With the costs of business rising thanks to inflation and access to capital tightening, one of the most important priorities for business today is to carve out profitability. Here are some ways you can maximise profit margin and secure long-term success.
Optimise costs
One of the first steps when assessing profitability is to scrutinise your costs. If you’re spending too much, it will eat away at your profit margin, so this is a good place to start.
To do this, you need to analyse your business’s expenses and identify areas where you can cut costs without sacrificing quality. Some examples of cost-saving measures include reducing office space, renegotiating supplier contracts, or switching to a more cost-effective software solution.
This may also involve reducing headcount, but this should be undertaken thoughtfully to ensure delivery doesn’t suffer.
Attract more revenue
An obvious solution to carving out more profit margin is to attract more sales. However, keep in mind that in order for a boost in sales to improve profitability, your costs need to be under control. There’s no point attracting more sales if the cost of acquiring those sales such as marketing, labour or cost of goods are too high.
Measure profit margin on specific products and services
Measuring the profit margin on specific products and services, in addition to your overall profitability, is crucial for identifying areas for improvement or enhancement. Without examining this in more granular detail, you will never get a full picture of what’s really going on when it comes to your profit margin.
Retire unprofitable products and services
By discontinuing products and services that are not generating a sufficient profit, you can free up resources that can be used to focus on more profitable areas of your business, while removing the dead weight.
Expand profitable products and services
By identifying the products and services that are generating the most profit, you can look for ways to attract more sales in that segment or expand into aligned offerings or markets. This will give you focus when it comes to understanding which products or services represent strong ROI and therefore should be expanded.
Track time
Understanding how labour spends its time is a crucial step in finding efficiencies. By keeping track of how long you spend on different tasks, you can identify areas where you are wasting time or where you could be more efficient. This information can help you make better decisions about how to allocate your time and resources as well as identify tasks that may be better handled through automation or AI.
Outsource
Outsourcing is a cost-effective way to improve profitability. By outsourcing non-core tasks, you can free up time and resources that can be used to focus on your core business activities. Outsourcing can also help you reduce costs, as you can often find skilled professionals in other countries who are willing to work for lower rates.
Automate
Automating repetitive tasks is another important strategy for improving profitability. By automating tasks such as reporting, low value communications, invoicing or inventory management, you can reduce errors, save time, and improve efficiency. Automation can also help you free up resources that can be used to focus on more profitable activities.
Utilise artificial intelligence
Utilising AI is a cutting-edge strategy for improving profitability. AI can be used in the place of labour to handle a wide variety of tasks including data entry, analysing customer data and programming.
In summary
Improving profitability requires a combination of strategies that focus on reducing costs and increasing revenue. To get this balance right, work with your accountant to develop a tailored strategy that’s right for your business.
Need support developing a plan to maximise profitability in your business? Contact us today to find out more.
At Keeping Company, we’re not just accountants, we’re business people too. With our counsel, your business can reach its full potential.
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For all media enquires please contact Tracy Miller, CMO, Keeping Company 0414 898 452.
The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.