Expanding Your Business While Cutting Cost
How to expand/grow your business and actually decrease your cost of goods sold, increase profit margins, expand your product line and turn your inventory over quicker. We started off small and as we increased our sales it seemed like we could never get ahead on the profit margins by more than 2%-3% for each 10% – 20% increase in sales. Then we struck upon a simple and fun idea that has saved our small business from growing pains.
So, how can you actually increase your business in away that is still manageable and put more dollars to your bottom line without suffering quality, overload and stress? Well first you need to accept this one simple premise— All businesses are the same in one way. You have money coming in and money going out, what ever is left over is PROFIT!
Sound simple enough right? Well it is. Here is our story.
We started off making just one product; botanical soaps. We also started off with about a dozen different scents and bars with different properties from gentle facial cleansing to soaps strong enough for the gardener or the diesel mechanic. We started making some specialty type soaps from a Fisherman’s soap to pretty floral fragrances perfect for Mom or a favorite Aunt. As our sales started to grow we expanded our line of botanical soaps to include designer fragrances for both men and women, holiday type soaps, we even made a K-9 Doggie soap that repels fleas, ticks & mosquitoes naturally and leaves the dog smelling minty fresh. Before you knew it we had over 40 different types/scents of soaps.
As our line of soaps increased so did our inventory and although we started to realize a few percentage points in lower cost of our raw materials, it just didn’t seem like enough to justify all the added work necessary to have more inventory and the logistics associated with that from accounting for it, transporting it, storing it, more labels, etc., not to mention that the carrier oils for our line of botanical soaps do have a shelf life of 6 months to a year. Well inventory control became another problem because what would be a #1 seller at one show/craft fair would not do as well at the next show with no real rhyme or reason. Also with that many different soaps to choose from it started taking our potential customers longer to pick out their favorites. Then it hit us like a ton of soap! Stop expanding our soap line, expand our product line using the same basic raw ingredients. We started making Body Butters and were able to offer free samples for people who showed up to our booth. It was a big hit! Imagine ladies and some men too standing in our booth exclaiming their ‘oohs’ and ‘ahhs’ as they applied samples of this new product to their hands and arms.
We were able to demonstrate not only how the product felt to them but also how far just a little bit would go. It also gave us time to pitch the product as they were applying it. Then we started making other products like Salt Scrubs, Lip Balms and Therapeutic Massage Oils all using the same basic raw ingredients, we only had to purchase one more raw ingredient, the salt and it did not have a shelf life. Now, not only were we able to increase our sales by offering a fuller line of skin care products, we also had increased our profit margins on these new lines. It allowed us to turn our inventory of carrier oils, essential oils and fragrance oils over quicker, we no longer had to worry as much about expiration dates on those ingredients because as a whole we sold the products quicker and we actually started to buy in even larger bulk thus lowering our cost of goods sold further! That’s means more money left over – PROFIT. We finally started making an all natural insect repellent using the same basic raw ingredients and it has now become our #1 product for sales.
All the new and different product lines also offered an opportunity to offer package deals on multiple item purchases at a slight discount and the ability to build your own “gift baskets” with complimentary items. Again, we saw our line items per transaction increase as well as our average sales dollar increase. We were able to take less total inventory to the shows because of the varied product lines and yet still realize a significant increase in total sales.
Currently we are exploring the possibility of another product line using the same raw ingredients. I don’t know what it might be at this point but we’re sure we’ll have fun experimenting and developing it. By-the-way, we are open to ideas.
I hope this idea will give some of you something to think about and employ in your own businesses. We’ve now been able to cut way down on the shows that we attend and have now concentrated on a web-based business model–that’s another story all in itself.