Increasing your profits might sound like a dream just out of your reach. But there are several approaches you can take to maximize your company’s profits. Once you understand what they are, you’ll have clarity on how to best reach your goals.
There are two primary ways to increase profits:
That’s not particularly enlightening or instructional, is it? Let’s look at the four ways you can increase revenues and the four ways you can reduce expenses to identify specific actions you can take.
Four Ways to Increase Revenue
The easiest way to raise revenue is to simply raise prices. However, this is not foolproof and assumes you’ll be able to maintain the volume of sales you’ve achieved in the past. This method is also limited by market demand; what your customers are willing to pay. Success with this strategy will come from your ability to sell the value of your service or product.
Add new customers
Adding new customers is what most entrepreneurs think about when increasing revenue. Increasing your marketing or adding new marketing methods is typically the way to add new customers. Another related option is to work hard to keep the customers you already have. You can also potentially contact the customers you lost and ask them to come back.
Introduce new products or services
For some companies, your products and services are changing every year. For others, status quo is more the norm. To increase revenue, consider adding new products or services that will bring in an additional revenue stream that you didn’t have before.
Even if your products are changing every year, you can consider adding something completely different that your customer base would love. For example, a hair salon could add a nail desk, a clothing store could add handbags or shoes, a grocery store could add a coffee bar, a restaurant could add catering, a landscaper could add hardscaping, and so on.
The final way a business can increase revenue is to acquire another business in a merger or other acquisition. Many times this type of transaction enhances profit through increased sales as well as reduced expenses due to combining the administrative and overhead burden of two similar businesses.
Four Ways to Reduce Expenses
Negotiate for a better deal with vendors
If you’ve been working with a vendor for a while, you may be able to re-negotiate your contract with them. This is especially common with telecom companies. Call your phone provider and ask them for the latest deal. They always favor new customers over long-term customers, but they don’t want to lose customers either. Just calling them usually yields a better price than what you are paying now.
If a vendor has gotten too expensive, it might be time to look for a new vendor. Health care insurance seems to be in this category. Often, changing providers will lower your costs.
If there is not enough work to support your employees or not enough cash flow to pay them, then it might be time for a layoff or restructuring. You might also consider outsourcing a function that you previously did in-house.
Cut the expense or reduce services
After careful consideration, your business may no longer need to spend money on an expense, or perhaps this function can be automated to increase efficiency. In either case, it’s an easy way to cut an expense or reduce its cost to your business.
We’ve provided eight ways to increase your bottom line. Which one makes the most sense in your business? Create a plan around these eight ideas to boost your profit in 2017, and let us know how we can help.
About the Author - ECS Financial Services Manager, Karen Tworek, is a Certified Public Accountant (CPA). She joined ECS Financial Services in 2014 through a company merger. She graduated from Roosevelt University with a bachelor’s degree in Accounting. Her areas of expertise include financial statement compilations, reviews and audits, ERISA audits, and business and personal tax preparation. She has two daughters, two dogs and one horse, which keep her busy. In her spare time, she enjoys attending all kinds of music concerts and spending time at her cottage in Wisconsin.