When looking for ways of increasing profitability, there are only two real options: reducing your business costs or improving your revenue. Of course, that’s a lot easier said than done, but by being aware of opportunities to maximize your bottom line, you could be able to make a considerable difference to your business profits.
Usually, the best place to start working on increasing business profits is to look internally at how your business is running rather than to look externally, for instance, for more markets and new customers. The latter can, of course, help but addressing your business’s internal conditions can really pay dividends down the line.
Here are some of the top ways to increase your business profits:
1. Stay On Top of Your Accounting
Small businesses often fall behind with their accounting and are unable to form a clear picture of their income and expenses. You absolutely need to understand how your business is doing financially from both day-to-day and long term perspectives. You need to have essential pieces of financial information like a profit and loss statement easily available, especially since they can often be time sensitive. If you need to be saving on costs or earning more income, you need to be able to act fast if you see signs of unfavorable results.
If your business is too small to hire an accountant or bookkeeper, consider using a free platform for invoicing and for tracking your expenses on an ongoing basis. An accountant or bookkeeping platform will enable you to draft reports and analytics in order to determine where you could be improving your profit margin.
By staying on top of your books, you’ll also be able to see if you need to source financing to give your business a boost before it becomes a make-or-break emergency.
2. Check Your Expenses and Costs
Know where your business stands and think carefully about every business cost with cost-saving strategies in mind. Always be vigilant with your spending and make sure you’re purchasing necessities, not luxury items you could do without.
You should always have a mindset of being able to run your business at a lower cost. This can be done in several ways, such as greater efficiency and organization internally. But you can also work on reducing costs externally. For instance, even if what you currently pay a vendor is acceptable, try to negotiate a lower price in the future to enhance your profit margins.
Outsourcing is a word with negative connotations, especially when big corporations eliminate an entire in-house team to employ cheaper labor abroad. But when you’re a small business, outsourcing certain aspects and tasks of the business can be a major way to save money and time. The less staff and facilities you need to support, the lower your overhead cost will be. Consider outsourcing administrative tasks or portions of your production process.
3. Check Your Profit Margin Per Product and Service
Many businesses have marginally profitable or even loss-making products and services in their mix. Unless you are consciously implementing a loss-leader strategy, you need to consider eliminating products that eat into your profit margin.
Consider setting gross margin percent goals to increase profits. Gross margin is the percentage of profit the business owner gets on each sale. For instance, if an item costs $12 to make and the business owner sells it for $16, your profit is $4, and the gross margin is 25 percent. By setting gross profit margin goals, you can figure out how to set the price of the product. Your goals shouldn’t be too easy to hit nor too unrealistic. Gross margin goals that are unrealistic often lead to the business setting a price so high that customers don’t want to buy the product.
4. Follow the 80/20 Rule
According to the 80/20 principle, we get 80 percent of our results out of 20 percent of our products. Which 20 percent of your product or service offering makes you most of your money? These are the products you need to focus the most energy on. If you decide to apply your resources to a product that comprises the less profitable portion of your business, have a clear strategy for improving its performance and set goals for tracking your progress. If you are able to eliminate the lowest-performing products from your mix without adversely affecting your overall business, do so.
5. Get the Most Out of Your Staff
To be a profitable business you need to get the most out of your employees because, at the end of the day, your staff is costing you. There are tons of methods to help you boost productivity and improve results that aren’t outrageously expensive.
Start by setting clear goals for each staff member. Use SMART as a guide to setting objectives that are:
- Time bound
Review progress regularly and give feedback. This process can help reveal fundamental issues within your business. If your staff is not reaching their targets, there could be acceptable reasons for their underperformance that the review and feedback process can bring to light. Remember to congratulate employees on reaching or exceeding goals as well as addressing under-performers by honing their skills and motivating them to succeed rather than punishing.
Always keep everyone in the loop. Communicate regularly with your staff and ensure that they are aware of your overall business objectives and their role in achieving them. Set regular meeting times to help you make this part of your regular routine.
6. Consider Telecommuting
The internet and innovations in workplace communication have radically changed how companies to operate. Telecommuting, or working remotely, is far more feasible to do nowadays than even in just the recent past. In fact, due to COVID-19’s impact on the working world, it’s actually become the norm for most office workers.
If employees work from home, you can cut down on office space, office equipment and staff facilities. Plus, most employees love the idea of telecommuting and see it as a benefit, so it’s also a great motivator. Just ensure that you have enough personal contact with your telecommuting employees to keep them focused on your business goals.
7. Maximize Your Sales Effort
If you want a high-profit business, you need to ensure that you’re being effective with your sales efforts. The sheer quantity of salespeople won’t make up for a lack of quality. Not everyone is able to become a successful salesperson and that’s okay, but you need successful ones. Thus, make sure that you are employing go-getters who will enhance your business image and get you the sales you need.
Like with SMART objectives, you should set reachable sales budgets for each sales representative. It’s important you don’t make them too easy because reaching a goal should not be an effortless process. Instead, provide them with a challenge, but don’t make it over the top.
Use incentives such as commissions, prizes, spiffs and bonuses to motivate your sales reps to try harder. You may find that different incentives work better for some employees than others. Again, regular communication is important, so get to know your staff to find out what motivates them.
Ensure that your sales reps are using most of their time on your top clients or clients that have the potential to become important to your business. Supply them with customer analysis reports and ask them to report on their most vital clients regularly.
8. Find Ways to Market Your Business Effectively
Marketing doesn’t have to be an expensive activity. There are plenty of ways to help grow your sales, and thus profits, without costing you a fortune.
Although costly print advertising still has its place, you can achieve a lot through having a professional website, using social media and search engine optimization or advertising. With how universal the internet has become, you won’t be taken seriously as a business without a professional website these days. Fortunately, setting up a basic professional website is very cheap and easy compared to the past.
Another great way to market your business effectively is community engagement. If you operate within a specific community, get involved with community activities that can be used to create awareness and build relationships within the community. You can hold charity events hosted in the community, sponsor a sports team, join an association of local businesses, and much more.
Join networking organizations where you will have contact with other businessmen and play an active role. When your co-members are looking for a certain type of business, your enterprise will be the first to come to mind.
9. Follow Up With Customers
Follow-up, or lack of follow-up, can have a huge impact on your business long-term. Following up with customers turns them into repeat customers, which are more valuable than newly acquired ones.
An easy way to stay in touch with your clients by sending out an informative newsletter regularly. Don’t just use it to sell your products. Give them useful information that will get them reading and associating your brand with authoritative knowledge and assistance. Following up provides you with the opportunity to upsell and cross-sell while providing genuine utility to your customers.
10. Ramp Up Your Lead Gen
You can generate leads through great web design, SEO, email marketing and other engaging forms of marketing that attract the right people to your website and convince them to convert into customers. Additionally, you can also make money selling those leads (as well as buying them) from other companies.
The Bottom Line
Increasing business profits isn’t all about new markets, new customers and new sales. That’s definitely a way to go about it, but generally, you can start making major improvements by assessing your business’s efforts internally. What you do within your company radiates outward to affect your success.