Increasing your profits might sound like it’s an unattainable dream just out of your reach. But there are a finite number of ways that profits can be increased. Once you understand what they are, you’ll have clarity on how to best reach your goals.
There are two primary ways to increase profits:
· Increase Revenues
· Reduce Expenses
That’s not particularly enlightening or instructional, is it? Let’s look at the four ways you can increase revenues and the four ways you can reduce expenses to get clearer on what actions we can take.
4 Ways to Increase Revenue
1. Review Pricing
Review prices and costs on all products and services. Determine sales volume and profitability.
The easiest way to increase revenue is to simply raise unit prices. This may be a scary concept for some business owners but a small increase in pricing of select products can yield massive increases in gross margin and profits, while reducing the number of units required to sell. Of course, this method is also limited by market demand, what your customers are willing to pay.
Drop any low margin products and services that cannot sell for a minimum of 45% markup over cost.
We can help you review your pricing for best profitability.
2. Add new customers
Adding new customers is what most entrepreneurs think about when raising revenue. Increasing your marketing or adding new marketing methods is typically the way to add new customers.
Another related option is to work hard to keep the customers you already have. You can also contact the old customers to update them on new services and products you offer.
It’s also a good idea to review your current customers to see how much time and trouble some of them cost your business and whether you want to continue to work with them. Keep in mind, 20% of your clients make up 80% of your revenue.
3. Introduce new products or services
For some companies, your products and services are changing every year. For others, not so much. To increase revenue, consider adding new related products or services that will bring in an additional revenue stream that you didn’t have before.
Even if your products are changing every year, you can consider adding something completely different that your customer base would love. For example, a hair salon could add a nail desk, a clothing store could add handbags or shoes, a grocery store could add a coffee bar, a restaurant could add catering, a landscaper could add hardscaping, and so on.
4. Acquisition
The final way a business can increase revenue is to acquire another business in a merger or acquisition.
4 Ways to Reduce Expenses
1. Negotiate a better deal with suppliers
If you’ve been working with a supplier or vendor for a while, you may be able to re-negotiate your contract with them.
If a vendor has gotten too expensive, it might be time to look for a new vendor. Health care insurance seems to be in this category. Often, changing providers will lower your costs.
2. Invest in Technology
How is buying technology reducing expenses? If you have a manual process that requires several man-hours or an old piece of equipment that is slow, this is costing you money. The best thing you can do to reduce the cost of inefficiency is to invest in automation and technology. From depositing customer checks to manufacturing your products. Review how much time and money is spent on certain activities in your business, you will be shocked to know how much you could save.
3. Cut headcount
If there is not enough work to support your employees or not enough cash flow to pay them, then it might be time for a layoff or restructuring. You might also consider outsourcing a function that you previously did in-house.
4. Cut the expense or reduce services
It might be your business no longer needs to spend money on an expense. Perhaps this expense has been automated. In this case, it’s an easy decision to cut the expense out entirely.
These are just a few ways to increase profits. Which one makes the most sense in your business? Create a plan around these eight ideas to boost your profit in 2017, and let us know how we can help.
Schedule your Free Strategy Session today.
