Many businesses are planning and setting goals for 2021. What’s the number one objective of most businesses? To increase profits. And it doesn’t need to be complicated. Sometimes in our coaching sessions, all a business requires is a reminder of sound business strategies that contribute to the bottom line.
There are a number of ways to increase profits. Even if you focus on just one profit factor at a time, you should be able to see a marked improvement in your bottom line.
Net profit is your gross profit less your overheads. So therefore, to increase your net profit, you need to increase your gross profit and decrease your overheads.
Strategies to increase gross profit
Gross profit is your income less your costs of sales. So, you either need to:
- Increase your income:
- Chase more sales – really focus on increasing your conversion rate and closing deals.
- Increase your prices – when last did you increase your prices? What are your competitors charging? Are you providing enough benefits to justify an increase in prices? This is the fastest way to increase your margins and profits.
- Stock more high-margin goods or punt high-margin services. Work out which products or services make the most profit and push those products or services more than your low margin goods.
- Don’t discount. Not only does this cost you money, it creates a perception that your prices are already too high.
- Get rid of clients that take up a lot of your time and are slow in paying their bills. You will make more money with less clients who are less demanding.
- Decrease your cost of sales
- Change suppliers – can you get more cost effective supplies elsewhere without compromising quality?
- Bulk discounts – if your cashflow is flush, pay less for your supplies by purchasing fast moving goods in bulk.
- Avoid mistakes – do it right the first time so you don’t waste supplies doing the job again.
Strategies to decrease overheads
- Reduce salaries – are you running a lean business, or are you carrying passengers? Empower the team to take on more responsibility at the front line, rather than being top-heavy with management salary costs.
- Outsourcing vs in-house – could you outsource functions cheaper than doing it in-house, or could you bring a costly outsourced function in-house?
- Office supplies – monitor your everyday expenses. Keep tabs on office stationery that might be making its way home to school children, minimise printing of unnecessary paperwork and don’t over-cater for meetings.
- Commission based sales teams – incentivise your sales team to pay commission on sales rather than a flat salary. That way, the costs are directly related to the amount of income you receive.
- Work from home – many businesses have made arrangements for employees to work from home or to “hot-desk” at a smaller office with reduced monthly rentals. This is particularly useful for companies where the employees are often out seeing clients.
- A good way of determining if you have the correct cost structure for your business is to chat to your accountant or approach your industry body for market related norms or percentages and track your various overhead expense categories as a percentage of your sales. This way, you keep an eye on expense items month on month and can see when certain expenses get out of hand.
I have lots of other strategies that can be implemented to increase profits. Call me and let’s identify which strategies we can make work as hard as you do!