Gaining larger profits depends on accomplishing all the little things better – rather than making one huge change. You’ll need to focus on every little detail to reduce your expenses and increase your sales turnover over the coming 90 days.
Decreasing your costs
For most small businesses, the easiest way to increase profitability is to reduce costs. Reducing direct costs can dramatically increase your profit on each sale while eliminating unnecessary business overheads.
Challenging your direct costs
Identify the steps you can take to minimize your direct costs, such as:
Negotiating lower prices with your suppliers.
Reviewing processes and systems to minimize waste.
Implementing additional security to reduce the chance of theft.
For example, you may have had one food supplier for your restaurant over the last five years. It might be time to challenge your supplier on their wholesale prices while introducing yourself to others in the market that might do a better deal.
Some of your business costs could be put out to tender, such as insurance, power, and the Internet.
The value of effective systems
Useful systems help you minimize errors – and save time and money. The time invested in creating systems is usually minimal compared to solving a problem from scratch.
Where appropriate, turn decisions into policies to avoid having to make the same decision again – or sort out the same issues repetitively.
Learn from mistakes and problem areas, and if systems go wrong, fix them. It’s a wise idea to review your systems periodically to see where improvements can be made. For example, if your software firm decides to place all its information on a central server, to ensure staff can access it any time, hours of productivity can be saved each week.
Stay focused on profitability
Focusing staff awareness on profitability can have a dramatic impact. Even if cash flow is your top priority, it shouldn’t be at the expense of profitability. Monitor your actual costs against your budgets and your sales against your forecasts.
Measure staff performance
Monitor and measure staff performance and productivity. Be sure to reward productive staff members by linking rates of pay to effectiveness.
It’s important to praise and thank the staff when it’s been earned. Aim to provide a clear career path so your staff can grow, and they don’t see their prospects as limited.
Aspire to get constant improvement
A simple planning cycle greatly enhances your ability to make continuous improvements. Thorough planning also helps you anticipate problems and adapt as your circumstances change. Aim to:
Set measurable, time-limited targets – to monitor how effectively your plans are implemented.
Review what you’ve achieved – so you can learn from your experiences and make continuous improvements.
Keep improving your underlying systems and your planning process – but be ready to alter your strategy if necessary.
Increasing your turnover
To improve your turnover, look for new markets and distribution channels.
For instance, are you really making the best use of the Internet? Can you form a strategic alliance with a complementary business or a joint venture to tackle work you don’t have the resources for on your own? Some ideas to help you increase turnover include:
Actively selling – simply taking orders won’t ensure your survival as a business. Aim to gain more sales by being proactive.
Retaining existing customers – through outstanding service and placing value on lifetime patronage.
Maximizing the value of your sales – consider moving upmarket and providing a premium product or service. Add features to your offerings if the perceived value to customers is greater than the cost to you.
Keep your products or services up-to-date – extend your product range or work to ensure it stays ahead of your competition.
Focus your efforts on your most profitable customers – look after your customers who place large or frequent orders, pay their bills on time, and are low maintenance.
Review your profit margins
To improve overall profitability, review your sales and profit margins periodically. Divide your services or products into four categories, namely:
High percentage of sales and high-profit margins – nurture these stars.
High percentage of sales but low-profit margins – consider a price increase and examine how you can cut costs to increase your profit margins.
Low percentage of sales but high-profit margins – consider a sales push.
Low percentage of sales and low-profit margins – eliminate these where possible.
Consider any possible effects before making decisions. For example, a low-profit product might be the one that brings other business from a major, highly profitable customer.