Five Ways to Improve Your Company’s Profitability
Entrepreneurs often spend time talking about their revenue, but this isn’t always a relevant data point. What you should really be focused on is the profitability of your business. If you aren’t profitable, what’s the point? And if you’re not the boss yet, your future, too, depends on your company’s profitability. Here are five ways to improve it.
Boost Your Bottom Line This Year
Revenue figures are fun to look at, and can tell you a lot about growth and where your company is headed, but they shouldn’t be the primary focus. While top line numbers are sleek and sexy, stakeholders know (deep down) they don’t paint a clear picture of the company’s health and well-being. Bottom line numbers are much more indicative of where things stand.
The good news is that you have more control over bottom line numbers than you think. Whereas any attempt to increase revenue requires you to implement fresh, aggressive sales strategies, there are more options available when it comes to bolstering the bottom line. You can implement new sales techniques, but you can also do the following:
If profitability is revenue less expenses, you can directly increase profits by reducing or eliminating superfluous expenses that don’t have a positive impact on the bottom line. Some options may include:
- Decreasing inventory and improving stock control
- Reconsidering suppliers and negotiating better prices to decrease direct costs
- Lowering overhead expenses by cutting back on wasteful practices
- Using lower cost marketing strategies
Lowering expenses is a very personal issue that each business will have to sort through on their own. Meet with your finance department and look for ways your organization can start saving.
Manage Employee Time
If you run a service based business where your profitability is influenced by meeting deadlines and increasing billable hours, you need to make sure you’re strategically managing employee time. One way you can do this is through strategic resource planning.
It’s important that you schedule time and cost against a budget, rather than just going in blind and hoping everything works out for the best. One thing you might try is a resource planning solution that automates this process, such as ClickTime. As they indicate, increasing your company’s utilization rate by just a few percentage points can lead to thousands (if not millions) of dollars in additional revenue money. It’s a no-brainer, yet few businesses take resource planning as seriously as they should.
Raise Prices (With Cause)
If you want to supercharge your profitability, you can also increase revenue figures by raising your prices. The key here is to justify price increases (otherwise, you’ll just lose customers).
In order to raise prices with cause, you must indicate to your customer base that there’s additional value. This could involve something as tangible as a new feature, or as simple as new packaging or design options. It all depends on the products you’re selling and who you’re selling to.
While you may have control over the big picture, it’s your employees that are actually going to execute on your desire to improve profitability. If they don’t feel like they have a vested interest, then you’ll face an uphill battle.
“I’ve found that sitting my staff down and explaining the big-picture goals I hope to achieve with a more profitable company helps give them a different perspective,” entrepreneur Mike Michalowicz writes. “They understand why it’s important for the business to be profitable, and it helps keep profit in the front of their minds.”
By incentivizing your employees to chase after profitability, you’re showing them the value in it. You’re helping them experience some of the positive benefits of following through on your objectives.
Focus on Repeat Business
It’s far more expensive to sell a product to a new customer than it is to reengage an existing one. And not only are repeat customers easier to reach, but they also spend more per transaction. So, if you want to increase sales figures without a proportional increase in expenditures, your existing customer base is where you should be focusing.
Profits Over Revenue
Regardless of what you’ve been conditioned to believe over the years, profitability is more important than robust revenue figures. If you aren’t bringing in profits, you aren’t doing your stakeholders any favors. Thankfully, as this article shows, there are actionable steps you can take to see improvement in this area.