Being profitable. The two words that mean so much for business owners, two words that can raise many questions and anxiety.
Is my business profitable?
How profitable should my business be?
How do I increase profitability?
The financial success in business actually translates into more profit. As a general rule of this financial success, the profit can only be increased indirectly, not directly. In other words, you must put in place a set of strategies, and actionable steps to achieve the goal of profitability.
You can improve the variables to enhance the level of profitability. Here are some tips to raise your profitability by taking some actionable steps in the variables.
Profitability from Lead Generation and Lead Conversion
There is some process that you probably use to attract prospects to your business. Only a part of your prospects actually buys your products/services. Suppose there are 100 persons visiting your business out of which only 20 purchase your product/service. If you can increase the potential shoppers from 100 to 150, then you can expect 30 of them will actually buy your product or service, thereby increasing your profit by 50%.
The process by which your potential customers convert to paying customers is lead conversion. The best thing you can do to generate more profit is to improve your ability to convert more potential customers into paying customers than you are currently doing. If you can improve both lead generation and lead conversion you would do wonders for your business.
Profitability from the Number and Size of Transactions
The number of transactions is the number of individual sales for each of your customers. In other words, each customer on average could be making transactions at a certain frequency. When you increase the frequency of purchase by a certain percent, your sales and increase in profit enhance by the same percent. Think about the ways you can attract your customers to buy more frequently from you.
When your average customer buys more in quantum or quantity from you, it increases the sale and profit of your business. Look for ways to up-sell each customer to make them buy more per transaction.
Profit Margin
The gross profit you make from each sale or each service is your profit margin. Your focus should be on increasing the profit per sale. You can do this by raising the price or by lowering the cost it takes to make the product or service without lowering the quality of service or product.
Any increase in the price of the product, while holding the cost incurred in production constant increases your profit. Similarly, any decrease in expenses while keeping the sales and revenues constant increases your net profit.
Eliminate Costs and Increase Profitability
Think of ways to eliminate the cost where ever possible. There could be some possible expensive services being offered to the customers that they could dispense with making no difference to the level of their satisfaction. Look for the services you offer to your customers that they are not interested in. These could be eliminated or reduced to curtail unnecessary expenses.
Raise Quality, Raise Price
Most often you may raise your prices somewhat without incurring market resistance. A small increase in your prices will not drive away customers if your products/services are good. You can also raise quality without incurring additional expenses while raising the cost. Whatever is the increase in price is your profit.
Ainsworth Accounting Solutions are here to help you with any of your business accounting needs and we’d be happy to speak with you. Simply contact us today to take the next step!
