It is possible to make use of 4 basic alternative ways to increase your profitability; reduce your costs, increase your productivity, increase your productivity or increase your productivity.
You can also log in to new sectors, or you can offer brand new products or services.
This article will guide you in planning your change, and in your direction with the best business ideas. If you increase your profitability, your profit-loss is the most positive result you can have in your dancer.
- Manage Your Costs
Paying close attention to your costs will bring you a higher profitability. Many companies will face a number of costs that must be reduced when looking at their own activities. But the important thing here is not to reduce the quality of your products or services while limiting your costs.
Have you spent your main cost items in sight?
Your main cost items are as follows:
- Suppliers: Is it the best you can deal with your suppliers? Can you make the financial issues in your deal more advantageous for yourself, or do you need another supplier? Could you run your purchases “full-time” to use your working capital more effectively?
- Finance: Do you need to re-eye your financial competencies? Are these competencies at the most competitive level? Are you able to make effective use of your loans or checks?
- Company building: Have you made an assessment of whether you are making the best use of your company building? Are there ways to make the use of the study area more effective? Could you give unused areas to the rent?
- Production: Do you think that you will not be able to reduce the total cost of production as much as it has ever been? Have you tried to turn your production process into a more dynamic process using fewer hours or resources to reduce your running costs?
Identify your actual costs: Activity-based costing method is one of the best ways to bring out real costs for specific business activities. This method to increase your profitability divides all of your expenses into sub-groups such as employee salaries, office expenses, or raw material expenses, each pairing with a specific activity. By doing so, you will find the cost you need to cover in order to fulfill a specific business function.
Initial analyzes can take some time, but you can expose costs therefore potentially productive areas which you can not expose with more traditional methods using activity-based costing.
- Pass the One You Offer in the Market Without Evaluating It Again
Think once more about what value you offer on the market and what price you sell to, and try to understand whether you can make progress and increase business profitability at this point.
Pricing: It’s a good idea to put your pricing strategy in perspective once more. You can increase your prices without risking your sales thanks to the changes in the sector in which you operate. But it would be wise to test each price increase before you think about making it permanent. You can read our article titled “How to increase your prices without losing customers” for detailed information .
Find your best customers: The only thing that affects your profitability is not your price list, and what kind of customers you have has a big influence to increase profitability of your business.
In this context, you can try to understand whether the Pareto analysis, also known as the 80/20 rule, is the right method for your business. Simply put, Pareto analysis assumes that about 80 percent of your income comes from about 20 percent of your products or services. At the same time, according to this principle, 20% of the profit comes from 80% of the products or services.
Focusing on your most profitable customers can help you to increase your profitability. Even if this means getting the least profitable customers out of the way. Of course you have to be very careful when carrying out this strategy.
Are there ways to make more sales to your best customers? You may be able to make more sales to your most profitable customers. At this point you can convert the following applications into one:
- Up-selling: You can make a big contribution to your profitability by selling “Premium” products to your customers.
- Cross selling: Analyze the products or services that customers buy, and provide them with other products or services that complement those products or services.
- Diversification: Discover new needs of your customers and develop new products or services to meet those needs.
- Walk Your Purchasing Process More Effectively
One of the best ways to increase your profitability is through more efficient execution of your purchases. Reward your suppliers often and try to figure out whether you can buy the same raw material at cheaper or more effective ways. But be careful not to compromise the quality of your products or services when doing so.
Make sure you have the best deal with your suppliers: Defining your expense items will show you where you spend the most money. Once you understand where you spend your money, you should start looking for ways to make your expenses more affordable. Negotiate with your suppliers and ask them whether they will cut prices or cut prices if you make an early payment to them.
Try to make long term contracts with your suppliers that you have cooperated for a long time. You should also use “private customer” status to set realistic values for your annual minimum spend on contract. So you can settle on better procurement prices. Make your purchases as part of any consortium formed with other similar sectors. If you can not create a better deal floor, you might consider going with other suppliers.
Review the number of suppliers you have. Working with a large number of suppliers may increase your inefficiency. Because this may cause you to devote much more time to your procurement process and weaken your workforce. But do not try to run all your business with one or two suppliers, because if your business goes bad this time, your company may be vulnerable.
Reduce the amount of waste you do throughout your business activities: You can help reduce the amount of waste that you will waste on areas where waste is made. For example, you can start by asking the following questions.
- Can you reduce your electricity costs? For example, are all of your electrical devices in the off state during the time they are not used?
- Have you made the best possible deal with your supplier of electricity?
- Do you pay for the services you do not use? (Telephone lines, photocopy machines, etc.)
Be sure to provide the highest yield from your company building. Costs associated with your work area are among the largest expense items. For this reason, you can turn it into a business by investment or lease contract.
- Is it possible to use your work areas more efficiently by rearranging them?
- Could you rent out the areas you do not use?
- If you are renting your work area for a long time, is it possible to negotiate for a lower rental rate?
- Focus On Your Sales Activities
There are two key strategies to increase profitability through sales: Increasing sales to existing profitable customers you already have or finding similar customers you can sell.
You can always include your customers and the products or services they purchase from you in one of the following four categories.
- High sales volume and high profitability
- High sales volume and low profitability
- Low sales volume and high profitability
- Low sales volume and low profitability
Of course, it’s much smarter to focus on those customers who have high sales volume and high profitability. In addition, supporting your customer base with high profitability with low sales volume will greatly increase your profitability.
