Wanting to improve profitability but not sure where to start? Check out these efficient, reliable, and proven ways to accomplish this vital business goal of increasing profit!
1. To Improve Profitability, Invest in Your Staff
When you hire someone, you expect them to make more money for the business than you have to pay them. This becomes profit. However, a fine balance exists here both ethically and practically. If you tip the scale too far, people may feel undervalued.
Your people are worth the investment. You’ll have better morale. They can see how their work directly contributes to success. This better work environment will attract more dedicated people like them.
With that said, this isn’t just about throwing extra salaries at people. Adequate pay is only a small part of this equation. Make sure they are:
- Onboard with your mission
- Well-trained
- Goal-oriented
- Happy in the workplace
- Receiving proper compensation
- Aware of how their success leads to the success of the business
According to Ray Dalio, “meaningful work and meaningful relationships emerge when you assemble high-performing teams and push them to engage in rigorous and thoughtful inquiry”. In other words, the more you invest in your team, the more successful everyone involved will be.
2. Minimize Costs
You bring in profit after all expenses are paid, so naturally, decreasing costs will improve profitability and cash flow. It’s essential to track and understand your spending trends to identify how to cut costs without sacrificing quality.
Often, this involves streamlining, better reporting, automation, and ensuring you’re spending in areas that deliver the highest ROI.
You’ll want to take a look at:
- Cost of goods sold
- Marketing costs
- Production costs
- Labor costs
- Vendor contracts
Treat no budget area as if it’s sacred because you can find waste and streamline opportunities almost anywhere you look. Compare your budget to actuals, to identify room for improvement.
3. Reevaluate Your Client Base
Make sure you are serving your ideal clients. Courting the wrong leads and clients increases the length of time it takes to nurture a lead into a customer. You’ll have a lower customer-to-lead ratio, increased customer acquisition costs, and you’re more likely to end up with paying customers who aren’t really a good fit, so they leave and may write bad reviews on the way out.
Here are what you want: Mutually beneficial relationships with clients.
Cut ties with clients that aren’t working well with you. They’re more work than they’re worth. Dig into your niche and find clients you love and fit with your business.
4. Automate Where You Can
Automation speeds up everything and can inevitably improve profitability. It reduces error rates, improves the client experience, and despite what naysayers might claim, it leads to a happier workplace because people are working in an environment where workflows work consistently.
All this makes your business more efficient.
Furthermore, you can save money from:
- Not having to hire someone to take care of manual entries
- Not having people compile or transfer data from multiple sources, reducing error rates while delivering you more real-time information
- Not spending your valuable time doing manual entry when you could be running your business
These days, you can automate a lot of things that once caused employees and bosses a lot of headaches:
- Bookkeeping
- Client onboarding
- Payroll
- Lead generation
- Inventory management
- And more
5. Run a Market Analysis – and Make Adjustments to Improve Profitability
Market analysis shows you how to be more competitive in your market. It allows you to benchmark your performance against competitors to understand what’s possible and better position your product in the market to gain a competitive advantage.
You’ll want to look at:
- Competitors
- Prices
- Demand
6. Focus on Customer Service
The way you interact with customers can make or break your business. The work you put in behind the scenes will eventually prove to be profitable in the long run.
Work to deliver a quality product at the right price point. Make sure your customers feel you’re listening to them. Make sure you’re taking care of the technical aspects of customer experience like call wait time, resolution time, quality control.
This is how you retain ideal customers.
The average profit margin on selling to an existing customer is 60-70% while selling to a new customer is 5-20%. Existing customers are 50% more likely to buy your new products and will spend 31% more. 88% of buyers read reviews of other customers before choosing to buy.
All of this adds up to profit.
So ask yourself: How can you improve your customer service?
7. To Improve Profitability, Partner With a Trusted Accountant
You’re running your business and working hard to increase profits. While doing this it’s easy to miss low-hanging fruit in the above areas of your business. A trusted accountant can read the story or your financial statements and help you identify where to focus your efforts.
Who wouldn’t want an experienced and knowledgeable right-hand giving you all the financial information you need to make your business successful? When you work with a trusted accountant, you’ll get plenty of profitability improvement strategies and guidance. We can suggest automation apps, help with market analysis, and find areas to minimize cost.
For help increasing profits through smart financial strategies, consider Argento CPA.