We value our editorial independence, basing our comparison results, content and reviews on objective analysis without bias. But we may receive compensation when you click links on our site. Learn more about how we make money from our partners.
Three best tips on increasing business profits
Your business is making good money, now it's time to make the gap between revenue and costs bigger.
The main aim of most businesses is to make profits. Most business owners aren’t satisfied with just making profits though. They also would like to ensure their profit margins keep increasing so that their business can continue to scale to new heights.
How to increase business profits
In order to increase business profits, you need to concentrate on the criteria that drive profits – namely income, expenses and sales. Yes, by focusing on the very basics of business, you can not only ensure that your business is turning a good profit, but you can also ensure its continued success in the face of even the toughest of obstacles. This is what you need to do to increase your profits:
Make sure your products/services are priced correctly
Products or services that are very expensive may limit your target market considerably. On the other hand, if you price your products too cheaply, this may be viewed as an indication of an inferior quality product by the customers. It’s essential that you price your products properly so that you can increase your sales and profits. In order to set the right price for your products, here are some points you need to consider:
How much will customers be willing to pay for what you offer?
It is very important to determine what your target market expects to pay for a certain product, so that you can price accordingly. First-of-its-kind products may be able to have a higher price tag. However, if similar products are currently present in the market, then you need to check what the consumers are paying for those products – that will be the basis for your pricing strategy.
What price are your competitors charging?
Checking your competition’s pricing is a great way to know what you need to price your products at. Unless your product has some great features and benefits that do not exist in your competitor’s products, you cannot charge much higher prices for your items. However, if your product is far superior to what is currently available and if it is backed by a generous guarantee, then you can price your products higher.
Determine your exact costs.
The only way to make profits is to sell at a price that is higher than your cost price. When calculating the cost price of any item, it is essential that you factor in all the costs – including the fixed costs and the variable costs. Once you have determined your cost price, you then need to set a selling price by tacking on a certain amount of profit. If your costs are too high, this could result in a high selling price that is not in accordance with the rest of the industry. If that is the case, you either need to find ways to cut down your costs or increase your sales significantly.
Lower your business costs
One way to achieve competitive product pricing is to try and reduce your business costs. This includes lowering your production costs as well as your business overheads in terms of salaries, advertising expenses, office rentals and transportation expenses. Here are some factors to pay attention to:
- Production costs. You should try to find new suppliers and vendors who may be selling raw materials at a lower rate. You could even ask for discounts from your regular suppliers or ask them for better payment terms and higher credit.
- Outsourcing. This is another resource that business owners use to lower their business costs. It can often prove to be much cheaper than hiring full time employees to complete certain tasks. By finding new ways to reduce your business expenses, you will be able to price your products competitively while increasing sales and profits.
- Negotiate with suppliers. Don’t be afraid to try to negotiate for lower costs on the goods you plan to later resell. Lowering the cost of goods from suppliers will not only increase your net profit, but can also enable you to possibly sell to customers at a lower price. This can increase demand for your product and services, which can improve business for you.
- Improve employee retention. Hiring and training new employees can often be an expensive and time-consuming process. It’s important to have a good working relationship with your team members — this includes encouraging them to share ideas for the business, coaching them in areas that they’re struggling and asking questions to find out if they’re satisfied in their work. Constantly improving your company culture can not only lower the costs of frequently employing new people, but also inspire loyalty among your employees to go the extra mile.
Increase the volume of sales
It goes without saying that increasing your sales is a sure-fire way to increase your business profits. In order to increase sales, you should try and open up new distribution channels if possible. For example, a lot of consumers are now shopping through online websites. Alternately, you can increase the strength of your sales force and offer your employees higher commissions and incentives for bringing in new sales.
Increasing your sales goes hand in hand with managing your marketing costs. Use data analytic tools to understand trends among your customers and to implement marketing strategies that cater directly to consumer demand. If you use marketing campaigns for paid advertisements, identify what is working and focus more of your resources on that, while eliminating campaigns that don’t turn in a profit.
Ask an Expert