11 ways to increase profit overnight
Were you hoping your bottom line was going to look better last year? Follow these tips to build a business that meets your profit expectations
In an ideal world, improving the profitability of your business should simply be a matter of increasing sales. It’s a straightforward equation. The more you sell, the more you make.
But not every business is in a position to undertake the kind of sales drive that would result in a significant spike in the bottom line. Maybe the market is already saturated or all available resources are focused on fulfilling orders to existing customers rather than seeking out new prospects.
Equally important, when a business allocates more resources to raising sales – for instance by taking on new sales team members or spending more on advertising – the additional costs may well result in an erosion of profits, at least in the shorter term.
But here’s the good news. Keeping in mind that in the mid-to-longer term, raising sales is generally a decidedly good thing, there are many other measures you can take to improve profitability within weeks or months.
1. Raise your prices
The simplest – but not necessarily the easiest – measure is to raise prices. Assuming your costs remain more or less the same, then any hike in the price you charge to customers will directly increase your profit margins.
Any attempt to raise prices is bound to meet resistance, so it’s important to look at the market. What are your competitors charging? What are customers in the sector willing to pay? And to what extent can you justify the increase in terms of factors such as inflation, rising costs, or (more positively) any unique selling point that distinguishes you from your rivals.
Raising prices requires a certain amount of nerve, but as Owen O’Neill, founder of University Compare (a comparison site for higher education), points out, charging too little can be counter-productive. “When we started, we were attacking the market with an incredibly low price point, we saw this as our way to enter the market, when in fact it may have hindered our results. We had a great student referrals system set up, but the reason we didn’t have an exciting first quarter was due to our clients believing we didn’t offer quality at such a value-based price,” he says.
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2. Conduct a supplier review
In addition to raising prices you can raise margins by cutting costs. A supplier review is a good place to start.
From power and telecoms to raw materials or stationery there is always scope to save money. Conduct a review to establish whether you can reduce costs by negotiating a better deal or switching suppliers. You might also be able to negotiate discounts by agreeing to pay promptly or by committing to a longer contract. Switching to a single supplier for, say, a bundle of telecoms and broadband might also earn a discount.
3. Use flexible resources
One question you should ask yourself is whether you’re paying for resources that you don’t need 100% of the time. For instance, it may be that you employ five full-time members of staff over a five-day week but find that they are under-employed at off-peak times. So consider part-time staff or using freelancers or homeworkers as a means to cut costs.
“We implemented a freelance copywriting process which saved us 60% of our annual content costs,” says Ross Tavendale of digital design and development agency, Ideas Made Digital. “The projects were not ad hoc and we could barter day rates down and get a better quality of work from our freelancers.”
4. Cut IT costs
Businesses are increasingly cutting IT costs by using software as a service (aka Cloud) providers. Instead of buying software and hardware to run, say, email, CRM, salesforce automation or accountancy, you buy each function on a subscription/pay-as-you-go basis delivered through browsers.
This cuts down on upfront expense, and allows you to scale usage down or up as the business grows or contracts. And as with all supply deals there is scope to negotiate savings. Ideas Made Digital’s Tavendale cites “buying SaaS tools annually to get the discount,” as a way to further reduce the outlay.
5. Monetise your assets
As a business you may have a range of physical assets that remain unused – for example, allocated parking slots or empty desks. Think of sub-letting these assets by renting to third parties. It’s easier than ever to do this via marketplaces such as Hubble HQ.
Many one-man/woman businesses would welcome the chance to rent a desk in a conventional office environment. The renter gains a proper business address and you get extra revenues.
6. Improve customer retention
Customer acquisition is notoriously expensive in terms of the resources required to put a business on the radar screen of potential buyers. Hence the importance of customer retention.
Darren Fell, founder and CEO of Crunch accounting sees great service as the key. “Many companies don’t realise it, but great customer service is the best route to profitability,” he says.
“We’ve made a huge investment to ensure our customer service is top-notch, and it pays dividends all over the business.” Not only are happy customers more likely to stay loyal, they also tell others. “A huge number of our new clients – sometimes as much as 50% every month – come through word of mouth as our clients enjoy our service,” he adds.
7. Sell more to existing customers
As your relationship with existing customers deepens you can begin to explore the scope for selling additional products and services. If you’re selling online, this may simply mean analysing historic transactions and suggesting related items.
However, if you talk regularly to key customers, you should use that opportunity to find out more about their requirements and how you can help.
That doesn’t necessarily mean a hard sell. Instead take time to find out how you can provide additional help. “Sell value, not products and services,” advises Stephen Archer, director of business consultancy, the Spring Partnership.
8. Ditch unprofitable lines
If you sell more than one product or service, you will know that some are more in demand than others. While it’s not always easy to do if there’s been a financial or emotional investment, sometimes tough decisions have to be made.
As Stephen Archer puts it: “The sales world is littered with warehouses full of stock that no-body wants to buy.”
He recommends jettisoning hard-to-shift products. “Companies need to narrow their offerings and put their sales and marketing efforts into those that customers want.”
9. Sack unprofitable Customers
Some customers are actually a drain on resources. This is usually because the amount they buy is outstripped by the cost of serving them.
It may be that they are too demanding or simply that the cost of fulfilling small orders wipes out the profits. The Spring Partnership’s Archer recommends putting prices up or stiffening terms. If that doesn’t work: “The only way is exit.”
10. Collect money more quickly
If you offer credit to customers – or to put it another way, if you invoice them on the basis of 14, 30 or 60 days to pay – it is important to ensure that you collect the money as quickly as possible.
Always send invoices promptly and remind customers when payment is due.
11. Work with good people
And finally, make sure your employees and key partners (such as suppliers) are pulling their weight. Unreliable suppliers can do real damage to your business as can members of staff who are not sufficiently talented or committed to fulfil their roles.
The Spring Partnership’s Stephen Archer recommends building a culture based on commitment to the business. “Everyone in a company should see themselves as supplier and customer to others,” says Archer.
“Beware people who are comfortable – they are not trying and not trying is not contributing. Ultimately, you may have to replace members of staff who aren’t performing.”
And by creating a winning team of employees and suppliers you create the conditions that will enable you to sell more products to more people, pushing up profits even further.