How NetSuite has helped our customers improve profit margins by 10-20%
We've helped our NetSuite customers deploy effective strategies that created a huge impact on profit margins — some increased by 20%!
Ready to find out how NetSuite can help your business improve its profit margins, too? Check out this guide, and corresponding interview, with Josh Lasov. Josh is a serious NetSuite expert who has helped over 100 companies successfully implement NetSuite.
He's here to share the three key driving factors that help NetSuite users boost their bottom line.
How to Use NetSuite to Increase Profit Margins
The best practices we're going to mention often aren't available in whatever ERP system or business management software you used prior to implementing NetSuite.
NetSuite gives users the flexibility to analyze the economics of their business on a unit level, which we're outlining in the strategies below. Here are the three strategies we've seen successful businesses use within NetSuite to maximize profit margins.
1. Take Advantage of Different Pricing Options to Increase Revenue
Increasing revenue is usually the first thing you think about when you want to improve profit margins. If revenue increases, so should profit margins.
NetSuite provides a lot of different pricing options to help users optimize revenue as much as possible.
Josh says he's seen a lot of his NetSuite customers create multiple different pricing levels to control the price of their inventory.
Here are a few different ways you can control pricing in NetSuite:
- Pricing levels - You can assign various price levels to customers or channels. For example, maybe users who click on your Facebook ad will see a discounted price compared to someone browsing your website for that same item. You could also set a pricing level to discount items for repeat customers.
- Quantity-based pricing - Quantity-based pricing allows you to set discounts for larger orders. As customers purchase more, you provide an incentive to get them to keep purchasing.
- Customer-level pricing - You can set specific item-level or group-level pricing for individual customers. This can be used for items such as group-level pricing that provides 15% off to customers that sign up for your monthly subscription orders instead of completing individual purchases. You can also provide special discounted prices to VIP members of your shop.
"Pricing control is the first place we can start to try and increase profit margin. Depending on the industry and business you're in, you don't have to have the same pricing for each and every customer," Josh says.
It's usually very difficult to track different price levels across your customer base, but NetSuite makes it easy!
By adjusting prices customer-by-customer or item-by-item, you have more control over each business unit. It provides room for negotiation with new customers or partners — you could have a new customer paying an intro rate of $4.50 per unit and an existing customer paying $6 per unit and it's easy to monitor and manage within NetSuite.
2. Control Costs & Optimize Vendor Contracts
So we already took a look at pricing strategy — now we're going to look at purchasing strategy around cost of goods sold. Another way you can increase profit margins is by staying on top of your costs and vendor contracts.
From a cost perspective, it's best to always use purchase orders within NetSuite. If you're buying items directly within NetSuite, you want to be able to see the cost per unit (or rate per unit) broken down by vendor. With all of this data in NetSuite, the prices will default to whatever is in the system every time you create a purchase order for approval.
You can also set up purchase contracts where you can have rates increase or decrease based on quantities within the purchase order. NetSuite allows users to globally control rates on a vendor-by-vendor basis based on quantity, volume, or contracts.
"We shouldn't be scared to negotiate these contracts with our vendors that are advantageous for us because we were worried about how to track and manage it," Josh says.
NetSuite gives you the freedom to accurately track and manage contracts for any item, from any vendor, so you don't have to worry about the logistics.
3. Accurately Capture Landed Costs
You want to make sure you're accurately capturing landed costs when you receive items.
In NetSuite, you can allocate costs in many different ways across various cost categories. Josh says he's seen a lot of customers struggle with tracking the real profitability of orders. If you're not able to accurately track the profitability of an order, how will you know when there's room for improvement?
When costs are properly allocated in NetSuite, it's easy to see where your profit margin is thinning on an order-by-order level. For example, maybe a shipment was air freighted instead of sent via standard shipping.
How Do I Apply This to My Company?
By controlling these three things, our customers are seeing 10-20% increases in gross profit margin. Here's how to apply these three key driving factors to your company:
- Pricing - Custom pricing levels allow you to have better and more strategic contracts and conversations with customers. Monitor and manage different price levels, groups, discounts, quantity discounts, and more so you can earn more revenue with each order, and increase customer retention.
- Vendor pricing - Control pricing with vendors by setting up multiple purchasing contracts with discounted rates to keep costs as low as possible with each vendor. What was once a complicated process is now simple to complete within NetSuite!
- Landed costs - You can see the full cost of each item by accurately tracking landed costs. From here, maximize the profitability of each order by controlling whatever costs you can.
Where Are Companies Using NetSuite Seeing the Largest ROI on Organic Growth?
A lot of companies using NetSuite see the largest ROI on organic growth by tackling low-hanging fruit with their existing customer base.
Given what's going on in the economy, Josh says he's had a lot of customers ask, “How do I get more out of my existing customer base?” Josh's answer is simple: NetSuite's upsell feature.
NetSuite's Upsell Feature
One of the features in NetSuite we're big fans of, but we don't see taken advantage of, is the upsell feature. On a customer's record in NetSuite, the upsell tab shows you, based on other transactions, where you could upsell.
For example, I can see that customers who bought one item had a 79% correlation across 27 transactions to then purchase this other item.
Sometimes, low-hanging fruit exists within our existing customer base and a lot of value can be found even if we're not able to talk to them every day. We can use the correlations across items sold to perform marketing campaigns and retargeting campaigns with our existing customer base.
New Sales with Zero Acquisition Cost
The best part? There is no acquisition cost, but you’re able to extend lifetime value with that customer. Doing something simple like looking at the upsell manager and using the correlation method can help you find additional ways to target your existing customer base and extract some organic revenue.
What is the Most Common Mistake Companies Make That Affect Their Bottom Line?
Josh says he's seen companies make many mistakes, but "the truth is, the biggest mistake we see over and over again is people managing and analyzing a business in excel."
Using Microsoft Excel Instead of an ERP System
"When you get to a certain point, you have to trust the system. You need to use NetSuite to get the value out of it, but a lot of companies are still in QuickBooks or an outdated ERP that doesn't quite cut it, so they end up doing a lot of things in Excel," Josh says. (If you're wondering why NetSuite would have a leg up on these types of programs, check out our analysis on NetSuite vs QuickBooks for all the details.)
When these customers come to NetSuite, they have to get rid of those tendencies. The more NetSuite can be used to automate tasks and provide the reporting needed to make decisions, the more time you can spend analyzing the numbers and tweaking decisions to drive value for the business.
It's really about letting the system do what it's set up to do, adopting it, and you'll see the value naturally.
"For some companies, that'll happen on day one. For others, it might take a little bit longer, but all of our customers have a strong ROI after switching to NetSuite that far exceeds what they ever thought," Josh says.
Need Help Maximizing Your ROI with NetSuite?
If you have questions about these strategies, we're here to help!
You can always contact us to learn more. We have a team of NetSuite experts to do implementations, but we're also happy to provide consultations to discuss business strategy and share NetSuite best practices based on our experience.