A business’ profitability or profit is the hallmark of its success. It shows that the business is successful and flourishing.
In fact, profit is one of the main tenets of a business, as, without it, a business cannot remain competitive in the market, maintain its workplace or equipment, replace high-cost items, or invest in new streams of revenue. It is essential for business growth because, without it, a business will eventually fail.
So, if your business is not making enough profit, then it’s time to look at what you can change to start earning more money.
6 Ways You Can Increase Business Profitability
Increasing business profitability is important because it can help reduce operational costs, induce business growth, increase turnover and productivity, and facilitate business expansion.
So, if you’re trying to increase business profitability, here are some ways you can go about it:
1. Conduct a Market Analysis
If you sell software development services and are losing money, try to find out why it’s happening. To do that, you can conduct a market analysis.
A market analysis will help you identify why customers are spending less on your products, where you’re going wrong, how you can better market your products, how you may be able to increase profitability, and help you narrow down your audience and focus extensively on them.
It will also help you determine where your competitors are shining and where you’re lacking. For example, if you discover that your competitor has excellent customer service despite having inferior products, then you will have an idea where you can concentrate your efforts.
2. Uncover Real Costs and Cut Waste
Analyze your company’s income statements and pay special attention to the expenses. Is there anything that can be eliminated? Do you see any discrepancies? Did you know the company was spending thousands of dollars on paper and could’ve gotten a tax reprieve on it?
Conducting an audit of your business expenses can help you determine the inefficiencies in your business expenditure and cut out waste. In fact, most businesses have areas where wastage can be reduced without cutting into product or service quality.
Here are some areas you should look at when auditing your income statements:
- Suppliers – Are you getting the best deal? Can you negotiate better terms?
- Business Premises – Are you getting the most out of your premises? Is everything being utilized? Are there some areas where improvements could be made?
- Production – Can you cut waste to lower production costs? Can you streamline production processes to cut labor costs?
3. Create Budgets and Calculate ROI
Developing a budget for every department in your business can reduce waste expenses by a wide margin. You can also try setting strict limits on the amount of capital that can be used in certain business processes.
You should also keep track of each payment so you can contrast your actual spending against the projected costs. This way, you will find out how you decrease costs even more and even find alternative ways to run operations, which will eventually help you make better financial decisions over time.
4. Offer Product Bundles
If you offer a variety of products, many of which work together, then it may be in your best interest to offer two or more of them together at a lower price. This will not only entice customers to buy the product but also allow you to raise profitability.
However, if you’re using this strategy, make sure to offer the products you bundled alongside the bundled offerings, as this strategy – called mixed bundling – has proven to be more effective than offering only bundled offers.
5. Concentrate on Profitable Customers
You can boost profitability by concentrating on marketing your products to your best customers. These customers are those who provide a constant stream of revenue by purchasing products or services consistently.
Focusing on profitable customers can help your business increase sales activity, which can, in turn, increase profitability. The customer may also be interested in another product you offer as a result of your focus on them.
For example, if you sell content writing services as well as account management services, and your customer avails the former but not the latter, then by focusing your efforts, you may be able to interest them in the latter service as well.
6. Boost Business Productivity
The best thing you can do to increase business profitability is to increase business productivity. An increase in productivity can induce turnover, increase conversions, make employees perform more work in less time, allow you to reduce costs, and streamline operations.
You can boost business productivity by using Cloud technology, which can streamline work collaboration; time-tracking software, which can allow you to track employee work hours; project management and CRM systems, which allow for effective workflows, optimize resources, and improve customer retention; and a centralized communication system, which allows for all employees to be on the same page.
You should also use a check stub maker to create invoices rather than doing them manually. This will allow you to reduce human errors and focus your efforts on more important tasks.
The Bottom Line
Increasing business profitability can seem like a daunting challenge if you’re trying to increase your company’s earnings by evaluating financial statements and trawling through data. But if you break your goal down into short steps, it may be more manageable.
The steps we’ve outlined above can help you understand which aspects of your business can help you decrease expenses and increase profitability.