When you’re stressed about increasing profits, you may set your focus on increasing sales. It’s natural to think this way when profits are top-of-mind. There are numerous factors that play into your company’s expenses, though, and just as many methods for increasing earnings. Think outside the box with these six simple ways to give your profits a boost:
1. Micromanage expenses
Think of streamlining your expenses as an art. Take time to figure out which expenses are a must and which ones should be trimmed. Some businesses practice zero-based budgeting, which means structuring a new budget from scratch each financial cycle. Others swear by activity-based budgeting, which ties individual expenses to larger strategic goals. Regardless of your preference, get started by making the commitment to thoroughly (and regularly) track your finances.
2. Practice “stock control”
If your business has a significant amount of money or cash tied up in inventory, invest time each month in inventory management. Keep track of what gets sold and what stays in the stockroom. Quantifying the success of your best-selling (and worst-selling) products will help you make more informed decisions about your inventory in the coming months.
3. Analyze your profit margins
The “80/20 rule” states that 80 percent of your results will come from 20 percent of your efforts.1 So, direct your attention toward the most-effective 20 percent. Consider prioritizing those products or services in your marketing efforts, for example, or training employees to upsell them. On the other end of the spectrum, explore tactics for making low profit margin items more successful: Consider negotiating a bundle deal with your supplier, for example.
4. Understand your customer base
The flip side of the 80/20 rule is that 80 percent of your profits will come from only 20 percent of your customers. Get to know that 20 percent. Set up a customer database and track the purchases made by each customer. Does most of your business come from a certain demographic or during certain seasons? This type of intel will help you determine where to concentrate your marketing efforts when you want to promote new products or special deals.
5. Re-evaluate your prices
Don’t overlook pricing levers that you have. Many businesses don’t charge enough for their products and services because they fail to consider customer demographics and brand value or they delay regular opportunities for pricing evaluations. An extra dollar of revenue earned through a more efficient pricing model is worth as much as a saved dollar.
6. Eliminate unprofitable products or services
If a product isn’t benefiting your company, let it go. Your business will be far more sustainable in the long run if you focus your energy on refining your successes, rather than continuing to support an unsuccessful product line. At the same time, what works and doesn’t work for your company may evolve, so it’s important to keep an eye on these factors over time.