Updated: Jan 27, 2019
Have you ever looked at your profit figure and wondered what went wrong? Luckily in the next four minutes I'm going to tell you about the areas of your business you can focus on to help you improve your profits. You won't be able to use all of them at the same time and some of them won't be right for your business but here are 4 things to consider to improve your business's profitability.
1. Sell more
It's easy to just say "sell more" isn't it, but how do you do that? You could say that sales are directly linked to marketing and how you get your products and services in front of people, so my first tip is to review where and how you're marketing your products.
Whether you sell online via a marketplace or face to face on a market stall you can review whether you're getting your product or service in front of customers who are actually buying. Think about how many people visit your stall or website and how many of those actually buy from you. Do you have different success rates at different events or when you advertise differently? Use your findings to drive what you focus the most energy on and you should see an improvement in your sales levels.
You can also consider new markets you might be able to sell to, you might have customers ready and waiting in a different location, or customers who could use your product in a different way if you slightly tweak your marketing. Are you able to tailor your product or service slightly differently to reach a different group? You might also want to think about offering discounts but beware of the effect on your profit of offering a discount, I'm sure I'll write another blog about this later.
2. Put your prices up
You might feel nervous about this but putting your prices up is worth considering especially if you've never put your prices up or it's been a very long time since you have done. There is a correlation between the price of your product and demand for it, and depending on what type of product you sell, your customers might be more or less sensitive to price movements so you might want to experiment to work out what is the right price for your product or service in terms of sales volumes and profit. Ultimately, every pound you add to your sales price is a pound of instant profit, your product hasn't cost you any more to make, you're just selling it for a higher price, so if you can implement a price-rise successfully it can make a big difference to business profits very quickly.
If you're uncomfortable with a straight price rise on all products, you might prefer to think of a way of charging different prices to different groups of customers. You may have noticed that you pay more for a train journey in rush hour than you do if you can travel off-peak, think about whether some of your customers might still buy your product if it's at a higher price in the same way. Perhaps some customers are trying to fit their gym classes around a workday and don't mind paying a pound or two more if it means they can go to their favourite class before work or during their lunch break. Alternatively you might be able to charge more for a higher quality version of your product, a service which offers more features or priority when it comes to delivery.
3. Improve profit margins
The question to ask yourself here is "how can I increase the profit I make on every sale?" This one's about reducing the direct costs which go into making your product or supplying your service. Services usually have lower direct costs than products so this one might be more successful if you're running a product-based business. I'd suggest you consider whether there are any components you use in production which you can buy more cheaply, or whether there are any other direct costs you can cut out, for example by reducing or minimising packaging.
Let's say you sell prints, can you source the frames you use for your prints from a cheaper supplier? Or negotiate a discount per unit for buying a larger quantity? You'll want to keep in mind the quality of your product to be sure you're still selling something your customers want to buy, and if you can't do your product justice by using cheaper components, it might even be worth considering stopping selling items which have lower profit margins and focusing your time and efforts on just selling those which are more profitable.
4. Reduce your costs
Finally let's look at your business overheads, these are the general costs you pay regardless of how many items you sell. Are you paying for unnecessary things - like fruit boxes for the office when it might be cheaper to buy some fruit from the supermarket? Can you reduce your travel costs by using online conferences instead of face to face meetings? Can you spend less money on advertising by favouring social media instead? Can you renegotiate phone contracts or find a way to reduce your rent by sharing your space with somebody else? Can you travel by bus instead of taxi? Can you reduce the number of software subscriptions you have? The list goes on.
Focusing on these four areas, on reducing your costs and thinking carefully about your sales prices and margins, you should be able to come up with some good ideas of ways your business can be more profitable.