Every business needs to make a profit. The profit is often described as the bottom line and really it is. Making a profit is the reason a business exists for without making a profit it will ultimately fail.
In this post, I would like to answer the question: How can you increase profit in a business?
Here are 16 ways to increase profit. They are in alphabetical order and each one should be looked at in the context of your business.
Late payers and non-payers cannot only reduce profits but can fatally wound a business. There are steps that you can take to reduce bad debts.
Firstly avoid giving credit or pay later options if you can. If your business needs to offer credit, look to do so through a third party who will take the risk of non-payment and debt recovery. It is important to make sure that your terms and conditions are very clear on when payment should be made and be very quick to chase debtors as soon as a payment is late. Telephone calls work better than emails and letters. Sending reminders before the payment is due can help to reduce the number of late payments. Make it easy for people to pay by having several methods, especially using online with 24-hour availability.
Buy in cost
If you manufacture goods or retail other’s products try and reduce those costs by careful buying and keep checking your sources to make sure that you are getting the best value. Keep in mind though the point under the heading ‘reliable suppliers’.
It may be that you purchase goods on a 30-day payment. Can you get those goods cheaper if you pay up front or earlier? A cash discount will contribute to an increased profit.
When customers buy from you as well as upsell (see below) can you cross-sell? This is not just about getting more money from your customers but should also provide them with a valuable service. By adding another product you can enhance what they have bought. For example, if they have just purchased a nice shiny new laptop it would be good to protect it in an appropriate case, maybe some additional software (by knowing your customer you can determine that), an extended warranty, USB sticks and so on. You may decide to offer these extra products as a set package.
Finding new customers can be expensive and the last thing you want to do is to lose them. Make sure that you deliver outstanding service, have what they need and keep in touch. Depending on your business you should be phoning, writing, visiting, using social media, meeting them and at the very least emailing regularly. Do everything you can to build a bond with your clients that will build customer loyalty and therefore retention. This keeps your costs down and your profits up.
The more you can charge for your goods or services can increase your profit margin. Of course, there is going to be a balance at which demand for your product or services falls due to the price, so it is a matter of getting the highest price before your overall profit gets lowered. I once worked for a carpet retailer who priced their products in square yards and most of the prices ended in 95p, e.g £9.95 per square yard. By simply raising this to 99p a 4p per square yard increase, a much bigger profit was achieved without losing any sales on price. 4p multiplied by tens of thousands soon adds up to a lot of money!
Do take the time to search for the best deals on stationery, your energy, computers, and other office equipment. With the advance of technology, it can pay to buy something that is likely to be future proofed to some degree to avoid early obsolescence. Can you reduce the amount of paper and ink used? Not everything needs to be printed and scanning or online document storage use should be encouraged.
You might also be able to have more homeworkers and reduce the need for larger offices and this saving can be a substantial amount of money added to your profits.
Leakage or theft is an ever growing problem. Theft can be from within your organization or shoplifters eating away at your profits. Cyber crime is also on the increase, so invest in good online security as well as physical means to prevent theft.
Not only should you look at the cost of raw materials but you should examine if there are any other ways that you could reduce costs. Maybe you can obtain new equipment to speed up the manufacturing process or find ways with the existing tools to do more in less time. Your workforce probably has some good ideas on how to do this.
In your business look for ways to reuse materials. If you need notepaper why not use the reverse side of printed documents? As long as they side already used doesn’t contain personal or sensitive data there is no problem.
In the factory can you make use of off-cuts of material and use them for another product? It pays to take the time to see what you can recycle and of course you might be able to sell your unused / unwanted materials to others.
As well as recycling there are other ways to reduce wastage. Make sure that your premises are not wasting heat or electricity. Fit low energy bulbs and when you need to replace electrical equipment look for a low energy rated appliance. Make sure that computers, printers, lights and other things are turned off when they are not going to be used. Far too many companies keep computers on overnight. Sure, the stand-by mode can be convenient but is still using power.
Your profits will take a hit if your suppliers let you down with raw materials or the supply of goods you stock. If you haven’t got it not only will you lose sales but your customers might go elsewhere and not return. Therefore it is very important to use suppliers who won’t let you down. Many manufacturers will have more than one source for components just in case there is a potential delay.
The faster you can deliver the more likely you are to increase sales! Good stock control is vital so that you don’t run out of materials or goods to sell.
Stock that gets damaged can become unsaleable or has to be sold at lower prices. It’s important to look after stock in your care to reduce the risk of damage both when stored and also transported.
Your staff is often the best source of advice on how things can be done more efficiently. Do encourage them to suggest things and have a reward system for good ideas. It pays to for managers and business owners to work closely with the staff and observe areas where efficiency can be improved. On production lines, something as simple as moving parts a few centimeters closer to the operatives can over time make a big difference. The more you can make or do in the same time or less the larger the profit margin will be.
Car manufacturers are brilliant at this. Customers will be offered leather instead of cloth seats, metallic paint rather than solid, a better audio system and much more. What can you upsell in your business and therefore increase the profit?
I hope that the ideas in these 16 ways to increase profit have been useful for you. Please feel free to leave a comment in the box below.