Increasing business profitability with 4 simple steps

Selling your business

As a general rule, I find that people have a tendency to make things more complicated than necessary. This is especially true if the problem they are trying to solve seems to be difficult, or the objective they want to achieve is elusive. Under these circumstances I think we all quite naturally look for complicated answers. Increasing business profitability is a good example of an issue where it is easy to overlook the straightforward and simple answers.

I will go into each in a bit more detail below but my four “no-brainer” tips to increase business profit are:

  1. Never give anything away . . . ever!
  2. Look for ways to reduce costs – and do this routinely!
  3. Upsell or cross-sell at every opportunity!
  4. Send the invoice and collect the cash promptly!

1. No Freebies

Most small businesses would be horrified by the suggestion that they give stuff away – but most do. The discount that wasn’t really necessary, the training course that should really have been paid for, the accessory that should have been sent with the original order but had to be shipped separately, the second visit to the customer when the problem should have been fixed on the first occasion. Every single example quoted above – and dozens more besides – are just different ways of giving stuff away. Stop being so charitable and the profits will improve.

2. Reduce Costs

Reducing costs is absolutely the easiest way to improve profitability.  And yet, most small businesses seldom analyse their direct costs or review their overhead spend. The only way to do this properly is to adopt a “zero-base” mentality and challenge each and every item of cost on a line-by-line basis.

Surprisingly, one of biggest and most common areas where small businesses sustain and tolerate inflated costs is in their payroll or wages bill. This might sound crazy when everyone appears to be “so busy”.  Busy they may be, but are they doing productive work, in an efficient manner? In small businesses there is often a reluctance to address the issue of poor individual performance or staff discipline. The result is low levels of productivity or, in other words, higher costs than necessary.

The other big, and usually hidden culprit, in most small businesses is poor quality. Every time you get stuff wrong – and have to do it again – you drive down profit (and you damage your reputation which makes the next sale harder . . . and therefore more costly. A double whammy!).

3. Upsell and cross sell

A lot of the cost in any typical business is down to all the marketing and selling activity. The simple version of the story is that finding a new customer costs a lot of money and usually so does the effort involved to close each deal.  If you can persuade the customer to buy more of the things they need with each transaction your sales operation becomes more profitable. The classic example that is always given is the tin of shoe polish you are offered each time you buy a new pair of shoes.

4. Send the invoice and collect the cash

The last point requires no explanation – just sound business practice. Even so, it is surprising how often credit control is most commonly the function that nobody considers to be their job.

Do you need help increasing business profitability?

These ideas for increasing business profitability have two important things in common. Firstly, it is usually far easier to identify the problem from outside and secondly fixing the problem will usually require a change of behaviour. Two very good reasons to work with a mentor you can trust.

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About Bob Brown

Helping business owner to grow and transform their businesses in preparation for a successful exit, transfer control to a new management team or the next generation. Work with owner/managers over time to develop and execute their exit strategies.

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