Being profitable is what your business is all about, right? However, increasing your company’s profitability is easier said than done.
About 90% of all startups fail within the first five years of their operation, largely because they’re not profitable. However, if you have a good idea and you’re willing to work hard, it is possible that you can make your business a success.
Here are six things you can do to increase your profits.
#1 Understand Your Profit Margin
Understanding your profit margin means that you know precisely how much time and money you’re spending on a particular product. Therefore, you know whether you’re making a profit on that product. Once you understand the profit margin you can make adjustments to allow for more profitability.
To better understand your profit margin, answer the following questions:
- Has your production cost increased?
- Would people be willing to pay more for your product?
- Are your competitors selling at a higher rate?
Answering these questions will help you to know if it might be possible for you to make some changes. For example, increasing the price might be profitable even if a price increase results in fewer sales.
Consider this example:
You sell pens for $5 each and make $1 on each sale. You are able to sell 1,000 units in a single month. Therefore, your profit is $1,000 that month.
The following month, you decide to push the price up to $6 for each pen. Now your profit on each unit is $2. However, sales fall to 700 units during that month. Still, your profit is $1,400. This makes your pens more profitable, despite the fact that you had fewer paying customers.
Nonetheless, you’ll need to make such decisions carefully. It’s quite possible, for instance, that you could lose a large number of customers and end up with a loss.
#2 Cater to Your More Profitable Clients
Especially in the service industry, some clients are more profitable than others.
Let’s assume you run a day spa. Everyone who comes to your spa for a massage pays the same amount of money for your services. However, some of your clients come in more regularly.
Such loyal clients deserve your special attention. After all, they contribute a large portion to your spa’s profitability. Therefore, cater to them by offering loyalty programs and other such benefits.
#3 Focus on Your More Profitable Products
Focus your efforts and energy on pushing your best-selling products or services to your clients. For example, consider how Microsoft promotes their products. They offer thousands of products. However, they seldom promote anything as much as they promote their operating system. So be like Microsoft: Sell more of what brings you more money.
#4 Apply for a Loan
Taking out a loan at the opportune time can turn out to be the best thing you ever did. This is especially true if you are having difficulties in managing cash flow.
Use loan money to invest in new infrastructure. Alternatively, use money from a loan to market your products better or hire new employees. Perhaps you could even take on that big project you’ve been meaning to tackle. Any one of these actions could improve your bottom line.
However, be careful about applying for a loan. Ideally, look for loans that are easy to obtain and require no collateral. Moreover, only accept a loan if you are sure you’ll be able to pay it back. Otherwise, you could jeopardize your company’s future.
#5 Consider Automating Your Processes
About 49% of companies currently use automation for generating leads. About 80% of those which do see an increase in successful leads. Most of them will tell you that automation reduces their costs. Therefore, it makes their businesses more profitable.
Use automation to optimize the shopping cart on your website. Also, use accounting software to automate accounting tasks such as invoicing. Automating your processes will require a large investment. However, it’s an investment that will pay off in the long run.
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#6 Improve Your Marketing Skills
No one will buy your products if they are not aware of them. Therefore, learn all you can about marketing, and consider it one of the most important aspects of running your business. Marketing is the only way to increase your customer base, after all. Get creative, learn from the masters, and consider using various marketing channels to improve your company’s sales—and its profitability.