As a small business owner, I know that you have nights that you lay in bed thinking about how to increase the cash flow from your business or what your current bank account balance is. One of the most common questions I get is “How can I increase the profit from my business?”.
The great news is there are countless ways you can increase the profit of your small business. Below are 12 rapid-fire ways to increase your profit that you could put into place today. What works for one business may not work for another, but you should be able to utilize at least one or two of the ideas below.
- Increase Pricing – It amazes me how many businesses owners are scared to death to increase their pricing. I ask them how many of their vendors have the same pricing today as they did two years ago and most can’t name any. One of the biggest drains on profit is when your costs are increasing you leave your price the same. The reason your vendors are increasing their pricing is most likely because their costs have been increasing as well. Most small businesses set their pricing once they start-up to be intentionally on the low side. Now today, years later, they sit here with those same prices while most of their competitors have raised their prices ever year. Your pricing isn’t keeping you in business, it’s driving you out of business. You should be evaluating price increases every year.
- Change the frequency of expenses – I was working with one owner and casually mentioned they were spending $450/month on trash collection. When I looked more into it, I asked if they really needed their trash picked up 3 times per week. He was amazed this was happening (and being charged for it). We cut back trash collection to once per week and saved over $3500 per year. There are several expenses that you could change the frequency on but get the same level of service.
- Price Shop – Just like you do with your home internet/cable every six months, you can price shop some of your expenses for your business. Odds are you found a vendor that you were happy with years ago and have just stuck with them. Meanwhile, their pricing continues to climb. Common expenses to investigate include cable, internet, phone, and common suppliers (i.e. Coke v. Pepsi). Review where you are getting items from and if there is a better option. For instance, my small business was using Cintas to buy our cleaning chemicals and when we switched over to Sam’s Club, we cut our bill by over 40%.
- Change Your Sales Compensation Structure – Have you ever heard the phrase “feed your winners, starve your losers”? If you have employees where performance is easily measured, such as salespeople, look at how you’re compensating successful results and turbo-charge that. Odds are your “winners” will start to pick up the slack of lower-performing others and you’ll possibly be able to reduce your staff by a headcount or two.
- Renegotiate with your Landlord – This is a better tip if you are not personally liable for your lease. Here is a secret every landlord doesn’t want you to know….even if they can re-lease your current space for slightly more, it ends up costing them more in the long run. They would rather you stay put. The best landlords are those that are somewhat vested in your performance. Those are the ones that understand you’re doing everything you can to be successful. The best way to kick off this conversation is to have clear options on other space you could lease. This gives you a better understanding of what is a realistic and true alternative.
- Investigate E-Commerce – A lot of service-based businesses I talk with have never thought about selling online. However, that is often a flawed way of thinking. At my kids indoor fun centers, we began selling our socks, gift cards, and punch cards online. While this wasn’t a huge moneymaker, it did bring in over $5,000 of new revenue in the first year.
- Sell Your Product/Service in Larger Quantities – Do you know how much your average customer visits? At our kids indoor fun center, we knew that our average customer visited us 3 times per year. If we could sell the 4th visit for even 50% of what we sold the third for, we would make more money. This is the same reasoning why massage studios sell packages of massages. They know their average customer only gets one or two massages per year. As such, if they can sell a package of 4, even at a discount, they are coming out ahead of where they otherwise would have been.
- Shift Your Sales Costs to Variable – A lot of businesses use an outside sales force to sell their product. Most of these arrangements call for a fixed monthly fee along with a sales commission. While I understand this arrangement from the outside sale’s providers perspective, I have always preferred to pay a higher commission rate with lower monthly fixed costs.
- Review Your Software – No matter the business, the software is a vital piece of your operations. The thing with software is that it is constantly changing and there are always new players to the market. Review your software needs and do a search for cheaper software that can meet those needs. Consider off the shelf solutions instead of customized solutions. You can often design alternative processes to the one or two capabilities that you may think you really need.
- Let Your Team Help – It is amazing what happens when you have discussions with your team about how you can be more profitable. Employees are often doing things even they wonder why they are doing them. Getting their input could help you save both employee time (i.e. payroll) and vendor costs.
- Shorten Your Sales Cycle – It astonishes me how many small businesses create a sales cycle with so many different touchpoints prior to a sale. Get to the point! Close faster. You’ll save money from having to spend less time trying to sell and you’ll lose fewer prospects (time kills all deals).
- Change Your Accounting Processes – There are several strategies to shorten your collection process, push out your payables, decrease inventory on hand, lower debt costs, and several other things that can give your cash flow a boost.
- Bonus #13 – Create A Profit Account – Profit doesn’t magically happen. Often when profit sits in a business it gets spent. Create a separate bank account and start moving over 3% of your cash receipts today.
There are thirteen rapid-fire ideas to increase your profit today. All require action. The best thing about being a small business owner is that action is so much easier than your larger counterparts. Block out the next two Monday mornings and really concentrate on two of these and you’ll be amazed at what you can accomplish.
You may be sad to find there is not a $100,000 item on the list (or most likely there isn’t for you). The strategy with increasing your profit is to take small victories along the way. While it might not seem like much, the individual things you do to save $1,000 – $3,000 each add up. If you would like to discuss these ideas or how else your business could improve their profit, reach out to Krieger Analytics today. While we might not be the right accounting, bookkeeping, and financial strategy solution for every business, we do value having conversations with small business owners and letting them know if we think we can help them out. Contact us today (phone calls are free!).