Five steps to improving profit

Five steps to improving profit

Explore opportunities to improve your profit such as increasing margins and altering what you sell and who to.

Five steps to improving profit
<p><b>If you don’t have the capacity, resource or the demand to sell more, there are opportunities to look internally to improve your profit such as being more productive, increasing margins and altering what you sell and who to.</b></p> <p>The easiest method to improve your profit is to increase your price. All things being equal (as in customers are still happy to buy from you and competitors don’t undercut), any increase will go straight to the bottom line. But it’s not always possible to raise prices overnight or without customers noticing. We have five steps on improving the profit in your business that don’t rely on adjusting price.</p> <h3>Step 1. Improve productivity processes</h3> <p>New Zealand's productivity is one of the worst among developed economies, where we produce less for every hour worked than those in other OECD countries. The <a href="https://www.productivity.govt.nz/publications/productivity-by-the-numbers-2023/read-online-html/part-3-productivity-trends/">Productivity Commission’s report</a> outlines the numbers. Reasons vary, though common culprits are being a smaller country, we don’t have economies of scale to invest in automation or capital intensive infrastructure, we’re far away from global markets, there’s a labour skill gap, and lack of international investment.</p> <p>One answer is to improve every step of every process to save time, money and speed up delivery. For example:</p> <ul> <li>Identify and streamline inefficient processes, and use technology to automate repetitive tasks. Robotics is playing a bigger role in enabling businesses to lower variable costs.</li> <li>Implement software solutions for project management, customer relationship management (CRM), and other key business functions.</li> <li>Use artificial intelligence and machine learning for data analysis and decision-making, including inventory management to reduce holding costs and minimise delays.</li> <li>Adopt energy-efficient and sustainability practices to reduce utility costs and future proof any requirements to make changes by new legislation.</li> <li>Change any key performance indicators (KPIs) to better measure and track productivity.</li> <li>Reduce rework and customer complaints with improved quality controls (ideally automated).</li> </ul> <p>Combine these productivity improvements and customise them to fit your specific business needs. &nbsp;</p> <h3>Step 2. Increase leads with existing resources</h3> <p>The more leads, the more chances of converting them to customers. This could be more traffic to your website, more people walking past your location, more people calling your business, or being invited to pitch for more contracts.</p> <p>Increase leads by:</p> <ul> <li>Being active on social media by talking about staff, customers and success on&nbsp;<a href="https://www.facebook.com/">Facebook</a>, use&nbsp;<a href="http://www.linkedin.com/">LinkedIn’s</a>&nbsp;networking platform to connect on a professional level,&nbsp;<a href="https://twitter.com/">X formerly known as twitter</a> allows you to microblog,&nbsp;<a href="http://www.youtube.com/">YouTube</a>&nbsp;and&nbsp;<a href="http://www.instagram.com/">Instagram</a>&nbsp;help distribute videos and images.</li> <li>Introduce a lead nurturing program with an e-newsletter, product whitepapers, free demos, samples, reviews, video explanations or quotes. The more complex your business, the deeper you need to delve with research, data and insights for prospects.</li> <li>Identify developing new customer targets or larger markets. Consider exporting if your business model allows it, or targeting segments you’ve previously ignored (such as local government, larger corporates).</li> <li>Invest in developing new products or services to open up a new revenue stream. There are numerous R&amp;D grants and subsidies you may be eligible for to assist funding.</li> <li>Partnering with another business to open up a whole new market.</li> <li>Build an online distribution channel to open up your business to customers outside your current location and region.</li> </ul> <h3>Step 3. Increase your conversion rate and transactions</h3> <p>A major productivity push is to convert more leads into customers, then increase the share of wallet by ensuring they purchase as much as possible (products, hours, services, warranties, insurance, scaled up proposals).</p> <p>Consider:</p> <ul> <li>Setting up a sales funnel to identify and use customer relationship management (CRM) software such as&nbsp;<a href="http://www.hubspot.com/">Hubspot</a>, which allows you to conduct A/B message testing, ranking contacts in order of sales readiness, and prioritise them according to their engagement and level of interest</li> <li>Expand the range of what you offer, so there’s an increased opportunity for a customer to add on.</li> </ul> <ul> <li>Use virtual warehousing and online sales to diversify and extend your product range without investing in more stock.</li> </ul> <p>Calculate the increase in profit from a 5 or 10% improvement in conversion. It’s worth the investment.</p> <h3>Step 4: Increase the average value of each sale</h3> <p>If you can increase the average value of each sale, then it multiplies when combined with the previous three steps. If you’re able to develop premium products and services, then you can start to sell items that cost more (which is different from increasing your price).</p> <p>You could also focus on selling more of the products or services that have the biggest margins.</p> <p>Likewise, review the viability of lower-margin products or services, and switch out any that are not adding value to your bottom line, relative to space or resource they consume in selling.</p> <h3>Step 5: Improve net profit percentage</h3> <p>Finally, it’s essential to look at how lowering the percentage of costs compared to sales can help improve your profits. How can you widen the gap between what you pay for raw materials, stock, or components and the final selling price? Take a look at your ongoing, variable costs as chances are you’ll find ways you can cut back, such as:</p> <ul> <li>Reducing cost of goods sold (COGS) by using lower-cost materials where possible, without affecting quality.</li> <li>Talk to your suppliers about renegotiating your terms. It could be that they can offer you discounts or updated payment options. If they’re not willing to re-negotiate, start researching new suppliers who can offer you more options.</li> <li>Reduce waste, buy only what you need, recycle and reuse where you can.</li> <li>Eliminate unnecessary product features, which could be a significant production cost, as customers may not care if the feature is there or not.</li> <li>Take advantage of discounts for paying on time, paying early, or buying in bulk. If you have the cash in reserve, then use it to drive your costs down.</li> <li>Consider closing down any departments or product lines that contribute little to profitability. It’s often better to focus those resources on more profitable business, even if they are products and services you’ve offered for some time.</li> </ul> <p>You won’t find that every product or service you use in your business can be lowered or re-negotiated, but there’ll be more than you think.</p> <h3>Next steps</h3> <ul> <li>Appoint a ‘profit and productivity’ manager to audit your business for opportunities to improve.</li> <li>Identify any capital changes such as new machinery or premises to lower your per unit cost.</li> <li>Invest in accounting and CRM software to accurately track sales, expenses, margins and customer success tactics.</li> <li>Speak with your accounting team to explore additional ideas to improve your margins.</li> <li>If you need finance, ASB has a <a href="https://www.asb.co.nz/business-banking/productivity.html">Productivity Grant</a> to help improve productivity across a range of business activities - apply before 30 June.&nbsp;<a href="https://www.asb.co.nz/small-business-banking/small-business-banking-options.html#">Enquire online,</a> <a href="https://www.asb.co.nz/location">visit a branch</a> call <a href="tel:0800272222">0800 272 222</a> or contact your ASB Banker.&nbsp;</li> </ul>