Many of us start a business thinking about making good profits, having a good lifestyle and control over our destiny, all whilst doing something that we enjoy. There are many demands on our time and money and it’s good to take stock regularly and think about how we can improve our business profits so that we get more reward for our hard work. There are of course many ways to do this – here are seven of them.
1 Sell more to existing customers
As many of us know, it is cheaper, quicker and easier to sell more to existing customers than to find new ones – but do you have a plan to actively engage your existing customers, develop the relationship and take them on a journey that brings them back to you again and again? Are you having to sell to them afresh each time, or are they coming back to you to buy? Do you know why they bought from you in the first place?
2 Review your pricing strategy
A pricing strategy is more than just putting up your prices every now and then (although you do also need to actively review them and put them up when necessary). There are a range of options to establish the right price for your business that is good for you and good for your customers. One approach is to let your customers choose their own price! You can do this by offering a range of choices or bundles of products or services at different price points so that people can buy what they want and pay the price that they are comfortable with and fits their budget.
3 Offer more value
The more value you offer, the more you can charge. Find out why your customers buy from you and what extra things they might want and value. Then develop ways to deliver more value which don’t cost you that much extra to deliver so as to generate a greater gross margin on these sales. It is then important to communicate the value that you deliver effectively – ultimately it is not the value that you deliver that justifies the price, but the value as perceived by the customer.
4 Improve your gross margin
You do know what your gross margin is on each product and service don’t you? Determining which is your most profitable product or service is essential. This then gives you a number of options to improve your overall gross profit. For example you can aim to sell more of your higher margin products, or improve the margin on your highest volume product. There are a number of issues that affect your margin and we’ve already mentioned pricing, so let’s think about cost of sales. What are the additional direct costs that you incur to sell each extra unit? How can these be reduced or even removed? Do all the costs actually add value to the end customer or could you eliminate some features, improve efficiency or simplify your processes to increase profitability?
5 Reduce overhead costs
Every pound spent on fixed costs or overheads directly reduces your profits pound for pound. Consider how many extra sales you need to make to cover the costs of those overheads – think of the time and effort required to make those sales. Some time spent at least annually to review your overheads will give you the scope to reduce those fixed costs. This could be as simple as reviewing your insurance or utility costs by comparing to other providers, or radically reengineering the way you do things like downsizing the office, creating a virtual team, or outsourcing some activities. If you rent premises, think about whether you need them all – after all you want to be working for yourself and generating profits for you, not for your landlord! Reducing overhead costs is entirely within your control and has a direct impact on the bottom line.
6 Take advantage of incentives
There are a range of financial incentives on offer from the government and others. At a basic level make sure that you have all the receipts and paperwork in place for expenditure to reduce your corporation tax and VAT liabilities. Make sure that you are taking advantage of all the tax incentives on offer, for example do you know about the incentives for research and development and for employing staff? Have you looked at taking on an apprentice or considered accessing subsidised schemes like GrowthAccelerator? We can help identify some options for you and check your eligibility for many of these schemes.
7 Spend your time wisely
As a business owner or leader, your time is important and precious. It is more important than money as when it’s gone, it’s gone. Spend your time wisely on more value-added tasks and projects, don’t get sidetracked by admin that you can delegate or on less productive projects. Develop an action plan that will improve profitability, delegate wherever you can and focus your attention on the key things that will really make the difference. Do less and be more focussed on taking positive action to improve your profitability.
Measure, measure, measure
Ultimately what gets measured gets done and profit is something that every business has to measure at least annually for tax purposes. The more sophisticated that you can get at understanding and measuring your profitability, the more options and opportunities you will find. This in turn helps you to take positive action to improve your business profits.
If you would like to improve your profits contact us today for a free initial conversation or to arrange a profitability review for your business.