4 Simple Strategies to Improve Your Profit
To improve your cashflow, you need to take a look at your business and make sure you’re earning a decent profit.
If you are not making a consistent profit, then better cashflow management (while helpful) is no better than a Band-Aid on a fatal wound.
If you are making a profit, could you be making more? Does every single product or service pull its weight and contribute to your profitability? Does your pricing cover all of your costs?
A surprisingly large number of small business owners can’t answer these basic questions. But, addressing them is a critical step in improving your profit.
Careful analysis is vital
A thorough review of your business is necessary to find the right solutions. Struggling businesses often suffer from more than one problem. This can make it difficult to identify and fix all the problems.
4 simple strategies to improve your profit
Below are four simple profit strategies to focus on to improve the profit in your business.
Is your revenue enough to cover all your expenses and produce your desired profit? If not, why not? A possible reason is you have a new product line or are in the start-up phase of your business. It’s important to be realistic about how long it will take your revenue to catch up to your costs. You may need money from savings, financing or an investment to tide you over. An established business may also run at a loss because of declining revenues. It’s important to determine the specific reasons and address them.
Does your pricing cover your costs? Unfortunately, many small business owners don’t know for sure. It’s common for small businesses to price their products and services based on what the competition is charging. But that can be a big mistake. It’s important to know all your costs and your target profit margin. You need to take these into account when you set your prices. It’s not bad for your prices to be higher than those of your competitors. In fact, this is entirely appropriate, if your pricing is based on value or you offer a unique or specialised product. Estimating software can be used for quotes and job bids. The software takes into account your overhead costs, the price of material and other expenses as well as your targeted profit margin. This ensures that every job is priced for maximum profit.
Are you as efficient as you can be? This is imperative if you are using a low-price strategy to gain competitive advantage. Benchmarking your costs against your industry is important. Look at areas such as labour, materials and overheads. If your costs are above the industry average, you are not as efficient as your competitors and action is required. To improve efficiency, it’s also worth exploring tech tools. They can offer affordable and straightforward ways to improve productivity across your business. Areas to look at include inventory, operations, accounting, human resources and customer service.
Do you know the profit margin for each of your products and services? Analysing each one individually can reveal some problems that you hadn’t picked up yet. Loss-making products will drag down your profit and impact your cashflow. Ensure you are chasing profitable sales instead of just chasing more sales. Dropping loss-making products will speed up your inventory turnover, free up cashflow and floor space. This will enable you to generate more returns from your profitable products.
To improve your cashflow, take a look at your business and make sure you’re earning a decent profit. A thorough review of your business will find the right solution.
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Do you want to learn how to read you business numbers and get you “financial” act together? Our Top 5 Tips guide will also show you the 5 essential reports every business owner needs to find the hidden profits in your business.
Amanda Dyason, Founder of ProfitSmarts
We help Australian business owners increase profits, accelerate cash flow and master their financial management. We believe life is too short and precious to be stuck in an under performing business delivering mediocre results.
ProfitSmarts gives you more Profits and consistent Cash flow, putting you back in Control. Because when you get business right, the results are simply amazing.