It’s safe to say that almost every business would love to do at least one thing: increase profit.
High profits not only drive returns for business owners and investors. High profits are essential for building a healthy, long-lasting company. Profits provide the support and security a business needs to survive, thrive, expand, and grow.
So, how can you increase profit?
Here are a few steps to take if you want to find a way to increase profit at your business.
6 Steps to Increase Profit in Your Business
Going through the following steps can help you identify ways to make changes in your business that can increase profits. Even some small changes can make a big difference in your business over time.
1. Know what profit drivers to look for.
The first step in increasing profit is getting to know profit drivers. Profit drivers are external or internal factors that can impact your profit margin. Knowing the many profit drivers available to you will help you be able to identify and leverage them in the future.
Profit drivers may be financial (associated with dollar terms) or non-financial (unrelated to a direct dollar value). Both can impact your bottom line so always think about these factors and how you can make adjustments to them to boost profits.
Financial Profit Drivers
- Price
- Sales volume
- Inventory
- Fixed costs
- Variable costs
- Cost of debt
Non-Financial Profit Drivers
- Market share
- Productivity
- Training of staff
- Quality of product or service
- Customer satisfaction
- Employee satisfaction
2. Generate and analyze financial statements.
Once you are aware of primary profit drivers, it will be easier to identify opportunities to make changes to increase profit. You can begin to analyze your financial statements to look for places where you can make changes.
Financial documents — such as a profit and loss statement, balance sheet, and cash flow statement — that offer a clear view of essential financial metrics will allow you to identify profit drivers that are unique to your business.
If you don’t have accurate financial statements or a full-time accounting team, work with an outsourced bookkeeper to create the documents that will allow you to gain profit-boosting insights into your business.
Related: 3 Cash Flow Formulas To Get a Clear View of Your Business Finances
3. Create a budget.
An accurate budget that includes your income streams and costs will help you increase profit in two ways. A budget will help you increase profit by helping you:
- Understand what you need to make a profit.
- Stay within the guidelines needed to make a profit.
A budget tells your business what it needs to do to be profitable and holds you and your team accountable for staying within the parameters to remain profitable.
Related: Build an Accurate Business Budget In 8 Simple Steps
4. Increase profit margins.
One of the most direct ways to increase profit is to increase your profit margins. A profit margin is the percentage of profit that a business makes on a sale. Profit margins can range widely by industry, but typically, 10% is a strong profit margin.
Using your financial documents, determine the profit margin on each of your offerings. To increase profit margins, consider how you can decrease the costs associated with your sales revenue. Can you:
- Decrease inventory
- Work with vendors to decrease costs
- Minimize waste
- Increase price
- Stop using markdowns and promotions
You can also increase profit margins by simply increasing the price of offerings, but you will need to consider how that impacts customer sentiment and industry norms.
Related: What To Say When Investors Ask If You’re Profitable (And You’re Not)
5. Increase revenue.
To increase profit, create incentives to increase revenue. If you already have healthy profit margins, every sale should directly increase profit.
NOTE: As you increase revenue, it’s important to be mindful of the cost of sales. In some cases, more revenue can mean more operating expenses to handle these additional sales, which can decrease overall profitability. Consider this in your financial forecasting before making major attempts to boost revenue.
Once you determine that increasing revenue will increase profit, here are a few ways to get started.
- Attract new customers
- Increase customer frequency
- Increase customer retention
- Increase purchase size
- Develop new offerings and/or enter a new market
6. Constantly monitor your progress.
There are many profit drivers that can impact your bottom line. While some profit drivers will work for most businesses across most industries, it’s important to determine what will work best for your unique business, offerings, and customer base.
To find what will work best for your business, have a system to continuously track and monitor the financial health of your business. You won’t be able to increase profit without a consistent view of your finances.
Related: Use This Checklist to Make Your Business More Profitable
Take the First Step Toward Higher Profits
If you are serious about increasing profit at your business, you need a plan.
And, we have one for you.
Download our free Small Business Financial Planning Guide to begin creating the reports and generating the insights you need to increase profit at your business.
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