8 Ways To Increase Profit For Your Small Business
How can you increase profit?
In itself, this is not a complex question! The answer to it is simply that you need to increase your revenue at a faster rate than your costs increase. Hey presto, you’ll have more profits! However, the execution of this answer can be a little trickier… I like to think of this as the two sides of an equation; a game of two halves, a combo. Therefore you can work on growing revenue, or on reducing costs, or both.
Let’s start by taking a look at how you can grow revenues. Again, there are two main options:
It is always easier to sell a second product to an existing client, rather than sell to a new client – provided of course you have multiple products for existing customers to purchase. You might have just found your first action point? With a mature product portfolio, you have the opportunity to cross-sell and up-sell to your existing customers. Cross-selling is supplying complementary additional products or services to their existing purchases. Whereas up-selling is giving them the opportunity to upgrade to a higher quality, more comprehensive version of the product sold at a higher price point.
These options are available to almost all businesses whether B2B or B2C, and whether product or service based. As you consider the options in your business, you might already be spotting some opportunities for some quick win product development! Remember we’re in the business of increasing profits, so any expansion of the product range needs to have minimal development cost, wastage or cannibalisation impact.
What if I only have one product?
If you are still mostly a one-product-per-target-market business, you still have some options to increase your profit by selling the same product:
- More frequently e.g. oven cleaning, window cleaning, dog grooming.
- At a bigger volume eg. larger pack/multi pack
- And increase the price – yes – just put your price up!
Once you’ve exhausted these options, then it’s time to turn to finding larger numbers of new customers to sell to. This relies on proven marketing strategies, and a reasonable sales conversion rate. Which makes this a) more expensive and b) less certain than the earlier strategies of involving selling to existing customers. To maximise your revenue, you must practice rigorous testing and measuring of both your marketing strategies and your sales process. This will enable you to continuously improve and bring in increasing volumes of new business for the same (or less) marketing spend.
How do I cut costs to increase my profit?
Now let’s move to the other side of the profit equation – taking cost out. Take a long hard look at every item in your cost of goods and expense list and apply one of the following three options:
Cancel any online subscriptions you no longer use or provide a service that is duplicated. Stop any marketing strategies that are not bringing in sufficient quality leads to cover their cost. You need to be testing and measuring your marketing effectiveness to know this. Remember to consider your Customer Lifetime Value in this assessment.
Review your suppliers – both those providing your raw materials and providing your business services. Can you secure a discount for prompt payment, or a volume discount, if your order volumes have been increasing with your growth? Do they have a lower cost option that will be just as good for you? Go through a re-tender process with 3 alternative suppliers to ensure you’re getting the optimum combination of great service and attractive pricing. Consider all your service providers – telephone, utilities, insurance, accounting services, rent. Are you on the best package for your business today?
Spending less of your hard-earned revenue on travel and expenses, on printing/stationery by making sure that every purchase/print is necessary. Do you have to travel to meet in person, incurring fuel and coffee costs? Or could you have a Zoom call instead (and be more time efficient as well!). Plan to car travel together with colleagues rather than separately. Advance book hotels, train tickets and plane tickets to get the early bird best rates.
By far the best way to increase profit is to work on both sides of the equation. Driving up revenues and managing down costs. Just remember that you will be “the client” to some businesses and “the supplier” to others – some of whom may also be following these strategies or reading this article!