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Generally, by default, human beings tend to make situations more complicated than necessary. This tends to occur if the problem being solved is difficult or the objective elusive. When faced with this situation, it is natural to assume the situation requires complicated answers. Increasing business profitability is a good example where people overcomplicate the situation and overlook some simple and straightforward solutions.

Here are 4 basic steps to help improve your company’s profitability.

1. Identify ways to reduce cost and keep doing it routinely.

The simplest way to increase profitability is to reduce costs, but unfortunately many small businesses do not analyse and review their direct and overhead costs. The correct method to investigate your costs properly is to adopt a zero-based mentality, challenge every item of cost on a line-by-line basis, and yes, be fixated about it.

Unfortunately, an accepted, common, and large area of business cost is payroll. The usual defence for this is that everyone appears to be busy. They may be busy, but are they effectively and productively so? There is often a reluctance to confront the issue of poor individual and staff performance. The results of not analysing and correcting this issue is low levels of productivity and unnecessary inflated costs.

Another culprit for high hidden cost is inferior quality. Every time there is a need for rework or replace an item, you drive your profits down. Worst of all, you can damage your reputation and make the next sale more difficult and thereby, by definition, make it more costly. Unfortunately, there is a lot of truth in the adage that you are only as good as your last order – complacency damages businesses.

2. Up sell and cross sell at every opportunity.

A large part of the cost for any company is sales and marketing activity. Finding a new customer and closing the deal involves a lot of effort and costs money. Therefore, if you can persuade the customer to buy more of your product with each transaction, your sales operation becomes more profitable.

A typical example of this is selling broadband packages. Essential – 11mb/s – £22, Superfast – 59mb/s – £25 down from £27 for a limited period. They are selling urgency on a limited basis.

3. Never give anything away …. Ever!

Suggest to many small businesses that they are giving product away and they would be shocked. But most do sometimes without consciously realising it.

Was it necessary to give away a training package that was not included in the sales price? Was it necessary to do a partial shipment because an item was not available and then ship it out at your own cost later? Was a second visit to site to fix a problem that should have been rectified on the first visit necessary? These and many other examples I could mention that are simple ways things are given away which result in unnecessary cost.

Stop being so charitable, and profits will improve.

4. Send the invoice and collect the cash promptly.

By definition, this requires no explanation, it’s simply good business practice. Unfortunately, I am surprised to find that within many businesses where credit control is the priority function, many people do not consider it to be their job.

Remember the saying “Turnover is for vanity, profit is for sanity, cash is the reality.” Collect the cash.

Do you need help increasing business profitability?

So, now I’ve outlined some suggestions to help increase profitability in your company, there are 2 key things to consider. Firstly, it is usually far easier to identify the problem from outside the business, and secondly, fixing the problem will certainly require an alteration of behaviour. I’m sure you’ll agree, these are two sound reasons to engage with a business adviser you can trust. Feel free to contact us via the form below to find out more.