Profitability needs to be the key long-term aim of any business. Follow our helpful tips to ensure you have the best chance of making and increasing profits.
- Ensure managers (and other employees) are focused on profitability, but without losing sight of the need to manage cash flow.
- Identify the key drivers of profitability - set and monitor key performance indicators (eg sales per employee, gross margin).
- Avoid distractions. For example, one-off projects which don't play to your strengths or contribute to your strategic goals.
- Identify waste and eliminate it. This could be something as simple as lighting and heating left on overnight. Equally, you might identify wasteful processes or inefficient equipment, cumbersome or repetitive processes or manual processes that could be automated.
- Create plans with measurable objectives and set budgets - learn from experience to make continuous improvements.
- Continually gather market information - build a dialogue with key customers and suppliers.
- Anticipate the knock-on effects of any changes you plan.
- Focus on a niche market you understand.
- Invest in advertising and other promotional techniques such as social media to increase sales volume. Monitor the return on investment and drop any activities that do not pay their way.
- Actively sell and deliver a service that builds customer loyalty.
- Maximise the value of sales: can you sell add-on or related products or encourage bulk buying?
- Consider moving upmarket and charging the highest price you can justify for the product - innovate to stay competitive.
- Focus on your most profitable customers and products.
- Specify the right quality of supplies and negotiate favourable prices - monitor competing supplier offers.
- Monitor and control overhead costs and eliminate unnecessary activities.
- Maximise the cost-effectiveness of assets. Base purchasing on lifetime costs and sell unnecessary assets (or sub-let surplus capacity).
- Recruit the right employees. Provide a working environment, training and motivation which maximise their effectiveness.
- Create systems to reduce errors and wasted time. Create policies to reduce the need for managers to repeatedly make the same decisions.
- Invest in information technology and other labour-saving equipment.
- Share best practice across the company.