7 Profit Improvement Strategies
1. Review your product mix
A common rule of thumb in business is that 80% of your profit will come from 20% of your products/services. This 80/20 rule is not always accurate, but often it is quite close to reality.
One way that you can improve the profitability of your business is to assess the profits generated from each product/service. Based on this assessment you can then recalibrate your business to focus on the products/services that generate the most profit and streamline your resources and capacity around these core products/services. This process will also enable you to identify loss-making products/services which you can then remove from your product/service mix or structure.
2. Review your prices
The cost of doing business is constantly increasing. It is important that you regularly review your pricing structure to ensure that your margins are not being deteriorated by your increasing costs. It is a lot easier to keep on top of your pricing with regular adjustments rather than large one-off price changes. Small price adjustments can have a significant impact on your profitability.
3. Review your processes and optimise with technology
Technology is constantly evolving and creating innovative new solutions for businesses that enhance the efficiency and productivity of their processes. Technology optimised processes can significantly improve the efficiencies of a business which in turn reduces labour costs and frees up capacity for more productive activities.
4. Reduce your inventory levels
Excess inventory levels cost money due to holding costs, impairment and obsolescence. By reducing your inventory levels and streamlining your purchasing processes you can free up cash in your business and reduce the risk of inventory losses.
5. Upsell to existing customers
Generally, the cost of acquiring a new customer is substantially higher than the cost of upselling to an existing customer. By upselling other products/services to your existing customers you can add further value while generating additional revenues. McDonalds is a good example of a business that has mastered this tactic – they always ask the question “do you want fries with that”.
6. Find new customers
If your business is in growth mode, then you will likely be looking to acquire new customers. Finding new customers is all about smart marketing. It is important to understand the value of a customer so that you can make educated decisions around marketing spend. Once you have determined the value of a customer you must then consider how to reach your target audience with your marketing message. Modern social media channels provide incredible targeting functionality so that you can drill down to the specific market that fits your ideal customer profile.
A strong targeted marketing approach can really set you apart from your competition and build your customer base which in turn will generate greater revenues.
7. Negotiate better prices with suppliers
Unless you operate in an industry that is monopolised by a single supplier, then you should be able to negotiate with your suppliers for more favourable terms such as better prices, discounts or favourable payment terms. You could also consider alternative suppliers – so long as the quality of the products/services are similar or better than your existing supplier then switching suppliers could be a viable option.