As a business owner, you probably puzzle over ways to increase your profits on a regular basis. Boosting your earnings could well be the dream. But business profitability is a key driver for growing and evolving your business too.
It’s so important to keep track of your business’ financial performance. And business profitability is a critical metric of that. Improving profitability is crucial for business growth.
But how?
Improving your profits may take small tweaks or it might require a major shift in strategy.
Here we’ll look at why business profitability matters so much and we’ll share actionable strategies to boost your all important bottom line.
Why is Business Profitability Important?
Put simply, business profitability means more money’s coming into your business than is going out. Business revenue exceeds business expenses.
Revenue generally comes from selling your products or services to consumers. Business expenses will include employee salaries and production costs for your products or services. Indirect costs in that production process – like taxes, premises, indirect materials and wages for other employees – are your overhead costs.
Tracking these financial factors, and more, is essential for business success. By setting key performance indicators (KPIs) for your business, you can manage and monitor them to unleash your business’s full potential.
With better business profitability, you can:
- drive business growth
- compete better
- secure funding and investment
- achieve business success.
5 Strategies to Increase Your Business Profitability
Increase Your Leads
Attracting new customers sounds so simple, but it takes time and effort. Start by doing your market research. Who’s your ideal customer? How can your business, its products or services, help them?
Once you understand your target market, you need to work out where and how to reach them. Effective channels include:
- direct marketing
- websites, social media and digital marketing
- networking.
Online, you can try marketing initiatives like targeted ads, engaging social media posts and SEO tactics. In person, reach out to potential new customers at business networking events.
You could try expanding your business to a new market, such as a new location or different market segment. This can help to introduce your products and services to new customers.
Convert More Leads into Customers
How effective is your sales process? Do you even have one? It’s a proven way to generate new business.
When you have effective sales processes in your business, you can boost conversions, turn more potential customers into closed deals, increase your sales revenue, and ensure you provide a consistently good customer experience.
Train your staff to make sure they have a consistent approach and use best practice sales techniques. Help them to prepare for a winning discovery call and sales pitch. Engage with your potential customers by highlighting the benefits of your product or service and offering them a free demo.
Importantly, remember to keep nurturing that customer relationship and following up with them.
Increase Items Sold Per Customer
Applying incentives like discounts and bulk-buy deals can be used to attract new customers or to encourage your existing customers to spend more. Either way, they’re an effective way to boost your profits.
Work out who your best customers are, what they buy and when. You can use that insightful customer data to market and advertise to them more effectively.
Remember, acquiring new customers is so much more expensive than nurturing your existing customer base. Encourage current customers to make more purchases. Listen to customer feedback and use it to inform your business and marketing strategies.
They can help you to work out the viability of expanding your offering for example. Maybe they’re crying out for something that’s missing in your current product range or suite of services. By producing what your customers want, you’re more likely to sell more to them. You’ll also have high customer satisfaction as you’ve listened and reacted to their feedback.
Find 6 ways to encourage your customers to buy more from you
Increase Your Average Sale
That doesn’t necessarily mean applying higher prices. Significant price increases will deter some customers.
Can you upsell to current customers?
- up-selling – sell premium products that make more profit
- cross selling – analyse what they buy and suggest complementary products
- diversifying – identify a need and develop new products and services to meet them.
It’s also smart to focus on your most profitable customers. You may make a higher profit by selling fewer products to higher spending customers than by just increasing sales volume.
Increase Net Profit Margins
Are you paying more than you should for stuff? Make the effort to seek out better options and reduce fixed costs. Try to negotiate better deals with those in your supply chain.
Focus on products with higher gross profit margins. A profit margin is the amount of money that your business makes from the sale of a product or service. Let’s say you’re a fashion brand. The fantastic T-shirt that you sell costs £2 to produce. You sell that T-shirt for £10. Your profit margin is £8. That has a higher gross profit margins than the hat that you acquire for £5 and sell for £10.
Get tips on pricing strategies
What are Effective Cost-Cutting Measures to Increase a Company’s Profitability?
Reducing your expenditure can boost your bottom line. There are many ways to do this, but try these suggestions for starters.
- Look at ways to reduce business costs like overheads and operating costs
- Assess your supply chain. Can you buy the same raw materials more cheaply or efficiently elsewhere?
- Examine your business processes. By streamlining and making more efficient processes, you can build healthy profit margins
- Consider outsourcing functions, such as marketing, research, bookkeeping and accounting to external experts.
Plan for Profitability and Business Success
“Phil’s Growth Club planning day has been transformative. The session involved a detailed review of our sales and margins, and we received much needed guidance for our next three months. Together with Phil’s brilliant workshop programs, we now have the right tools to help run the business more efficiently and to help overcome some of the most common small business challenges.”
If you want to increase revenue, you need to plan for it. If you want higher profit margins, you need to plan for it. If you want to boost your business profitability – you guessed it – you need to plan for it. That means aligning your financial strategy to your business plan and goals.
But you don’t have to do it alone. I’m an expert at business planning and would love to help you through the process, and keep you on track too. Let’s chat!
