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7 Ways You Can Increase Your Business’ Net Profit

 
Increase Your Business' Net Profit

As far as small business strategy goals, increasing  your business’ net profit is a solid one! Why? It gives you, the business owner, more options. Let me ask you this question; if you selected a number of methods for increasing your net profit and actually implemented them, would it be possible to increase your business’ net profit by $50,000 or maybe even $200,000 in the next two years?

Articles in this series:

Small Business Strategy Goals – Overview

Goal 1: Increase Business Value

Goal 2: Increase Net Profit

Goal 3: Decrease Time Commitment

Goal 4: Increase Location Flexibility

Your answer of course should be “yes”, as anything is “possible”. But more importantly, what would that  extra net profit give you? The answer is… “choice”. You get to decide on a few options:

  • Hire a General Manager to run the business, freeing up your time
  • Take a higher dividend to invest
  • Take a higher dividend to improve your personal lifestyle
  • Invest the profits in building the business

So, now that you’re on board the “Increasing Net Profit Bus”, let’s look at some ways you can do this.

7 Ways You Can Increase Your Business’ Net Profit

We have a mountain of strategies and tactics throughout our blog that should be useful, just see the categories list on the right hand side, but here are 7 methods which are both simple & effective;

1. Increase Your Prices

No, I’m not kidding. 5% or 10% is likely to be nothing to your customers (EG - going from $50 per hour to $55 per hr), but it is all net profit for you. And yes, I understand, you’ve likely heard this before from other consultants, coaches & advisers; is there potentially room for you to move? I suspect yes. If you think no, perhaps your product or service could be better so it demands a higher price?

If you are fearful about doing this and concerned you will lose customers, I get it, that is understandable, but it is nowhere near as scary as you might think. Check out the increasing vs discounting price matrix. Just do it. Even if you did it 6 months ago, inflation is always on the march!

All other things being equal, an increase in your price leads to a direct increase in your bottom line.

2. Decrease Your Purchases Costs

Get on the phone and drive down the cost of purchasing your goods or raw materials. First try your existing supplier (if you’re happy with them and would like to continue your working relationship). See what other providers/suppliers can offer. Perhaps you buy from a range of suppliers, could you offer one supplier all your business? What could they offer you for the increase business? This could reduce your other expenses in your business through simplicity.

3. Sell Higher Margin Goods & Services

Consider product A and product B, both have a similar retail price however, product A gives you a 60% Gross Profit Margin vs a 40% Gross Profit Margin for product B. If both will help your customer equally well, but one helps your bank account a lot more than the other, you should offer product A first. Do you, and all you staff, know which are your high margin items? Hello!?

4. Increase Conversion Rate

Just by focusing your attention on the conversion rate (from enquiry to sale) will in most cases help you to increase it. What if you and your team look at your conversion rate once per week? Do you think it’s possible that the extra attention will help you improve it?

5. Increase Average Sale Amount

If you have a retail store hopefully you have a POS (Point of Sale) system, since these have a mass of retail sales information in them. One interesting figure to consider is the 'average sale amount'. I also like to review the 'average items per sale'. Increasing 'average items per sale' is a great way to increase average sale amount'. In one business I worked with years ago we focused on increasing the 'average items per sale' KPI (Key Performance Indicator). We asked the question; how can we increase the current average 'items per visit' of 1.7 to become 2 without becoming a “would you like fries with that” robotic pest?

The answer lied with not assuming the customer actually knew everything about what they were looking to purchase. The answer came in the form of creating both a checklist on the POS system for each popular item and with asking the customer questions to ensure they were getting the best solution before they reached the counter. Cross selling doesn’t have to be evil, it should be helpful!

6. Reduce Expenses

Now if you’re in small business it’s unlikely that you didn’t trim back on expenses during the GFC (Global Financial Crisis) and Recession. For many businesses you are likely to be close to your maximum productivity, lower staff numbers doing just as much work as before, etc. But for business', expenses can have a way of creeping up over time. Whichever camp you are in, you can always benefit from a complete Business Process Effectiveness / Business Model Audit, which challenges the very way in which you do business. I think you could sum it up by;

  • Eliminating
  • Automating
  • Delegating

Find the bottle necks in your business, and figure out how to either skip this step or use technology to remove the bottle neck.

7. Increase Leads & Enquiries

This method is last on your list, not first. Last because the other methods are more likely to yield a profit increase, whereas increasing the number of leads & enquiries you get could also reduce your profitability through marketing expense or increase resources required to handle more enquiries, etc. So, focus on the others first. There is no point flooding your business with leads if you haven’t optimized your conversion rate yet. Or if your gross margin is rubbish!

Action Points

  • Pick 1 of the above methods to focus on for this week.
  • Do further research if required.
  • Follow it through to implementation.

Go for it!

 

Small Business Success Kit

Comments

This is such a great post. We all could use this when we run our own businesses.
Posted @ Thursday, August 04, 2011 10:54 PM by How To Increase Profitability
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