It is said that there are no direct measures to increase a business’s profitability. In other words, it is not possible for you to enhance your profitability without having a particular strategy for doing so.
In order to increase profits, you must identify and improve the variables that determine profitability. In this blog, we will discuss a few tips by Thomas J Powell of Resolute Capital Partners that will help you increase the distance between your revenues and expenses.
Tips to Increase Business Profitability
Tip 1 – Analyze Your Financial Statements:
Financial statements such as profit-and-loss statements, SOFP (Statement of Financial Position), and cash flow statements provide valuable information regarding the expenses and income of your company. Business owners can use this information to identify the areas where they need to make adjustments.
For instance, if you notice that employee wages are eating up an excessively large chunk of your revenue, you can consider automating or outsourcing certain business processes.
Tip 2– Use KPIs (Key Performance Indicators):
KPIs can help you identify any problem areas or weaknesses –such as increases in particular expenses or dipping sales in a specific segment – that might be affecting profitability. Thomas J Powell lists down a few other examples of profit-related KPIs:
- Increase in revenue
- Customer satisfaction
- Changes in profit margin
- Client retention rate
You can use KPIs to devise specific goals regarding profitability, and periodically determine if you are achieving, exceeding, or falling short of those goals.
Tip 3 – Consider Increasing Prices:
In a lot of cases, you can increase your selling price by 5 or 10 percent without experiencing market resistance or a dip in sales volume. This is particularly true if your product is price inelastic (is a need rather than a luxury, or has no or few substitutes).
Even if you sell a price elastic product – as long as you ensure high quality and premium customer service – Thomas J Powell feels that buyers are unlikely to object to marginal increases in price.
Tip 4 – Focus on Branding and Marketing:
Brand-recognition provides businesses with the leverage that they need to charge higher prices for their services or products. If customers associate your brand with a particular level of quality, they will be willing to even pay a premium for it.
For instance, companies often market their products as ‘luxury’ or ‘high-end’, and such brand positioning allows them to justify higher prices for their offerings.
Tip 5 –Retain High-Performing Employees:
Skilled and productive employees add value to the organization through their ability and dedication. Team members excelling in manufacturing, sales, finance, transportation, or any other area of a business, can play a key role in increasing efficiency and, by extension, profitability.
For example, if an employee is making at least 15% more sales than any other member in the team, they are particularly valuable to the company.
Increasing profitability requires businesspeople to consistently identify room for improvement in all areas of their business. We hope that the above tips by Thomas J Powell will help you increase your organization’s bottom line.