How to Improve the Profitability of Your Business

By Tony Monisse

Profit is generally the consequence of what happens in and to your business.  Some of these things are within your control and some of these things are outside of your control.  If you’re going to have any effect on the profitability of your business, you have to focus on those things over which you have control or influence.

The four basic factors which determine profit are:

1. The price that is charged for the products or services
2. The quantity or volume sold
3. The costs incurred directly in producing or buying the products or services (variable costs)
4. The costs incurred regardless of whether any products or services are sold (fixed costs)

Profitability can be improved by taking action to change any of these four factors.  Here are four strategies business owners can employ to improve profitability:

1. Review pricing

In an inflationary environment, business owners may be wary of simply increasing prices and passing cost increases directly on to customers.  Instead, consider how you might increase the value of what you’re offering at the same time.  This might mean bundling packages of products or offering additional services to provide better value for the increase in price. 

2. Take out waste

Analyse your business to identify where there might be waste, and where improvements can be made to improve the efficiency of how resources are used and how processes are completed.  This might involve any aspect of the business, including which customers or opportunities are pursued, which systems and processes are used and how staff perform certain tasks, or even how the business interacts with other alliances and suppliers for greatest efficiency.  

3. Boost productivity

Particularly in staff-intensive or services-based businesses, finding ways to better engage employees and to set them up for success can make a real impact on the cost to deliver your products or services.  This might be either through better systems and processes, or through better staff retention and engagement strategies (such as greater flexibility, benefits or improved workplace culture). 

4. Negotiate with suppliers

Any reduction in the overall cost of the fixed and variable costs in the business will increase business profit.  Negotiate with all suppliers to ensure you have the most favourable terms possible.  It may not only be the prices you pay, but an increase in how long you have to pay your creditors or a discount for early payment.

Brentnalls WA can facilitate a waste audit to identify the areas of waste in your business to help better control costs and improve efficiency.  Additionally, our growth and profit solutions business diagnostic can provide insight into which strategies to focus on for improved growth and profit for your business.

If you would like to discuss the above and how you might improve profit and cashflow in your business, please do not hesitate to contact us.