Increasing Profits as a Small Business There is a common fallacy that perpetuates itself among small business owners who believe that they only way to substantially boost their profits is by increasing sales. While increased sales certainly compose the goals and accomplishments of every successful business, for small business owners especially the reliance upon increased sales to generate more profits can not only be faulty logic but likewise an outright a business killer.
Boosting Profits There are many different ways for a small business to increase their profits, and it does not take a degree in business administration to figure out some of these profit-boosting suggestions. One of the best and most effective ways to increase profits without having to bring in a boat load of new customers is to increase the profit margins of the business as a whole. The profit margins, or the total profit gained off of every sale of a product or service, for a business can be increased in a number of ways without having to tamper with the existing structure of the business model. This means that small companies can begin to make more profits without having to change existing models for gaining new customers, without increasing sales, without changing current implemented systems, without hiring or firing more staff, and without altering overhead costs. While each of the above components of the business model may indeed need improvement and continued evolution as the company grows, the fiscal foundation that these improvements can be made upon can be built by increased profits from extended profit margins. The steps to increasing profit margins can be broken into x simple steps.
Calculating Margins The first step is to truly understand what one’s gross profit margins are, or how much money is being brought in on every sale. Calculating all the expenses with the total cost of each service or product offered will give an accurate calculation of one’s gross profit margin; but such costs as overhead and employee costs do not figure into the profit margin so exclude these and similar expenses for now as the goal is to increase the profit margin itself and not a total balancing of the bookkeeping. After a clear picture of the businesses profit margins has been established, an owner should analyze the profit margins for each of their products or services. As this happens, it is possible that the owner will discover that they may have products or services that garner little by way of total profit while others excel; at which point the owner can make the decision to cut the low profit products or services to focus resources on their products or services that actually make them money.
Another step to increase profit margins that may be difficult for some small business owners to initiate is to increase the prices on products or services. The important thing to remember is that every business is trying to undercut their competitors, and at some point one’s own business will simply not be able to compete with the low prices of others, so distinguishing the business through another avenue, such as customer service or quality of product, will allow the business to successfully increase their prices without losing the bulk of their customers while gaining new customers.