In my last article for Travel Weekly I offered some cost-cutting tips.
Many companies will have already cut costs, but if you have a small business you may not be able to do so without causing huge difficulties. But profit is just as important. Here’s how you can increase your profits.
1. Determine where your profits lie
Having tried to cut your costs you need to determine which part of your business is the most profitable. Identifying the higher-value sales you make in a typical week is easy, but do you match the direct costs required to generate those bookings with a level of income that means you actually make a profit? If not, it is like driving 10 miles to save £1 on a tank of fuel.
2. Don’t forget the add-ons
If it takes an hour to book a rail ticket costing £30, is it worth doing? Well, if there was nothing more profitable you could do with your time, then it is okay – particularly if it is a regular customer who spends more money at other times. But bear in mind the add-ons such as insurance that every customer may need – but ensure you are legally allowed to sell it.
Consider charging extra for doing low-margin bookings at busy times – such as between 12pm and 3pm.
3. Invest in good software
With a spread of sales income and large volumes of bookings, it is essential to be able to ‘see the wood for the trees’. This is best achieved through having an effective management information system. Investing in booking software that reports on your sales and costs in a systematic way enables you to review and control the profitability of your business.
4. Prioritise your sales areas
In a recession it is tempting to concentrate on maintaining sales, as being busy is reassuring when business confidence is low. However, this is not necessarily the right option. Now is the time to take a step back and assess which sales areas to prioritise. Quite simply, are there any products that should be dropped?
5. Communicate with staff
Do your staff know which sales generate the best margins? Now you know which parts of your business are the most profitable, you need to communicate this with your front-line staff and ensure they are working towards the business goals you have set.
6. Set up bonus incentives
Align staff performance bonuses with the highest-margin business that you have prioritised. This will motivate and reward time spent on your most profitable bookings rather than volume of income.
7. Capture the high spenders
Time is money and 50% of your overheads are likely to be staff costs. Assess whether your staff are spending their time wisely by selling the right products to the right customers. Develop strategies to filter enquiries to capture the higher profit business over the time-consuming low-value sales. Training staff on sales handling can be invaluable and, combined with more communication on profitable areas of business, you will be surprised at how much more you can generate.
8. Get focused
With a clear picture of the package locations and flight routes you want to concentrate on, focus your marketing on and offline to drive traffic in these directions. Reassess your brochure arrangements and ensure you give prominence to products you want to push. Also, do you only put cruise brochures in the cruise section? Why not include short-haul cruise brochures in your city breaks section?
9. Assess the risks
Review your trade customers with a critical eye to identify those that are a good credit risk, over those that may carry a higher business risk. It is difficult to secure trade credit insurance so beware of who you are trading with and ensure you have strong credit control procedures in place and that they are constantly monitored. Don’t be frightened to turn away business if the risk proves too much. Preserving your cash and reserves will help to ensure you are a survivor of this recession.
10. Know your customers
Do you know who your key customers are? If not, look at the sales generated over the last 12 months and determine which customers produce the greatest return. Have you considered adopting a key account management approach whereby you become more proactive with certain customers to secure their loyalty and enhance the revenue they generate? They might be working out their travel plans for 2009 at the moment, so call them for a chat.
Andrew Burnham is a senior member of the travel industry team at chartered accountancy firm MacIntyre Hudson