Increasing profit is a key concern for every UK small business, at every stage of their growth.
Margin is one of the most important metrics you’ll measure in your business, and a healthy margin is one of the signs of a healthy business.
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Here, we’ve compiled seven top tips to help you increase profit.
1. Work out where you’re starting
To increase profits, you first need to work out what your current margins are. You also need to benchmark these against your competitors where possible. If you want to boost profits, you can either increase prices or reduce costs – but to do this, you have to know how much you’re making on each sale of each individual product.
2. Review your supply chain
Look at all of the links in your supply chain. For example, if you’re printing t-shirts, look at the cost of the t-shirts themselves - the ink, the design work, the printing time, marketing, shipping, logistics, and so on. Try to negotiate better deals with each of your suppliers. If you’re dealing in bulk, you’ll be in an even better position to do this.
3. Increase efficiencies
Huge amounts of time and money are lost in business to inefficiencies. You may be able to boost your margin significantly simply by reducing waste. For example, if you run a courier business, are you assigning jobs to riders as efficiently as you can? Are people making unnecessary or lengthy trips? Think in particular about process: what are the key processes in your business, and how can you better optimise them to reduce waste?
4. Restructure pricing
Once you’ve tried to minimise costs and wastage, you should then think about pricing. If you are considering increasing prices, you should think carefully about how you are going to do this.
Ideally, you would introduce a series of small price increases over time, rather than a larger increase in one go. This will help to ensure that your customers aren’t put off by a sudden hike. It’s also important that you communicate the reasons for price increases – for example, because your production costs have increased.
5. Plan for downsides
Inevitably, there will be moments in your business when costs rise of their own accord – for example, because of a shortage of some of the materials you require.
To even these out, you should make sure that you build contingencies into your financial planning. In fact, these should be incorporated into your margin in the first place – you should be including unexpected downsides in your pricing from the very beginning.
6. Upsell and cross-sell
Getting customers to make one purchase is the first step, but you shouldn’t stop there. Think about ways that you can encourage customers to move a more premium, higher-margin product (upselling), or to take an additional complementary product (cross-selling). Upselling and cross-selling should be built into your product development and marketing plans. It’s crucial that you have the correct items or services to offer in these situations, and that they are marketed aggressively.
7. Focus on high-margin products
Finally, you should think about the products that you are prioritising in your marketing. Where possible, put the emphasis on the products and services with the highest margins. You might also take a leaf from the supermarkets’ playbook, and offer loss leaders – that is, products or services to entice customers in, before you upsell or cross-sell on larger, higher margin items.
What are your top tips for boosting profits? Let us know in the comments below.