When you give lots of keynotes or public talks to business owner and entrepreneurial groups like I do you get hit with the same questions over and over.
One of the most common questions I get is, “How do I increase my profitability?”
It’s a great question. Here in one list are 30 simple strategies to increase your profits and profit margin. I’ve already “field tested” these ideas in my work with my company’s business coaching clients over the past decade. They work, if you put them into practice.
Here we go…
- Increase pricing. Bar none this is the easiest answer for many small companies, especially those who have been in business for a while. Most businesses set their prices when their business was first launched, and since they were so hungry for business, they set pricing levels low. Over time, the business likely only made nominal increases to pricing every few years, but rarely did the owner ever sit down and fundamentally rethink his or her pricing model. If it’s been over a year, time to look at it again.
- Redesign workflows and systems for greater efficiency. Cut steps, reorder processes, reengineer physical workspaces, etc.
- Eliminate tasks and activities that don’t add value to the company or customer. Every dollar you save by eliminating the cost of things that don’t add value to your company or to your customer drops directly to your bottom line.
- Give your team a clearer picture on ways they can contribute to profitability. Every team member is an agent to increase profitability. Empower them to be part of this search for ways to increase profitability.
- Regularly review your administrative and operational staff levels closely. Most service and administrative departments can be cut by 1 in 4 with no impact on quality of work. Many can handle 1 in 3 cut with no significant negative impact.
- Look for ways to increase value to clients and customers. This will help you shorten your sales cycle, increase your closing rate, lengthen your client retention, and perhaps, increase pricing.
- Increase the dollar value of every purchase transaction with your clients. Think upsell, cross-sell, and resell… Ask, “How can I get each customer transaction to be for a larger dollar amount?”
- Beware the steep cost of attrition. Customer retention is a strategic expense if spent wisely. How can you increase your customer retention?
- Feed your winners; starve your losers. This includes with your marketing activities, your sales force, your general staff, your company initiatives, your reporting, etc. So cut your losers, and feed a portion of the saved time and money into your winners. This will greatly boost your profitability.
- Feed your winning sales people more leads (even if that means you starve your lower performing sales people of leads.) Audit the “$ value per company generated lead given to a sales person.” This is not a time to be “fair”, but to be strategic. Be transparent about this and let it be a spark to help Fred learn how to increase his own dollar value per company lead given to him.
- Renegotiate with your landlord. You’ll never get what you don’t ask for. Create clear options for other space you could lease and have a heart to heart with your landlord about reducing your lease rate. Even if they say no you can always give them a fallback request to give you an option to extend your lease without an increase in rent.
- Focus your best efforts, talent, and attention on selling your most profitable products, services, customers, niches, or channels.
- Strategically map out a pathway to upgrade your top 10-20 percent of clients to “red carpet” or “highest value” offerings. They want this service, will value this service, and will pay for this service.
- Look for ways to bundle products and or services so that you increase the average ticket price of every sale.
- Sell your product or service in larger purchase sizes. This could mean that rather than sell a 10 hour package of time you sell in 20 or 50 hour sizes. Think about this as selling a bigger box of your product or service.
- Strategically consider giving pricing or other incentives to make the purchase and use of your product or service in larger unit sizes compelling.
- Strategically map out systems to help your customer consume your product or service faster so that they get more value and hence repurchase more frequently. Look for ways to educate them on the ideal use of your product or service.
- Make buying from your easy and simple. Reduce barriers to entry. Reduce frustrations or hurdles to re-purchase.
- Shift a cost from a fixed to a variable expense to give yourself greater flexibility. This is a way to protect your cash flow. It is extremely important for unproven tactics and strategies. For example, pay per sale versus a guaranteed amount for an outside sales person.
- Shift a cost from a variable to a fixed where the value is proven. Make this shift only when you can negotiate a substantial price savings by doing so.
- Consistently look for ways to lower your fixed overhead. Scrutinize your base expenses to eliminate non-strategic expenses that just don’t add value to the company or to the customer.
- Stabilize your production systems so that you can reduce need to stock as much inventory and raw materials which are a drag on your cash flow and on your gross profit margins.
- Consider buying “off-the-shelf” versus designing or developing a tool (e.g. software, machine, etc.) from scratch. Unless you are in the business of designing exactly those types of tools you’ll almost always find your estimates of the cost to build from scratch are hundreds of percent too low. Plus, you won’t have the install base to update that tool, for example with later software releases, at a cost anywhere as close to a third party company who can amortize these ongoing waves of new versions over a much larger user base.
- Negotiate hard. Take the time to plan out your negotiation strategically. Create competition for your dollars. Create a list of concessions you want, with extras for you to trade off. Research the market to better understand the best deal you can expect. Even hire an experienced negotiator to help you make the purchase on the best price and terms you can. If the asset you’re buying for your business is large enough, the ROI on your negotiation work can be immense.
- Specifically — negotiate and get competitive pricing on your merchant accounts. This one tactic will likely yield an extra .25-.5 percent to your bottom line with very little effort. (Think of what this means. If you have a 15 percent operating profit margin, an .25-.5 percent increase to your dollars of profit is the equivalent to selling 1.67-3.33 percent more. What does this really mean? If you have $10 million in annual sales with a 15 percent operating profit margin, then a .5 percent decrease in your merchant account fees adds the same profit to your bottom line as selling an additional $330,000! Not bad for what will likely take your controller 10-15 hours of her time to negotiate.)
- Beware “hidden” R & D costs for pet projects and bright shiny opportunities that don’t match up with your company’s strategic plan.
- R & D is not just a tech or pharmaceutical company line item. If you work on new ways to create a product or service that you will one day, “down the road” sell to the market, YOU have R & D. Be strategic about where you invest your company’s dollars.
- Get clear on all the costs of inventory: cost of capital; storage; insurance; etc. This will help you make informed stocking levels.
- Consider selling off or writing off old inventory. Why pay to store stuff you really don’t have a use for. Free up the space and cash tied up in that old inventory. Sell it; donate it; scrape it.
- Set optimal inventory levels and stick to them. Constantly be on the lookout for ways to safely reduce your inventory levels.
There you have 30 simple ways to increase your business’s profitability.
If you want to learn more about how to scale your business, I’m about to teach a new webinar that will focus on the key steps you need to take to grow your business and get your life back.
If you’d like to join me on this special webinar training, please just click here to learn the details and to register. (It’s free.)