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Improve profitability – in five simple steps

If your business can improve profitability the rewards include more money in the bank, a higher value for your business as well as greater peace of mind and the feeling of a job well done.

Making lower profits than you think you should leads to the opposite outcomes and a lot less fun.

So, what can you do to improve your profitability?

Good management information

To improve profitability you have to know how well you are doing to begin with and this is not possible without having good, regular, consistent, prudent management information.

Make sure you’ve got the information you need, when you need it.


Control costs – improve profitability

Most businesses will spend most money on people and premises, so start there and make sure you are getting good value for money from these resources. Trimming these overheads, if it needs to be done, should make a bigger difference to your profitability than the smaller overheads will.

“Take care of the pennies and the pounds will look after themselves” as the old saying goes. Look at all the costs in your business and ask if they need to be spent at all and whether you are getting good value for money.

Why not get a friend, family member or your accountant, someone who is objective, to help you review your costs through their independent eyes and see what they come up with. Two heads are better (and more dispassionate) than one.

Finally, it’s perfectly possible to take a red pen to your costs and set a target, say 10%, that needs to be cut.


Higher gross profit margins

Improving your margins through higher prices, lower costs of sales and selling greater volumes can make a huge difference to the bottom line.

You need good management information to be able to measure gross profit effectively – and look at the profitability of clients, products and services as well as the business as a whole – but if you can improve your gross profit margin then you will improve profitability of your business significantly.


Discipline on selling price and discounts

Set prices for your products and services that generate decent gross profit margins and stick to them. Hold your nerve in pricing negotiations and if you have to give a discount make sure you get something back for it such as higher volumes or early payment.


Learning from what went right and what went wrong

Most businesses make many different pricing and buying decisions during a month, quarter and financial year. This gives you a lot of data to learn from.

If something went right and led to higher profits then try to identify what it was and repeat the trick.

If it went wrong then correct it and try not to repeat it.


We help many business to improve profitability (make profit your first cost) using all of these tools and more. If we can help your business, we will. All you have to do is ask!

Visit our dedicated Profitability services page to learn more about our 2 hour profitability review.