Making more profit can be the culmination of doing a number of things better in your business (internal efficiencies and savings), or one big quantum leap (new product development, partnerships, new customers or a new market).
If you’re unable to dramatically change your business model overnight, then consider the following tactics to make more money in your business.
Decrease your costs
For most small businesses, the easiest way to increase profitability is to reduce costs. Take care when stripping out costs to not compromise quality, service or the position your business has in the marketplace.
Identify any steps you can take to reduce your direct costs, such as:
- Negotiating lower prices with your suppliers
- Reviewing processes and systems to reduce waste
- Changing the ingredients or components
- Implementing additional security to reduce the chance of theft.
You may have had the same suppliers over a number of years. It might be time to check their prices are still providing value while identifying alternatives in the market that might do a better deal.
Implement effective systems
Systems help you reduce errors and save time and money. Where appropriate, turn decisions into policies to avoid having to make the same decision again or sort out the same issues repetitively.
Learn from mistakes and problem areas, and if systems go wrong, fix them. It’s a wise idea to review your systems periodically to see where improvements can be made.
Stay focused on profitability
Focusing staff awareness on profitability can have a dramatic impact. Share with them which products and services make the most money or have the best margins, so they know what to sell the most. Rank the top ten of what generates you the most profit and then triple check it’s these that are promoted or have the majority of your marketing funds or time.
Link profit to staff performance
Monitor and measure staff performance and productivity. Be sure to reward productive staff members by linking rates of pay to effectiveness and if relevant, set up a bonus or profit sharing scheme that can be accessed by all.
Aspire to get constant improvement
A simple planning cycle greatly enhances your ability to make continuous improvements. Thorough planning also helps you anticipate problems and adapt as your circumstances change. Aim to:
- Set measurable, time-limited targets to monitor how effectively your plans are implemented.
- Review what you’ve achieved so you can learn from your experiences and make continuous improvements.
- Keep improving your underlying systems and your planning process but be ready to alter your strategy if necessary.
Increasing sales
A straight sales increase should improve profit. To improve your sales, it’s not only looking for new markets and distribution channels, but also:
- Forming strategic alliances with complementary businesses or a joint venture to tackle work you don’t have the resources for on your own
- Actively selling by identifying those customers in your database who are inactive, or have bought recently and it’s time for a renewal or reminder
- Spending time on getting existing customers to come back with targeted offers
- Increasing the value of your sales by providing a premium product or service. Add features to your offerings if the perceived value to customers is greater than the cost to you.
- Extending your product range or work to ensure it stays ahead of your competition.
- Focusing your efforts on your most profitable customers, such as those who place large or frequent orders, pay their bills on time and are low maintenance.
Manage your customer cycle
Review your overall product and service mix and manage them based on where they are in your business lifecycle, for example products with:
- High percentage of sales and high profit margins should be the key focus. Promote these, make sure you can deliver, guard against the competition and monitor any KPI’s set up to inform you when sales could be slipping
- High percentage of sales but low profit margins are problematic. You’re busy, but not making much profit. Here, look at a price increase or examine how you can cut costs to increase your profit margin per product
- Low percentage of sales but high profit margins have potential but are not getting the attention they deserve. Maybe it’s time to dust off these items and promote them
- Low percentage of sales and low profit margins should be your bottom priority. So much so, that maybe it’s time to let these items go and delete them from your product or service mix.
Summary
To improve overall profitability, try to implement as many of these tactics together. Most businesses will find it difficult to double prices overnight, but small increments across a number of improvements will see a dramatic increase in profit.