7 Strategies to Boost Your Profits
7 ways to increase your profits
Are you aware of potential profit leaks within your company? Research conducted among over 500 SMEs reveals that 9 out of 10 businesses are losing money unnecessarily. To help you optimise your profits, we’ll explore examples of profit leakage across seven key areas that you can implement to enhance your financial performance.
1: Price and margin policy
Understanding the true cost of your products and services is crucial. Many business owners are familiar with the selling price but often underestimate the actual cost, including the cost per employee hour. For instance, a technical consulting firm initially charged £40 per hour but recalculating costs revealed it should be £55. Adjusting prices to reflect these costs from £50 to £75 to £90 per hour was absorbed easily!
Calculating true cost involves considering salaries, direct costs, and overheads (like premises and administrative staff), which can amount to 30-50% of total costs. Accurate pricing not only boosts profitability but also builds confidence in setting realistic prices.
2: Accounts receivable policy
If your business deals with extended payment terms, especially in sectors like public services, delayed payments can strain cash flow. To mitigate risks, consider invoicing in instalments—30% upfront, 30% on concept approval, and 40% on completion—to shorten receivable cycles and strengthen client relationships.
3: Staffing
In times of labour shortages, hiring quickly without considering alternatives can impact profitability. Pairing temporary, less experienced workers with seasoned staff can boost capacity and workflow efficiency, leading to happier clients, quicker invoicing, and improved profitability. Structural reliance on temporary hires, however, can subtly erode profits through repeated recruitment and inconsistent client interactions.
4: Cost management
While cost control measures during lean times reduce losses, inefficiencies can arise, such as valuable staff spending time on non-billable tasks like dishwashing. Investing in technology to refocus high-cost employees on billable activities may increase short-term costs but boosts efficiency, turnover, and profits in the long run.
5: Productivity
Efficiently managing billable hours and workflows is critical. For example, an ICT company found that refining reporting practices increased billable hours from 45% to 85%, significantly boosting profits. Clear guidelines and regular monitoring can uncover hidden productivity gains.
6: Inventory management
Poor stock management can account for significant profit losses (7-8%). Focus on high-margin, fast-moving products and liquidate slow-moving items to optimise warehouse space and capital. Utilising overnight and on-site delivery services, which are increasingly cost-effective, can further streamline operations.
7: Marketing & Sales
Effective customer targeting enhances profitability. Identifying and prioritising high-value clients can align business goals with customer satisfaction and profitability. This strategy not only refines marketing efforts but also strengthens client relationships, fostering long-term growth.
Understanding your company’s profit potential is crucial. Take our Profit Leakage Quiz for a preliminary assessment, or download the free Profit Leakage Survey for deeper insights.
Interested in exploring these strategies further?
Contact one of our business mentors in your area directly or use our contact form to schedule an introductory meeting.