Every business wants to increase profitability, and profits this year are more important than ever as we continue to recover from the pandemic. Here we will describe the three areas where profits can be increased, as well as offer extra guidance on how to maximise revenue and decrease costs.
The three main ways to increase profits include:
How to increase sales
The most obvious way to increase profits is to increase sales, but it is easier said than done. You can reduce prices to increase sales, but this can actually result in a decreased profit margin. One thing you can do is identify slow-moving products and reduce those prices, bringing in a quick boost to short-term profits and helping to clear slow-moving stock. You should have something ready to replace it, however, to maintain the profit boost once the slow-moving stock has been cleared.
Marketing campaigns can also increase sales without the need to cut prices. It is a good idea to diversify your marketing, including more and more methods as possible. Social media is a huge platform for increasing sales, so research which avenues are best suited to your business and its customer base.
How to increase margins
Profitability can be increased dramatically without changing your prices or introducing new products. Of course, raising prices or launching new products are certainly ways toincrease your margins, but there are several other ways, too. Conduct a thorough examination of your margins to identify any area that can be improved.
Identifying the most and least profitable products or services you offer is the first step. Then, you should explore how you can repeat the most profitable and adjust the least profitable. For example, if you have a slow-moving generic product that is struggling in a highly competitive market, it might be better to produce a niche product instead.
You can also identify your most and least profitable clients. The same goes for any particular sectors you operate in. The least profitable should have less time and energy spent on them, with it spent instead on more profitable clients and sectors.
You should also examine your production process from top to bottom to ensure it is as efficient as possible.
How to reduce costs
Reducing your overheads will also see youincrease profitability. Start by reviewing all of your outgoings, such as staff wages, utilities, insurance and transport costs, as well as production and procurement. Also shop around for new suppliers offering better deals.
Another area worth investigating are the premises where you operate. If you are in an expensive location that doesn’t necessarily benefit the business in any meaningful way, there may be a cheaper location that serves just as well.
The work-from-home culture that blossomed during the pandemic also offers opportunities to reduce location-based costs. Figure out how many of your employees absolutely need to be on-site and how many can work from home. Then see how this affects the space you need to conduct business.
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If you’re interested in finding out more about making an increase in operating profit margin, or any other aspect of your business finances, get in touch with our financial experts at GoCardless. Find out how GoCardless can help you with ad hoc payments or recurring payments.