How can I increase company profits?

6 ways to maximise company profit margins
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    Do you ever feel that your profits just don’t match the effort you put into your business? Low profits can stifle a small business, hindering its ability to grow, invest, or even stay afloat. If that sounds familiar, you are most definitely not alone. Increasing company profits and keeping your bottom line healthy is a challenge that most businesses face, regardless of their size or industry. But just how do you increase profits?

    There are many strategies to increase company profits, including:

    1. Putting prices up (without losing customers)
    2. Identifying profitable customers and finding more like them
    3. Reducing costs
    4. Up-selling, cross-selling and diversifying
    5. Setting and monitoring KPIs to increase productivity
    6. Competitor analysis

    In this article, we’ll give you six actionable strategies to help generate more revenue and deliver the profit margin you dream of.

    For personalised advice on managing your business accounts and increasing business profitability, contact the experts at Jameco Group.

    When is the best time to review your gross profit margin?

    Regularly reviewing your business profitability is key to staying on top of your finances. Schedule in-depth, quarterly reviews and conduct a comprehensive checkup at year-end to track progress and plan for the future.

    During major changes and economic shifts, you may decide monthly check-ins could be necessary to assess your bottom line and ensure your business stays profitable. By being proactive, you can adapt your strategies and keep your business thriving.

    6 ways to maximise company profit margins

    1. Increase pricing

    The simplest way to boost profits fast is to increase your prices, but this obviously comes with risks. Hiking prices up too much might result in falling sales, which could adversely affect your profit. And, of course, there is the danger that your customers will go elsewhere if you don’t remain competitive.

    Business owners naturally feel nervous about changing their pricing strategy, as they want to keep clients happy. However, in periods of high inflation, your competitors are likely to increase their prices to protect their profit margin from increased overheads, raw materials and labour costs. So when costs are soaring, it’s important to take quick action to avoid eroding your profits.

    2. Identify your best customers – niche down

    Customer mix significantly impacts profitability. Some of your customers are probably more lucrative than others. The Pareto principle, often known as the 80/20 rule, can help you identify your ‘ideal’, i.e. most profitable, customer.

    This principle attempts to identify the factors that drive the majority of the results in any given situation. In this context, that means 80% of your profit is likely to come from 20% of your customer base. By understanding your customer mix, you can focus on attracting more of the 20% to boost your bottom line.

    • Analyse customer sales data. By examining buying patterns and profit margins, determine which customers generate the most profit.
    • Improve customer retention. Attempt to keep your most profitable customers engaged with exclusive discounts and loyalty programs.
    • Targeted marketing: Tailor your marketing strategies towards attracting more of your ‘ideal’ customers.

    3. Lower your costs

    Cutting costs successfully can give your profits a big boost. Small savings might seem insignificant in isolation, but by adopting a regular approach to cost control, they will soon add up.

    First, find out where your money is going. Identify key areas of expenditure and rising costs, and then take action.

    • Negotiate with suppliers. Don’t always settle for the first price offered. Use your status as a valued customer to your advantage and negotiate.
    • Consolidate suppliers. Having too many suppliers can be inefficient and dilute your buying power. Look to consolidate your purchasing and enhance your negotiating position. But – be careful not to put all your eggs in one basket; relying too heavily on one or two suppliers can leave you vulnerable if there are supply chain issues.
    • Reduce energy costs: You don’t need us to tell you how much energy costs have soared in the past few years. Take small measures, like turning off equipment and lighting when not in use. Shop around for the best deals from energy suppliers. If you own your premises, consider investing in energy-efficient equipment like heat pumps and solar panels for substantial long-term savings.
    • Cancel unused services/subscriptions: Audit the services you’re paying for and cancel any you no longer use or don’t serve you, such as outdated software.
    • Slash business waste: Examine your business processes to identify and eliminate waste. This includes everything from using less paper to streamlining production processes. Every small saving contributes to your overall profitability.

