do they make you profitable?
The reality is that there are plenty of business owners who will waste their time, energy, and resources to keep unprofitable products in their inventory. Whenever I ask clients about why they continue to hang on to products and services that aren’t generating profit for their businesses, their response is almost always something along the lines of, “I don’t know” or “we always have.”
Worse yet, business owners will often keep products and services in their mix because they think the customer has come to expect it. If they suddenly stop offering it, they assume the customer will go elsewhere.
If you want to be a highly profitable business, it’s critical that you eliminate the products and services that are profit-killers. Of course, you may lose the occasional customer as collateral, but you shouldn’t be afraid to lose that type of customer to your competitor if they only purchase unprofitable products and services anyway.
If you can’t make peace with the idea of letting a customer go, however, come up with an idea that allows the unprofitable product to become profitable again. Here are two ways to achieve this:
1. Improve or Replace the Product to Make It More Profitable
Perhaps it’s by updating the product and charging more money for it. Maybe it’s by improving the product so that it generates more interest.
In any case, take the time to explain to your customers that there are new products and services that are taking the old item’s place. If they still like the outdated item, they will need to pay a premium or fee for a special order.
2. Discontinue the Product Entirely
You always have the option to stop providing the product or service. Feel free to be open and honest with your customers when telling them why it’s no longer available.
I did this around 2018–2019 when I decided to stop providing bookkeeping and payroll return services. Of course, I did my best to accommodate my clients for a time; but there came a point when I told them that I would prefer to focus on what we do best—which is helping them make more money and keep more of it from the IRS.
This might have upset a few clients, except that I found a bookkeeping firm to handle these types of tasks instead. As a result, my clients stayed happy, and the bookkeeping firm billed them directly so that I never even needed to be involved. It was a win-win for everyone!
By cutting this unprofitable service, we dropped $40,000 in sales the first year. Our bottom line, on the other hand? It went up $80,000. How, exactly?
Well, in the process of cutting our unprofitable services, we were able to address the issue of opportunity costs. Every hour spent working on these low-cost services was an hour not spent providing our most profitable services.
3. Start Charging for the Items You’ve Been Giving Away
The final way to make sure that you are only selling what is profitable is to identify the products you’re providing for free and stop giving them away. Start charging for them instead!
How do you make sure that you only sell what is profitable for your business? First, calculate all of your product and service costs—including costs from the beginning of the sales process to the delivery of the item. Then, come up with a plan to phase the unprofitable items out or charge more for them.
Finally, create a successful marketing campaign designed to increase the sales of your most profitable products and services.