Our last blog looked at turnover and profit and we explained the difference between the two. If you have a good turnover but poor profits, your business isn’t running as well as it might.
Having better profitability increases the likelihood that your business can cope better during any downturn. And it also means that your business has cash to invest in any new products, equipment or staff. This can be useful when your business needs to expand to meet new orders.
Being an accountant based in the North East, we understand that market conditions can often affect some businesses in this region more than others. But if you have higher profits, you can weather the storm.
To make sure your company is ready to cope with the current economic volatility, boosting your profits is essential. But how do you do that?
If you want to increase business profits, here are some tips and strategies:
1. Reduce your expenses
How can I reduce my business expenses? That’s a question we often receive. Well, the best way is to take a good look at your outgoings. It sounds simple, but somewhere among the items you need to buy there is often something that is overlooked.
For example, could your supply chain reduce prices? Are you paying for services, such as the membership of a professional organisation and you’re not using what it offers? If so, it could be a way to increase your profits.
2. Are you running efficiently?
If you spend too much time doing something where a quicker process is possible, then that will impact your profits. For example, can an online banking app or bookkeeping app save you time? Do you really need to meet a client weekly when a phone call is enough? If you can save those visits to the most essential times, you will increase your profits. Put a date in your diary each month to review expenses, and if it’s time to renew your utilities, spend a little time reviewing the price. The time will be efficiently spent, especially if you get a much lower price.
If your prices haven’t changed for years, you’re probably underselling yourself. So take some time to consider your pricing. It’s OK to ask a client or customer for more if your prices haven’t kept up with increasing costs. Carefully consider increasing prices by introducing small increases over time rather than a big hike, otherwise you may alienate even your most loyal client. Be clear about why you’re raising prices too. If inflationary pressure means supply chain prices have increased or your production costs have risen, clearly communicate the reason. It makes a big difference as your customer can understand why you have done so.
4. Up-sell or cross-sell
Your best customers are your current customers! If someone is enjoying using your products or services, the chances are they will continue to use them. And if you offer a more premium product that offers a higher margin, then why not encourage them to choose that instead. That is up-selling! If you offer a complementary service (such as a photographer offering a framing service) why not introduce your customer to it? If it complements the original service you could sell more and that could mean more profits.
5. Increase customers
It sounds obvious, but the more customers you have the more likely you will increase your turnover. And if you’ve got your pricing right, this will also increase your profits. You may have to employ a new salesperson, but if you plan it properly you should have the funds to do so. Once you sell more, you’ll increase profits. Work out the salary of such a person and the bonus structure that is attractive so that the more your sales team do, they more income they receive. In turn, your business will see profits rise.
There are many ways to increase profits in your business and no list is exhaustive as each company is different. If you would like more information, please contact Guidon Group. We can help you find a path to profitability.
These tips are not exhaustive and we suggest you take advice before making any changes to your business plan. We are accountants and tax advisers based in Stockton but we work with businesses across the North East.