    4. Upselling, cross-selling & diversifying

    Ramping up sales to your most profitable customers is one way to boost business profitability.

    First, consider up-selling. Encourage your best customers (see point 2) to purchase premium products or services that carry higher profit margins. You may need to increase your marketing efforts to promote the added value and benefits, but the subsequent increase in the average transaction price could be well worth it. Offering bundles or value-added packages can also make your premium products/services more attractive and increase profit margins.

    Another effective strategy to consider is cross-selling. This involves analysing your purchasing habits to identify complementary products/services customers might be crying out for. For example, if a customer buys a computer, offer them accessories like a mouse, keyboard, or software. It has the potential to increase revenue and can also improve customer satisfaction and loyalty.

    Another thing to consider is diversifying to broaden your product or service range and introduce new revenue streams. Do some market research (perhaps surveys, competitor research or focus groups) to identify your audience’s unmet needs and develop new products or services to address them.

    5. Set KPIs and boost productivity

    Establishing Key Performance Indicators (KPIs) is essential for increasing productivity. Your KPIs serve as a dashboard for your business, applying metrics to the things that matter most, such as sales volume, customer retention, or cost control. They show you how close you are to your goals and where you might need to make changes.

    Here’s how to set and use KPIs to boost your business profits:

    • Identify business critical areas: Determine the key areas of your business that directly impact profitability, such as sales volume, website traffic, and operating costs.
    • Set clear, achievable goals: Define specific, measurable, attainable, relevant, and time-bound (SMART) goals for each KPI. For example, you might set a goal to increase your gross profit margin by 5% within the next quarter.
    • Financial goals: Track financial KPIs such as profit margins, revenue growth, and cost of sales, and identify areas for improvement.
    • Customer goals: It’s important to measure things like customer retention rates, satisfaction scores, acquisition costs, and lifetime value. This can highlight any source of customer dissatisfaction that needs to be addressed and the profitability of your customer mix to help guide your marketing strategy.
    • Operational goals: Include KPIs to measure production costs and business waste. Identifying inefficiencies in these areas can help you save money and increase productivity.
    • Regularly review and adjust: KPIs are worthless if you set and forget them. Make time to review them regularly and ensure they remain relevant to your business objectives – if not, adapt or change them.
    • Implement monitoring systems: Use software to track your KPIs in real-time. This will help you make quick, informed decisions and stay on top of business performance.

    6. Competitor analysis

    Understanding what your competitors are up to is crucial to increasing business profitability.

    • Observe how competitors use marketing to attract new customers and enter new markets. What tactics seem to be resonating with their audience? What marketing and sales channels do they use?
    • Benchmark your prices against similar businesses to reveal ‘sweet spots’. Are they profiting from products and services you don’t offer? Can you undercut them on similar products or services?
    • Keep on top of industry trends. Monitor what your competitors are working on and any new products/services they bring to market. Adapt your offering accordingly and try to stay ahead of the curve.

    Grow business profitability with Jameco Group

    There’s no doubt about it; maximising profit margins can be challenging, especially in a competitive market and punishing economy. Sometimes, it’s a case of trying different strategies until one hits home. But, to be in a good position to experiment with pricing and upselling etc, you need to ensure your accounts are in the best shape possible. It’s all about the finer financial details, which Jameco Group is all about.

    Our accounting services for small to medium-sized businesses are designed to help you achieve and maintain healthy profit margins, reduce costs, and manage cash flow. From bookkeeping to payroll, to cash flow forecasting, we can help you become more efficient, increase your revenue, and take home more of your hard-earned profit!

    Contact us today for a friendly, no-obligation consultation.

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    James Wheeler, founder and managing directors of Jameco Group
    James Wheeler

    James has over 10 years of experience in accountancy and taxation. He has a real passion for business and truly believes SMEs are the heart of the UK economy. In 2017, he founded Jameco Group to provide first-class accountancy, taxation, and business advisory services to individuals and SMEs across the UK.

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