If some of your customers achieve low profitability despite the high sales volume, you might consider re-pricing the pricing strategy. It can be helpful to generate more revenue from this customer volume.
It would also be useful for you to assess your customers with low sales volume and low profitability. They are worth keeping in your target customer base.
Find new “best” customers: You might consider expanding your customer base by finding new customers with similar profiles to your existing profitable customers.
As you arrive within the boundaries of the area you are covering on the market you are in, you may be tempted to enter other markets without your knowledge.
- Expand Your Market
You should to new market areas while gaining a whole new dimension to your business activities. You can significantly increase your profitability if you can do it correctly. On the other hand, entering new markets can sometimes have risky consequences and make you make mistakes that are hard to compensate.
Research: Before you begin, explore your potential opportunities with great care. Could you make your existing products or services ready for new markets or can you adapt them? If you can do that, you can create a new revenue stream with minimal cost and increase your profitability. For example, if you offer gardening equipment to customers in the horticulture market, you can investigate the potential application areas of these equipment in the construction industry.
Do you know who your potential new customers are? When and how will these people buy your products or services, why will they pay them, and how much will they pay? Try to answer these questions. In addition, you can use social media for your research, and you can get alternative insights, ideas and feedback from your customers.
Develop new products or services: If you are developing new products or services on a brand-new market, you need to appreciate the potential for survival. At this point, you can ask yourself the following basic questions.
- Do you have the necessary skills and expertise as a company or do you need to buy this service from the outside?
- Do you have enough self-sacrifice and resources to succeed in your new project?
- Are you able to reduce the risks most?
- Are you confident that you will receive sufficient customer demand when you sell this product or service on the market at a price that will profit you?
Build yourself a working team and reduce the risks: Instead of being your own, you can go out with road partnerships and a joint venture. So you will have the confidence you need to successfully prove yourself in a new and developing marketplace.
- Increase Productivity
Almost all companies can reduce wastes and save on competition.
Take advantage of the metrics: Measure your operational efficiency. Develop and roll out systems and processes that will help you get the most out of your resources. You can regularly keep track of how many men and how many hours you need to run specific operational activities or provide services. If the number of hours increases steadily, it means that your processes are inefficient. So, how quickly you can reduce it, you will have that positive effect on your profitability.
In order to achieve success to improve profitability, first of all, the top level of the company must give importance to productivity management. At this point, you should also make internal communications about your efficiency goals and your measurements. Your employees will adopt this as their own goals in this way.
At the same time, employees can offer certain incentives to catch the targets. Make sure that your product or service qualities are not adversely affected by the increase in production speed.
By defining the main performance indicators that are most relevant to your business activities, you can set clearer goals for yourself. Take care to ensure that these indicators reflect what you are aiming for, measurable and comparable, and that you get more accurate action when you follow your goals.
Put your processes in perspective: Never be afraid to ask if there are more effective ways to get back in your situation and reach your goals. For example, let’s assume you are always producing a particular type of product at a certain time of the month. So if you start production earlier or later in the same month, you provide logistics and you get a more efficient cash flow if you run the billing process?
It may be useful to have an idea of how close companies are approaching the same issues. This is called “benchmarking”. The benchmark process can be carried out on a more basic, comparable level (such as comparing energy consumption among similar companies) or on a level where more detail is available (such as comparing data sharing, production analysis and shareholding models with other companies you trust).
At the same time bench-marking your perspective can give you new ideas to increase business profitability and gain the momentum you need to make your business activities more effective.
When bench-marking, it would be useful to focus on similar areas within the main performance indicators you have already described. Although there are no ready-made templates you can use to compare your work to other jobs. But you can make your benchmark process more effective by following the steps below.
- Focus on the company activities you want to compare or develop with other companies. You can do this through certain research methods. For example, you can talk to your customers, employees, or suppliers, use focus groups, conduct market or survey research.
- Investigate thoroughly about the processes and functions of your company and find out how you can measure potential development.
- Find sectors that have processes similar to the processes you want to take over.
- For example, if you want to deploy an integrated computer system, contact other companies using similar system.
- Identify companies that are highly profitable in the sectors you want to benchmark. At this point you can get help from your customers, suppliers or trade associations.
- Use these companies to conduct surveys on measurement methods and practices, and identify alternative business processes. You can access this information through commercial associations or market reports. You should do this if any company is not willing to share information with you on this issue.
Increase Your Profitability Business Ideas
As a result
Increasing the profitability will also help you plan your change and development when you reduce your costs, improve your productivity.
The way you increase your profitability depends largely on more than one factor. Some of these are your sector, the size of your company and your operational costs. It will also be useful to consider the following options:
- Identify company activities that can be improved or made more effective (such as general business processes or management style).
- Use key performance indicators to analyze your strengths and weaknesses (such as an increase in costs or a decrease in sales).
- Keep track of the costs incurred from your overall business activities (what are your general expenses, what are the discounts you apply to your loyal customers and what is your profitability?
- Identify the points of waste and try to remove them (such as unnecessary electricity use).
- Test the prices of your products or services before permanently commissioning any changes you make.
- Increase your profitability over your best customers (you can increase your profitability and its margins by taking advantage of up sales, cross sales and product diversification techniques).
- Identify areas where you are spending extra money and negotiate these areas with suppliers to remove them.
- Make long-term contracts with your suppliers to buy products at more affordable prices.
- Explore new opportunities in your sector and discover new markets where you can log in.
- Develop systems and processes that you can better understand the world around you and take them in (like benchmarking).