March 24, 2022 | CFO Posts
How to Increase Profit
Some business owners think that to increase profits, all you have to do is increase sales. This is not the case. Increased sales come with increased costs in terms of not only production, but in the cost of acquiring those new sales and the increased costs of customer support. Increased profits, in fact, are what happens when you do everything else right. So, what should you focus on to make profits go up?
You may think you have your prices right, but do you? Are your prices as high as the market will bear? Are they too high? Prices are something you need to constantly monitor to make sure that you are competitive. This requires researching the competition and comparing not only price but quality. If what you offer is superior in quality, a higher price may be justified. On the other hand, if all things are equal, your prices need to be competitive.
You also need to examine your profit margin. Is your margin as high as you need it to be? Determine your target profit margin and what your price needs to be to hit that profit margin based on your costs of goods sold. Is that price realistic based on the market?
Finally, are there services you can offer to increase your revenue per sale while not increasing costs? It could be a customer service package, or a warranty of some kind. If you can offer your product or service within a package offering, you may increase your profit per sale.
Reducing costs can drastically improve your bottom line. You need to examine all of your operations to see where you can increase efficiencies and reduce costs. This may involve making investments in technologies that will reduce costs and increase profits in the long run. Such investments can offer a huge return.
Also, look at your marketing strategies. Digital marketing is generally significantly less expensive than traditional marketing. Also, you need to look at your metrics to determine what marketing strategies are giving you the highest return and which are not producing. You can invest more in what’s effective and reduce or eliminate what’s not working.
You can also do simple things like going paperless. This can save a lot more money than you might think. You can determine if some of your functions can be outsources to reduce your human costs as well.
Finally, are you getting the best rates on things like insurance? Shop around and see where you might be able to save.
Cost reduction methods require a time investment and sometimes a financial investment, but in the long run you’ll see significant benefits.
Improve Payment Collection
Revenue that’s not cash in your pocket does not work for you. Cash in hand can help you to grow your business. First, look at your payment terms to determine if you can restructure them to make them more favorable to your business. The faster you have cash, the faster you can increase marketing or invest in cost reduction strategies.
Also, look at your accounts receivable. Do you have clients that regularly pay late? Collection efforts cost time and money, and delay cash in your pocket. If you have habitually late paying clients, you need to determine if they are worth keeping as clients. They may be costing you more money than what you’re getting from them. Your other option is to increase penalties for late payments to offset the cost of collections.
First of all, do you know which KPIs are most important to your bottom line? These are different for every business, but it’s one of the most important things that you, as the business owner, should know.
One of those may be your product mix. Do you know which products contribute the most profit to your business? These are the products you should be focusing your effort on. Low profit products may or may not be worth continuing.
Another one to know is your customer lifetime value. If you understand this metric, you can look for ways to improve it. This can help your bottom line in both the short and long run.
Marketing metrics are critical – you need to know what’s working, how much it’s working, and the ROI on all of your strategies. Measure, learn, and then determine where you should be investing your marketing dollars to maximize your profits.
C-Suite IMPACT CFOs Can Help You Increase Your Profits
At C-Suite IMPACT, our CFOs have a broad range of knowledge, skills, and experience and can help you examine ways to improve your bottom line. We have a suite of resources in our portfolio that you can access as well for all of your business needs. The C-Suite IMPACT Team will provide ongoing guidance and support for the health and growth of your business. Call us today to learn more.