In business, it’s not about the money you make but the money you take. Generating $100,000 in sales sounds great, but if it costs you $90,000 to get there then it’s not quite the impressive figure it initially seems. In order to hang onto more of your hard-earned money, you need to focus not only on increasing your revenue but also on spending less in order to do so. Controlling costs, being resourceful, and working smarter, not harder, is the secret to increasing your profits. Let’s take a look at four strategies you can employ to boost profitability for your small business.
Increase Employee Productivity
Research by GoRemotely shows that productive employees equate to a 21% increase in profits. Therefore, as a business owner, it is in your best interests to ensure that you are getting the most out of your staff.
One way to increase staff productivity is simply to ensure that your employees are happy. A study by the University of Melbourne found that happy employees are, on average, 13% more productive. On top of this, a study by Zistemo found that employees who are recognised for their work and receive regular encouragement tend to be more satisfied with their jobs.
Allowing and encouraging remote working can also increase employee productivity, too. When the world began working remotely in March and April 2020 due to the coronavirus pandemic, Prodoscore reported a 47% increase in productivity compared to the previous year.
It’s worth investing in comprehensive training programs to ensure that your employees are skilled at their jobs and working to the best of their ability. You may also want to consider productivity tracking software to identify your top-performing employees and highlight the ones who need extra support.
It’s important to invest extra effort into marketing, but this doesn’t mean pouring money into fancy campaigns. Instead of throwing mud at a wall, you need to closely examine which marketing practices generate the biggest return on investment and then hone in on these strategies.
Don’t just look at growing your sales, either. It’s also important to find more cost-effective ways to achieve customer acquisition. This means that your costs will go down as your sales go up, resulting in bigger profits.
Cut Down Overhead Costs
In order to boost profitability you need to find ways to reduce your overhead costs without impacting productivity. It’s a good idea to take advantage of the recent surge in remote working to keep costs low whilst increasing employee productivity. Encouraging your staff to telecommute even just a few days per week could significantly reduce your utility bills and permit you to relocate to a smaller and more affordable office.
It’s also important to review your subscriptions regularly and cancel those which are not serving your business. You should also shop around and seek out new quotes for expenses such as insurance, internet and office supplies to ensure that you’re getting the best price. Suppliers seldom reward customer loyalty and switching could save you thousands.
Tighten Credit Terms
Late-paying customers are a nightmare for small businesses. When customers are frequently late to pay, you may find yourself dealing with costly cash flow problems and mounting debts. In order to combat this problem, it’s worth reconsidering your collection procedures and credit terms. For example, introducing a late fee is likely to encourage your customers to pay you on time - and if not, you will at least be compensated for the costs incurred and inconveniences caused. It’s also worth looking at shortening payment cycles. In the age of instant invoicing and digital payments, 30, 60 or 90 day payment cycles are often overly generous.
Boosting your bottom line isn’t about overzealously slashing costs and chaining yourself to your desk. By employing the above strategies, you can see your costs go down without damaging productivity or staff morale. Investing in staff training can see a huge increase in productivity that can really power your organisation forward. Meanwhile, taking simple steps to ensure that you get paid on time can save you from a myriad of cash flow problems. Narrowing the focus of your marketing efforts can also save you money and generate a much greater ROI. Together, these strategies will help you to create a more profitable business and set you up for financial success.