Increasing profit isn't just about reducing costs. It's about increasing efficiency and turnover, and using appropriate targets too.
Costs are only the tip of the iceberg when it comes to increasing profitability, but it's where you should start nonetheless.
Review your costs
Attack your variables first. Cutting overheads may have a bigger operational impact on your business's ability to deliver to customers.
- Measure profit margins first, cut any products or services barely breaking even and identify profit stars you can get behind
- Make reducing variable costs by an achievable percentage a primary business goal you can regularly measure
- If you can, delegate responsibility for looking into costs like labour, advertising and shipping costs to specialist staff
- Ask an accountant to double check your figures and give you industry benchmarks to work to
- Review all your supplier relationships, starting with subscription services like phone and Internet
- But don't stop there, go down through your complete list of overheads with a fine-toothed comb, and don't be afraid, where contracts permit, to jettison long-time suppliers if you can get a better deal elsewhere
Review your systems
Good systems increase efficiency and reduce costly mistakes. For a business-wide review, it's essential you gain buy-in from staff so you can tap their frontline insights. Let them help you identify the problem areas and investigate the technology and other solutions you could use to improve efficiency.
Internal communications is a prime area worth looking at. Take information silos, for example. They create mistakes and work duplication, but can be fixed in a cost-effective way with the creation of a work intranet or central database.
Bad debtors are a significant drain on profitability. Make sure you use:
- Credit checks on every customer asking for credit
- Watertight written and signed contracts
- Debt collection contact schedules that ensure reminders and penalties are consistently applied
Make sure all your employees are aware of the importance of profitability. The most commonly used key performance indicators (KPIs) are:
- Sales against forecasts
- Costs against budgets, gross margin and staff costs
Ask an accountant to ensure you're monitoring the right KPIs. Also make sure you're using easily measurable targets and regularly reviewing performance to encourage continuous improvement.
- Monitor and measure employee performance and productivity
- Reward productive employees by linking pay to performance
- Praise and thank staff when it's due
- Provide a clear career path for added motivation
Review sales tactics
Here are five low-risk tactics for increasing turnover by focusing on your existing customers:
- Identify your top 20% of customers to target
- Train staff to up-sell at the point of sale
- Bundle related products together
- Reorganise retail space to emphasise higher-margin products
- Offer time-boxed deals on your website or social media page
Once you think you've maximised the profitability of existing customers, you can then consider higher risk tactics experimenting with new markets and sales channels.
- Talk to your CIBC business advisor about the CIBC Small Business Growth Package and make sure you have the financial solutions you need to help you take your business to the next level.
- Check out the CIBC Guide to Business Planning to ensure you have covered all the bases as you plan to grow your business.