13 ways to make your merchant business more profitable
With builders' and timber merchants’ confidence on the rise*, despite supply chain challenges, things could be looking up for the construction supplies sector. Demand is still sky high and the majority of merchants nationwide surveyed for The Pulse by MRA Research are forecasting strong sales performance and growth in the next six months.
Increased turnover is great, but it’s vital to ensure you are also increasing (or at the very least maintaining) profitabilit. And when you’re flat out busy and stretched to the limits, it’s not always easy to keep an eye on every ball.
We have put together a list of 13 ways to make your merchant business more profitable. Some are quicker wins than others, but every item on this list is important. What would you add?
1. Grow your customer base
Simple, right? Just get more customers! Easy!
But how? Well that’s a bit more complicated and will rely on a great reputation for reliability, service and value.
You might want to start by analysing your existing customer base. Who do you sell to most? Who don’t you sell to? Are there particular areas, trades or demographics you’d like to reach but aren’t? How could you start speaking to that sector, and what products or offers could you highlight to attract them? Do you sell online? Adding eCommerce and upping your digital marketing game is often a great way to widen your customer base – and statistics show that growing an online customer base can benefit your branch performance too.
How do you go about identifying new customer opportunities?
2. Increase basket value
One of the best ways to grow your profitability is to get the people already purchasing from you to buy more each time.
How? Again, analysis will be your friend here. Look at what customers buy and when. Are there related products you could range closer together? Accessories and add-ons can be enormously valuable – not so long ago, Sainsburys identified than a tiny incremental basket increase would transform their business and lo and behold, recipe-based shopping came along to encourage those little extras, which added up to big profits.
How can you encourage your customers to pick up something extra?
3. Increase basket frequency
Yes, getting customers to spend more each time they shop is great, but so is increasing frequency. And how do you do that?
Often, it’s as simple as communication. If a customer buys particular products regularly, remind them about it, or offer incentives for advance orders. Use bouce-back offers (buy this now, get a discount next time, with a time limit) to encourage return trips. Loyalty schemes can work a treat in these situations, as can regular product updates, in-branch events, launching new lines and email reminders.
How else might you be able to encourage customers to shop with you more often?
4. Protect your margin
Now, this sounds a bit obvious, but it’s really, really important, or you'll undo all the good the previous two steps can achieve . The overall benefit of increased turnover is completely lost if it’s not done profitably. If you’re not making a healthy margin, is it worth the extra resource and effort needed to make the sale?
One way to do this is by ensuring you’re using a system with built-in margin protection settings. It’s a great way to empower your sales team to strike deals with customers and offer incentives, but with the safety net of margin protection which means they can’t process a loss-making sale without express permission. No costly mistakes, but also lots of time saved negotiating with managers.
Did you know that eCommerce tends to return a higher margin that in-branch sales? It’s a combination of lower operating costs combined with non-negotiable pricing – and you might be surprised at how many customers are quite happy to pay a slightly higher price for that added bit of convenience.
5. Work with the right customers
The notion that the customer is always right is a little outdated, and actually it’s really important that you know which customers are good for business, and which could be costing you dearly.
Modern ERP systems and finance systems should be able to tell you very easily which customers are worth your time and effort, highlighting those who regularly default on payments, miss credit deadlines or don’t order enough to justify the level of discount they currently receive. Having that information readily available makes it so much easier to make a call on when to agree the deal or walk away, when to play hard ball on the invoicing and when it might be worth investing a little faith and giving more support. You know your customers better than anyone, but your software can help you see the true value of their business and make an informed decision.
Do you know which of your customers are good for business and which are costing you money?
6. Work with the right suppliers
In a similar vein to the last point, working with suppliers you can trust to be reliable, accurate and flexible really pays off. Again, your software can help here, letting you compare costs, delivery track record, price fluctuations over time, product ranges and delivery timings easily and quickly. You may even be able to use that information to negotiate better pricing or faster delivery, or simply to decide for or against using a particular supplier.
How do you choose your suppliers? And how often do you monitor their performance?
7. Forecast more accurately
OK that’s a big one, and it’s no easy task. We could in fact write an entire series of blog posts on just this one point, but for the sake of brevity, we’ll sum it up: use technology to your advantage here. Having the right information about seasonal shifts, product sales trends, pricing changes and availability issues can really help you to raise your forecasting game and make informed decisions about what to stock more of, and what to run on a leaner model.
How confident are you in your forecasting?
8. Optimise your stock profile (and management)
Again we could spend ages on this one but as we’re already 8 points in and we can feel you losing the will, we’ll keep it brief.
