Most businesses are looking for ways to increase their profits. There are two ways to do this, increase revenues or reduce costs.
To increase profits you have to ask yourself the question:
“How can we keep doing what we are doing by reducing cost, growing sales or both?”
1. Increase Efficiency
By improving efficiency, a business can reduce its costs and improve its competitiveness. To increase efficiency businesses need to look at their processes. Are they redundant? Is it hard to find information on what is needed? Are there systems or procedures that are being used that is out of date?
Another area to examine for efficiency is the effective management of working capital. One area to look at is your accounts receivable collection. This measures the average time it takes a business to collect sales made on credit.
Accounts payable settlement is another area to assess. Investigate the average time it takes to settle accounts with creditors and suppliers.
2. Reduce costs
Reducing cost in your business puts you in the driver’s seat. Here are two areas for your consideration;
Suppliers –Look if you are getting the best deal from your suppliers. Are you able to negotiate better terms or do you need to change some of your suppliers?
When I was in business school for my MBA, I took a course about lean management. One of the things I learned was that in order to become profitable, businesses need to remove Muda from their organizations.
Muda is a Japanese word which means waste, or any activity for which the customer is not willing to pay.
One question to ask is, “ If we stopped doing this (fill in the blank) would there be an adverse effect on the product or on our services?
3. Utilize your Business Space/Location efficiently
Are you using your space efficiently?
Have you checked to see if you are getting the most out of your space? Are there more efficient ways to use your location?
I was consulting with a client who had bought a new building for their business. The building was twice the size of their previous space. It was beautiful. This was wonderful for them, but there were meeting rooms that were sitting empty which could be rented out to bring in extra revenue.
Inspect your current location to see if there are ways to operate in it more effectively.
4. Evaluate your products and Services
Evaluating or reviewing your products or offers will help you to see if you can make improvements to increase your profits. Look at the 80/20 rule, also known as the Pareto Principle. Pareto states that for many events, roughly 80% of the effects come from 20% of the causes.
When making decisions about which products to keep and which ones to let go, Ask yourself which products are the most profitable for you? Which ones are bringing in 80% of the sales?
To increase profits you will also have to let go of some of your products or offerings.
5. Examine your Sales Process
In order to increase profits, you will have to have a consistent sales process.
Sales must always be top of mind in every business. Are the sales growing or are they declining?
Are their opportunities to upsell or cross sell?
Are there items that you are not offering that could bring in more revenue?
What future sales volume are anticipated as the company expands its product lines and markets?
Constantly looking at ways to drive sales and increase revenues will help you to build a profitable business.
What’s your opinion on this? Please leave a comment below.]]>