How can I increase profitability in my business?
If you want to increase your profits, you need to change the way you do business. That means being able to assess profitability, manage change and implement key business practices that will improve your bottom line. The following steps will help you to achieve better business profitability:
Change operating procedures
Boosting your profitability relies on reducing expenses while generating more sales. That means a critical shift in your operating procedures to encompass new strategies, including:
- Cross-selling complementary products or services to existing customers
- Offering a relationship-based customer service sales model offering annual plans or bundles to encourage customer retention
- Incentivising new customers with introductory deals and special offers
- Automating routine administrative tasks to reduce expenses
Taking the time to streamline and regularly audit your operating processes can help you achieve improved efficiency in reaching your profitability goals.
Maximise your cash flow
There are several ways in which you can maximise the cash flow of your business to achieve stability and profitability. For example, if you offer services to your clients, working on a payment plan or pre-paid retainer system ensures regular cash flow over the longer term.
Moving costs from fixed to variable expenses and streamlining production systems to avoid warehousing costs are other strategies for improving cash flow.
Get the best deal from your suppliers
Management of costs is a crucial driver for profitability, and there are several key cost areas to consider:
- Production costs
- Use of premises
- Financial risks, costs and management
If you think you’re not getting the best deal from your suppliers, then don’t be afraid to shop around. It may be that you can make use of ‘just in time’ suppliers or consolidate your supplier base to get a better deal.
- Try bargaining for discounts or reductions in return for early payment
- Use favoured customer status to agree on long term contracts or minimum annual spends in return for lower prices
- Buy as part of a consortium
It is important to remember to review your purchasing habits. Buying from too many suppliers can dilute your purchasing power and is inefficient, and buying from one or two suppliers can leave you vulnerable.
Sell more through up-selling, cross-selling & diversifying
Use your best customers to increase your profitability through cross-selling, up-selling and diversifying. These techniques can all improve efficiency and profit margins, simply by creating a greater range of products or services aimed at your existing customers. Employ a simple and seamless buying process to encourage customers to complete their purchase in a frictionless manner.
- Up-selling: encourage customers to buy premium products or services that improve your profit margins
- Cross-selling: analyse your customers buying habits and offer them complementary products or services
- Identify customer needs and meet them with new offerings
Note, it’s far easier to sell to an existing customer than to win a new one.
Develop new products and services
You can transform the profitability of your business by moving into new areas, but you’ll need to minimise the inherent risk and expense of diversifying. Your research will identify new opportunities, and you may be able to tailor existing services and products to meet the demand.
If you decide to pursue the creation of a new product or service, it’s essential to establish its viability by asking the following key questions:
- Can you minimise the risk?
- Is there sufficient demand for the new product or service at a price that is profitable?
- Do you have the commitment and resources to make the project work?
- Do you have the skills and expertise in-house?
- Is there a partnership or joint venture you could leverage to share the costs and the risk?
Boosting productivity depends upon measuring operational efficiency and streamlining processes to cut wastage without losing your competitive edge. The commitment needs to come from the top with effective communication of business targets being key to employee engagement.
Measurement: measuring operational efficiency ensures that you get the best out of your resources. Define KPIs that help you set clear targets and measurably achieve goals.
Streamlining: KPIs can also help you to benchmark your business against similar organisations and determine whether there are more efficient ways to achieve your objectives.
Research the areas of your business that require improvement and then identify companies that are profitable in similar areas and use processes you wish to introduce. Calculate how you intend to measure the growth delivered by these more streamlined processes.
If you want a quick and straightforward win to increase business profitability, increasing pricing is a surprisingly sound strategy for small businesses, particularly those that are well established.
Most businesses set pricing levels deliberately low when they launch and may make only simple changes without substantially overhauling the pricing model. It’s a wise idea to routinely review the pricing of your products as you may find marketplace changes make a price increase viable without risking sales.
If you’re achieving low profits from a high volume of sales, you may need to review your pricing practices to generate higher revenue.
Implement the 80/20 rule
Who are the 20% of your customers who generate 80% of your profits?
Who are the 20% of customers who take up 80% of your time?
Otherwise known as the Pareto Principle, the 80/20 rule allows you to assess your most profitable customers or products. From a quick 80/20 analysis, you can identify which customers to de-emphasise and which to focus on to increase profitability.
Improve your online reputation
As a business, your online reputation matters; it increases credibility and delivers a positive first impression to customers who might be thinking of using your products or services. Improve your visibility by:
- Being proactive on social media
- Adding calls to action
- Encouraging customer contact
- Adding a blog with high-value content
Building a strong online reputation delivers long term results and a valuable contribution to profitability.