When you know how different stock lines are performing across your business, it’s much easier to make informed decisions about stock replenishment, offers and incentives, merchandising strategy, display opportunities, range, depth and price points. Again technology can help hugely here, identifying gaps and opportunities fast and accurately, letting you access the stats to back up your stock profile decisions and saving a whole bundle of time in the process. It can show you when to hold firm on pricing, when to offer deals, when to change where something is positioned and what to replenish faster. And of course, it shows you which products are more profitable so you can choose which to focus on.
How do you decide on your product range?
9. Streamline your operations and increase productivity
Otherwise known as efficiency. Yes, this is another biggie and no, we’re not going to bang on about it for hours. In a nutshell, if you can do more with less, you’re going to make more money in the process.
You may want to audit your processes throughout the business to identify where time-savings could be made. Looking carefully at how things are done will often highlight inefficiencies. Again, digital ERP systems can be a huge help here, offering automation on a wide range of time-consuming daily tasks, speeding up transactions, reporting and access to information, increasing accuracy and highlighting both risk and opportunities. We know of customers who have used the system to save so much admin time they have been able to redeploy entire staff members into sales rather than stock, and save significant amounts of money in the process. Having the right information helps you to focus on the areas that really need focus, and not waste time on the areas which are ticking along nicely.
Where do you think most time gets wasted in your business?
10. Reduce waste
Not only is this a major consideration from an environmental perspective, it’s also a good way to increase profitability. Waste doesn’t just apply to materials, stock or rubbish – it can also apply to time, resources and investment. Running your business more efficiently based on accurate, integrated, up to date information is a sure fire way to reduce waste, and making sure your processes are more efficient will save time and effort, thereby raising productivity.
Accurate forecasting, as we discussed above, will play into this as well as you should end up with less wasted stock idling away in the yard, meaning you invest your budget in the lines which will sell through faster and more profitably.
How else could you reduce waste in your business?
11. Invest in future-ready, flexible solutions
This may sound like shameless plug for our software and yes, of course, we have a vested interest in encouraging you to think about Merchanter as your digital ERP system. But actually, the real point is to make sure you are not ploughing your budget into finite resources or legacy systems which simply will not be able to cope with the demands of the future.
And when we talk about being future-ready, it’s not just about the brilliant benefits of modern system architecture or integrated apps and platforms. It’s also about anticipating the evolving needs and demands of customers and the wider market, and building the agile foundations that will allow you to flex and respond as those demands change in time. Older systems can’t do that quickly, but new, digital, cloud-based systems can. So whether you’re wanting to offer flexible /remote working, eCommerce options or simply scale up your operations as your business grows, you need to think about investing in something that can expand with you, and not need updating (at enormous cost and disruption) every few years.
Do you feel ready to meet the demands of future customers?
12. Market to the right audience (and do it well)
Knowing your customers is key for every business, irrespective of sector, size or location. Using a one-size-fits-all, blanket approach will rarely work, and will often cost a lot more money to do. Sometimes, paring back your marketing and communications to a very select group who are actually interested in what you have to say will pay much greater reward than trying to become the next Travis Perkins.
Whether it’s harnessing the power of local marketing, becoming experts at SEO or deciding to send hand-written letters to your top customers to say thanks, less is often more when it comes to marketing – so don’t blow the budget on big ideas which won’t necessarily translate into business. Market research can often be worth its virtual weight in (literal) gold – ask your customers about what they want, listen, and see if you can respond.
How well do you know your customers?
13. Get more training on your software to get better value from it
When you first get an ERP system you’ll obviously need some training to get going, but often there is too much front-loading with this approach and by the time you’ve mastered the basics, you’ve already forgotten what you were told about the more advanced features.
Invest some time (and budget, if need be) in some further in-depth training a bit further down the line and it will pay great dividends. Understanding the full capacity of the reporting and analysis functions, alerting, automation options and other more advanced features will help you not only understand what’s going on in your business in more depth, it will also help to actively identify new opportunities, pre-empt risks and drive efficiencies. You can measure the impact of initiatives and respond faster to opportunities and threats. Great ERP software is more than capable of paying for itself (and then some!) so it’s worth making sure you’re getting maximum value out of it.
How well do you know your ERP system functions?
Do you have anything to add? What are your top tips for driving profitability? We’d love to hear from you – why not tweet us your replies, or email us at email@example.com
*Confidence and sales projection figures based on statistics shared in The Pulse by MRA Research and published by Professional Builders’ Merchants Magazine.