How Business Can Increase Your Profit!
Although running a business can be challenging at times, it’s possible to increase your business profits with just a few changes in your practices. Business owners who learn to experiment with different strategies to boost revenues become more profitable. We spoke with the experts who shared their tips on how to increase profits.
Here are the top 5 strategies to help business owners increase their profits:
1. You Have to Spend Money to Make Money
You can use a loan to grow your business. While this sounds counterintuitive, in many cases the right type of business loan used for the right reasons can actually put you ahead of the game. For example, even a small loan put towards the right purchases can give you a high return on investment. It’s all about having the ability to take advantage of the business opportunities as they arise, and a business loan can be a perfect resource to help you capitalize on them. However, be careful not to take on too much debt too quickly. Any loan you’re considering for your business needs to be part of your overall business strategy. If your goal is to increase profits, make sure you work with a trusted financial institution that can help you calculate the estimated return on investment of your business loan.
2. Set Gross Margin Percent Goals to Increase Profits
Start with actual results and then implement gross margin percentage targets by product. The gross margins percentage targets are levers to drive the company to help increase profits. As you implement the target percentage, you may want to add a quoting tool (Excel template) to help sales with their decision to approve or deny the projects based on the gross margin percentages. And sometimes, you may approve something that is a lower margin percentage to get more work from the client. This will help you understand the product mix and what is the most profitable product line to focus on.
3. Follow the 80/20 Rule
To quickly increase profits, implement the 80/20 rule. Do a quick Pareto principle assessment (i.e., the “80/20 rule”) to determine which are your most valuable customers and/or products. For example, if a customer is not one of the 20 percent who bring in 80 percent of your revenue, then you’re probably safe de-emphasizing them and focusing on others. Further, if those same customers happen to be part of the 20 percent of your customers that take up 80 percent of your time, then letting go of them will probably free you up to do more effective and efficient activities. So do some quick analysis to see which clients to focus on and which to de-emphasize. Focusing on your most profitable customers and products will help you quickly increase profits.
4. Look into Hiring 1099 Contractors Instead of Full-Time Employees
Full-time employees come with many unnecessary obligations for the business owner, such as payroll expenses, healthcare expenses, tax implications, and increased liability. 1099 contractors will work for 100 percent commission or you can pay them a set rate for a job. They don’t require any payroll expense and you don’t have to pay for healthcare. A starting small business should try to decrease expenses in order to increase profits. It’s also much easier to let go of a 1099 contractor than an employee. If at all possible, try to hire 1099 contractors to reduce costs and help increase business profits.
5. Adopt a Continuous Process Improvement Initiative
Adopt a continuous process improvement initiative (CPI). This means drawing up the process for how things are made now (current state) and finding ways to reduce the steps in the process. Fewer steps mean lower costs, and lower costs often result in higher profits. Create your ideal process map (future state) and detail actions to get your operations from the current to the future states. This will be generally advantageous for your bottom line.