Ultimately, raising net profits should be a core goal for any small business – bigger profits signify a fundamentally sound, growing company that is likely to keep various stakeholders content while providing a small business with additional organic growth potential. Who needs the banks when your business can grow by recycling its own cash reserves.
Here are some simple yet effective ways of increasing your net profits:
- Increase prices, or sell higher margin products/services. A lot of entrepreneurs and small business owners are terrified of losing customers, and so are wary of raising their prices. This is totally understandable, however small and regular price increases (for example 5% a year) will help to raise your net profits while keeping up with inflation. Still frightened that your customers will rush off to the competition? If your business model allows it, consider raising prices for new customers only. This can kill two birds with one stone by establishing brand loyalty too – by letting your older clients know that your prices have gone up but they’ve been kept on the lower tariff. Additionally, you can focus on selling products which offer higher margins too.
- Reduce expenses. Carry out a detailed audit of your costs. If there’s no manoeuvrability to raise price, one way of adding to net profits is to see where costs can be cut. Most businesses can save on a number of fixed and variable costs by doing some hard negotiation with existing suppliers – or moving to suppliers who can offer a better deal. Continually reviewing your relationship with your suppliers is always recommended as part of a well oiled operations system.
- Improve efficiencies and embrace daring new business concepts such as lean startup. Most small businesses have ongoing bottlenecks which are allowed to enjoy the status quo. Is there anything stopping your business from achieving more productivity and sales? Are there staff members who just aren’t pulling their weight? Can you employ more technology within your business to reduce costs while raising productivity? There are many ways of implementing more efficiencies – here’s a good article on lean startup, which explains how companies can launch and grow effectively and efficiently. One things for sure, it’ll be good news for your net profits.
- Improve your sales funnel. By improving the number of sales and average sale value of the leads within your sales funnel you’re automatically bolstering your net profits. This requires a solid understanding of which marketing tactics you can implement to sell more of your product. For example, a common internet based tactic is to hit customers with a very special “One Time Offer” – after buying the initial product, the customer is given the chance to buy a more valuable, bigger ticket product at a substantial, one time discount. If you’re employing a retail POS (point of sale) system, you can look to increase your average sale value by training your sales cashier to recommend additional items that are a good fit with their existing purchase. McDonalds do it all the time with their “would you like fries with that” pitch, and they’re not short of a bob or two!
- Optimize and measure your advertising. Another good way of improving your net profit is by increasing your advertising effectiveness, once your funnel is performing well. Better and more targeted advertising should deliver more leads and more sales for the same ad spend.