It’s common to focus on increasing revenue when thinking about driving profitability in your business, but this isn’t always the best way or even a good way to do that. You must take a step back and consider the four key areas that can help drive profitability in your business; reducing costs, increasing turnover, increasing productivity, and increasing efficiency. You can also assess the viability of expanding your products or services and targeting new markets.
Go through our list of 15 things you can do to make your business more profitable in 2023 (16 things actually… the first one is to read this article!)
1. Keep a close eye on your finances
Before you can make any changes to your business’s financial situation, you need to know where it stands now. Many people can find getting to grips with the money side of the business scary, but it’s the most important thing you can do and isn’t as frightening as it appears once you dedicate a bit of time to it or ask a friend or an accountant to help you. Go through your bank account statement and review all your costs – do you still need to be paying for everything you are – pay special attention to auto-renewing subscriptions. Can you pay annually at a discount for things you know you will need? Can you try and cancel subscriptions to see if you get offered a better deal to stay?
Create a basic profit and loss account and a cash flow forecast, and fill in your revenue, costs and cash flow actual at the end of each month. It will give you a sense of control and motivation to see where you are making and spending money and where your best profit margins are.
2.Raise your prices or rates
One of the most obvious ways to increase profit margins (but one that a lot of people are reluctant to do) is to increase your prices. If you were employed, you would expect an annual pay rise, at least in line with inflation, so there’s no reason you shouldn’t be doing this in your own business too. And if your costs have increased then your prices need to reflect that.
Four tips for increasing your prices or rates:
- Do it little and often; that way, it doesn’t feel like a big deal.
- Offer some added value alongside your rate increase.
- Take into account that you could be too cheap. The normal reaction to increasing sales is to decrease your prices, but the answer might be to increase your prices for a higher perceived value of your product/service and to be ‘reassuringly expensive’ (as Stella Artois said).
- Write a little explanation to your clients or customers to explain the rate increase. It shouldn’t be apologetic or defensive, just factual.
For more support, read our guide on how to price products.
3. Increase traffic or footfall
How many visitors, prospects or followers do you need to make a sale? See if you can do (even a rudimentary) calculation. Say you need 100 visitors to your shop or website to get one new customer (1%); a way to increase sales (and, therefore, hopefully, profitability) is to increase marketing activity that drives more people. Make sure you have a way to track performance, so you know which things have worked and which haven’t.
4. Increase your conversion rates
If you sell your products via your own website, you can make a bigger difference to your bottom line by concentrating on increasing conversion instead of traffic. For example, if you have 1000 visitors to your website and have a 1% conversion rate, then you are selling to 10 people. To get another ten customers, you either need to increase traffic by another 1000 people or increase your conversion rate to 2%.
Watch someone navigate your website for the first time – it will give you an amazing insight into how people use it that you will never be able to get yourself as you are too close to the business.
Five ways to increase your website conversion rates:
- Keep your homepage clean and simple – ask them to do one thing – don’t create confusion.
- Ensure your website load speeds are fast.
- Include social proof – testimonials and reviews.
- Shorten your checkout process.
- Add a live chat function.
You can increase your conversion rates for IRL sales too, but the tweaking of your processes or customer service will obviously be different to online.
Five ways to increase your IRL conversion rates:
- Ensure your offering and rates are clear upfront, so you don’t attract people who aren’t ever going to be interested in completing a sale.
- Ask questions and listen.
- Get back to enquirers and people with questions quickly (within 24 hours).
- Be confident.
- Understand what has motivated your existing customers to buy.
For more support, read our guidance on website design for small businesses.
Another way of increasing sales is to upsell to your existing customers – increase average ‘basket’ spend/spend per head. This can be done with team training; for example, if you own a restaurant, the front-of-house staff should be incentivised to ensure diners are always offered starters, sides and desserts and that they are asked if they want another drink when their last one is almost done. In an online store, you can create ‘add-ons’.
6. Check-in with suppliers
Keep your supplier relationship strong and have regular catch-ups to renegotiate prices. If you are struggling with costs, then have a conversation with them to see if anything can be done. Get regular quote comparisons – it might be time to change suppliers, and another one might offer you a good discount in order to get your business. Check out our tips on how to find the right suppliers for your business.
Automation focuses on the big picture – the long-term health of your business. Spend a week jotting down all the tasks you are doing (if your business is cyclical or seasonal, you might want to do this for a longer period). First question if all these tasks are absolutely necessary and contribute to the profitability of the business. Now go through the list of tasks with a highlighter and highlight all of the ones that only you can do. These are the things you should be doing; the rest look to automate or outsource (see point 8 below).
Examples of activities you can automate:
- A welcome email journey
- Data back-ups
- Social media posts
- Sending invoices
- Sharing data across apps – for example, transferring email addresses from your online store to your email service provider
A lot of small businesses fail because the founders spend too much time on lower-value activities that they don’t need to be doing. When you first start your business, it’s likely that you will be doing most of the tasks, but this isn’t sustainable for you or the business. Once you’ve worked out which tasks are necessary and the best way to do them, automate or outsource them so you can focus on high-value activities like strategy and idea creation.
Examples of activities you can outsource:
- Inbox and diary management
- Customer service