Research reveals that 63% of small businesses were profitable in 2020, while 23% recorded losses and ceased operation entirely. Knowing how to generate higher profits from your firm is essential, as the last thing you want is to splurge on costs and expenses without making money. Direct costs on manufacturing, software, and wages may vary according to your business output or sales revenue. Indirect costs, on the other hand, may include utilities, insurance fees, accounting services, and office expenses. Keeping both types of costs low while running a highly productive operation is essential to boost profits. With that said, here are more tips on how to help your small business to thrive and remain profitable.
- Analyse expenses and revenue regularly
Profitability is key to running a successful business, so not generating more money than you spend could be detrimental. Determine and carefully analyze your costs for the previous few months; then, you can set reduction goals for each item. Consider performing cost forecasting at least monthly. Regularly monitoring expenses and revenue will help determine if the business will boost your profits.
- Aim for better shipping rates
Negotiation may seem an obvious business tactic to improve profitability, yet several retailers fail to capitalize on it. Not seeking better deals could mean missing out on opportunities to reduce expenses. Asking for discounts is one key strategy to cut back on delivery costs. Understand that advertised shipping rates are usually negotiable, so aim for a fair deal if you are shipping supplies in bulk. Sometimes, directly speaking with representatives works better than email communications. Couriers may offer affordable delivery rates if your business signs up for a fixed-term contract, so keep this in mind.
- Expand the business
Cross-border trade effectively boosts profitability, so expand the business overseas while considering other costs. For example, international tax rates and customs fees may be fixed. But you can find alternative areas to cut back on expenses. There are many marketplaces across the world that you can sell internationally. For example, your fixed company costs like warehouse, staffing, and overheads won’t vary much over time, so the only additional costs you may incur include listing fees and commissions – which you can cover with a sales increase. While cross-border trade is a fantastic idea to sell more and improve profitability, you must consider multi-channel inventory management to obtain full visibility over your stock to avoid shortages and overselling.
- Reduce the operating costs
Lowering the operating costs will increase your profit margin, helping you control current expenses and keep the business running even in difficult times. Cut unnecessary expenses and adopt efficient systems to optimize your operations to save money. For example, a logistics company must follow the best practices for operating a fleet, such as prioritizing safety and compliance. From a profitability and efficiency perspective, not optimizing business operations can hurt growth. Before cutting spending, try to obtain accurate information on your operations. You can get this data from a system that strategically manages your business costs, profitability, and performance.
You can benefit from graphic analysis and advanced simulation for various economic situations. This will help prepare monthly reports, budgets, and operation evaluations. Business energy consumption can also affect profitability, especially if you don’t use efficient systems. It helps to replace incandescent bulbs with energy-saving alternatives like LED lights. Encourage your team to turn off machines, including printers, HVAC units, and computers, when not in use. Leaving devices on standby mode can increase your utility costs. Consider an energy audit to identify more energy-saving opportunities to reduce utility costs and improve sustainability.
- Use technology to streamline your business processes
Streamlining business processes like online sales will ease stress, freeing up valuable time to build on the company’s assets. Manual tasks increase the risks of human error. However, mistakes can be costly for businesses, leading to reputational damage and inefficiency risks. So, what business processes are worth streamlining? This can cut across several manual things, so keep this in mind. Apart from stock control, which is vital for balancing customer satisfaction and business profit margin, you can automate inventory management, order fulfillment, warehouse management, and order processing.
- Watch out for false sales impressions
Note that large sales volume doesn’t always translate to large profit margins. Sales increase may cast a wrong impression about prosperity, but it could actually consume all your profits. To increase profitability, you must watch out for false impressions and use resources efficiently. One way to increase revenue is to set competitive prices for products and optimize the returns on investment. Strategizing sales campaigns and enhancing procedures and internal methods can impact your profit.
- Think of sustainability
Business energy consumption can affect profitability, especially if you don’t use efficient systems. It helps to replace incandescent bulbs with energy-saving alternatives like LED lights. Encourage your team to turn off machines, including printers, HVAC units, and computers, when not in use. Leaving devices on standby mode can increase your utility costs. Consider an energy audit to identify more energy-saving opportunities to reduce utility costs and improve sustainability.
