When it comes to managing a business, ensuring that your company retains a certain amount of profit margin ought to be among your top priorities. Of course, every business model is different and the level of profitability that you will achieve is largely dependent on the scale and structure of your operation. However that isn’t to say that business owners shouldn’t take every step possible to try and achieve the maximum profit levels that they can. This guide presents some suggested simple steps to improve profitability.
Sure you’ve worked on your branding, created an attractive website and developed a strong digital marketing strategy but improving profitability runs far deeper than just external promotions.
Make Clear, Actionable Goals for Your Profit Strategy
You will struggle to improve your business’s success and profits if you just try and proceed with the vague notion that you want to improve your profits but do not quantify your aims. Establish challenging, but realistic goals as to how much you wish to increase your profits by, and by which date. Once you have outlined this high level detail, you can work backwards, creating an action plan of what tasks you are going to undertake in order to work towards your profitability goals, and the deadlines for each task. Assign project groups to different parts of the plan, and hold review meetings at regular intervals to assess how you are progressing towards your goals.
Remove Unprofitable Products and Services From Your Offering
Not every product that you sell is going to fly off the shelves or be a cash cow. Of course, some products may see mediocre sales figures yet they are necessary in order to offer the full product range to customers and match the competitors offering. That’s understandable. However there may be products and services in your offering they are really struggling and which may even be losing money. Assess your range and cut out those items which are not performing.
For instance, you may offer a particular item to your customers, but the amount of sales the product sees is abysmal whereas the minimum order quantity is incredibly high and so you wind up losing money. Sometimes factors like this can slip through the cracks and that is why it is worthwhile to conduct a full range analysis.
Improve the Ways You Target Customers
Without customers, your business cannot exist. Without customers, you have no sales and therefore no profits and as such this is a critical piece of the pie. However, are you being strategic enough in your approach to customer outreach? Have you considered sending your potential clients video messages? This is something that will attract their attention and pique their interest.
Are you working hard to develop a strategic and smart action plan on specific demographics, or are you casting a wide net, sending salesmen out all over the place and hoping for the best? Not only does not having an effective outreach strategy affect your profits, it can also result in additional, unnecessary costs.
Assess Your Client Relations
If applicable, review the way in which you work with your clients and customers – particularly where payments are concerned. If you are operating a B2B business then you may find that some of the businesses that you work with engage in payment terms that you are simply not happy about – i.e. they want to pay 30, 60 or 90 days after the receipt of goods.
Sure you don’t want to turn down customers and sales but this is no good for your cash flow and can result in wasted resources when your account is consistently chasing up payments. Insist upon the terms that you are comfortable with. For instance, consider requesting that customers pay 50% of the invoices due upfront. If they want your services, they will have to adapt accordingly.
Reduce Costs
Assess your outgoings and ensure that you are not overpaying in any particular area. This means assessing your overheads and ensuring that you are not paying for anything unnecessary, as well as reviewing your expenditure at the back end with your suppliers. Consider automating some of your processes to make your work day smoother. This includes, using e-procurement software to keep track of all purchases. Employing a strategic procurement team aids you in being certain that you are consistently getting the best value raw materials and supplies in the market.
If you haven’t assessed your supply base in a while then maybe it could be time. Perhaps you have been buying a material from one particular source for several years, however the Supplier’s competitor sells the same item for a fraction of the cost. Alternatively, perhaps you consume so much volume of an item that you are able to shift production overseas to a lower cost country and enjoy better economies of scale. You could improve your profit margins significantly by sourcing strategically.
Assess Your Processes and Workflows
You should always strive to run an efficient business, but when you’re busy, or your company is large scale, it is easy for things to fall through the cracks. This is why it is worth taking the time to sit down and analyze all of the processes and workflows within your business.
Could it be possible that there are steps within your processes that add costs but no value? Maybe some activities are completely unnecessary and there are savings to be achieved by cutting them out.
Ensure You Have an Excellent Customer Service Proposition
If you want to encourage repeat, long term custom then you need to ensure that buying from you is a painless, straightforward process for your customers. Consider using CRM software to ensure that management of your sales team and customers is organised and you have clear visibility on processed. Work hard to reduce barriers to entry and any headaches that may surround your company’s re-order processes. A happy customer is a loyal one.
