Most entrepreneurs imagine that sales serve as an indication of a successful business, but that is a misconception. Profitability is what defines how well your organization is doing. Of course, you need to increase sales to realize profits at the end of a day. However, the cost of increasing sales can result in losses or even a profit decline if you are not careful.
Fortunately, increasing the profits of your firm does not always require such drastic measures like reducing staff or increases prices of products or services. Sometimes, making small changes in a few areas can help a business realize big gains.
The first step in maximizing margins is to take profitability into account in every area of your organization. Below are three high-impact tips from the financial experts at Focused Energy that can help you increase the profitability of your business.
Do you understand your profitability?
Before maximizing your profitability, you must first understand where your money is coming from and if it's on pace with industry standards and benchmarks. Analyzing your profits, revenue and other key data can set your financial teams on the path toward understanding where you are, where you need to go and where to focus efforts. We can help. Let our on-demand accounting and CFO team tackle your financial data.
Improve operational efficiency
Times are changing, and most likely the conventional way of running your business operations may not cut it in the current environment. As a company grows, changes and evolves, their operations should too.
At its core, deploying efficient operations means smart resource allocation, higher billable rates, a healthy culture and a myriad of other factors that all affects a business' bottom line. Improving operations is not a one-and-done initiative, and what that means for your specific business can be something else entirely for another.
For example, too much administrative hassle often kills productivity and creates "busy work." Instead, an organization may try cutting back on administrative duties such weekly staff meetings to allow their team more time to focus on other income-generating activities. Or, move to cloud-based document sharing system or CRM to help automate and disseminate information to employees, client or referrals while also creating a central reporting and analytic structure.
These are just two examples of how more efficient operations can fuel healthier workplaces and improve profits.
Related reading: connecting the dots between financial and operational success
Prioritize employee retention
Hiring and training new workers is both costly and time-consuming. Retaining your existing employees, in this case, is advisable because it can help you avoid such expenses. Over time, you will have a pool of knowledgeable and engaged workers within your organization, which will ultimately increase your bottom line.
Keeping your employees happy is also critical if you want to avoid high turnover rates. Handing out large pay raises is not necessarily the solution here. Indeed, a competitive pay for all your workers is worth considering. Still, such things like bonuses, investing in an office coffee machine, and offering flexible working hours, can go a long way towards winning the hearts of your employees.
The value you attach to each of your workers and rewarding them for their contribution encourages them to stick around longer, and that will bear a positive impact on your business profits.
Consider adding new products or services
New revenue streams are a sure way of increasing your company's profitability. For example, if your clients need and purchase products or services that relate to what you are offering presently, that is an opportunity you can explore by making such items available for your customers to buy. So, pay attention to what your customers ask for and then conduct market research to determine if the need is widespread.
Research is critical if you do not want to stock particular items only to discover later on that a few people want to buy them. If you realize that you will profit by adding the products or services your clients are demanding, you can make them available, and that will become an additional revenue source that increases profits.
If new products or service are not in the cards, take a look at your current offerings. Different service offerings, SKUs or products have different cost-profit potential. Understanding which offer the best margins, and pushing those out can help maximize profitability.
Building a profitable business: a final thought
A healthier and more profitable business is less about cost-cutting or headcount, and more about the optimal and smart allocation of resources. Attracting new customers, optimizing operations, focusing on new sales, and venturing into new markets are all options that can help you increase your company's profits, but they are not the only ones.
A profitable business is a synergy of operational and financial processes, and can be continually optimized and improved on. An internal assessment of your business efforts or a more fundamental change program can allow you to make significant improvements to realize improved profits.
Focused Energy's financial and accounting experts can help you see the forest for the trees. We connect the dots between financial and operational performance, and determining the best path to achieve your goal as well as what actions could potentially increase business profitability.
Learn more about how we can help by contacting us today!