4 Simple Ways to Increase Your Businesses Profitability

In this post we are going to go through some things you can do to increase the profitability of your business. These are simple things that can have a huge impact.

Don’t go over your head though, one might work in one business but is harder to go through in another. Your business situation is always unique, so think carefully before making major changes to your business.

When I talk about increasing the profitability of your business, I mean to increase the part that stays as profit. Not just increasing sales. Sometimes increasing profits might lower sales a little bit, but if it is worth it, don’t worry. Now, let’s dive right into it.

1. Increase prices to increase profitability

Increasing prices is probably the simplest way to increase the sales of your business. If done right and not too much, this can help your business flourish. Rising prices slightly on a yearly basis, for example, can be a good way to stay up with inflation, without scaring your customers away.

Don’t lift the prices too much. This can make your customers go to your competitors if they have choices on the suppliers. To make sure your customers will stay with you, even after a slight increase in prices, you should keep your relationships with your customers as good as possible. Take care of the customer service of your business, that is the face of your business.

Even if your product was slightly more expensive than competitors, customers might choose you, because they know they will always get good service from you. Deliver at scheduled times, and if you are late, make sure to give a reasonable explanation.

When rising prices, you can give a heads up to your customers on that. You might want to write an email to them, saying that you are rising prices by 3% for example, because of the rising prices of raw materials. Whatever is the case, this will probably make your customers understand your situation better as well. Don’t rip your customers off. The best deals are the ones where both sides are happy.

2. Lower costs to increase profitability

Lowering costs can be slightly more difficult than rising prices, since the prices you have to pay are not always up to you. However, there are some things you can still do. If you use a lot of electricity, you might want to ask for offers from other providers as well. Make sure to let them know, how much electricity you use, and that way you can get a better deal.

Buying raw materials can be another thing you can save on. Just with simple email to your supplier can save you few percent on your costs. Another way is to again, ask for offers from different suppliers as well.

If there is choice among the suppliers, make sure to ask for their prices regularly. The world is changing fast, and even if one supplier was more expensive a year ago, that might have changed by now. You can save a lot with just a simple email that takes 5 minutes to write.

Last thing on my list to lower the costs is to go through your yearly expenses. There might be some expenses, that were necessary when you first started, but have now become somewhat useless. Go through your expenses every year, and make sure you are not paying for something that doesn’t bring value to your business.

office materials on the table

3. Expand your business to increase profitability

The third way on the list is simply to expand your business. Well, that might not be as easily done as said, but think about it. Some costs are fixed, and no matter how big you grow your business, they will stay the same. By expanding, you probably also will get better deals from suppliers, if your business does a physical product.

Fixes costs can be for example:

  • Phone bills
  • Property taxes or rent
  • Insurances
  • Your salary
  • Loan payments
  • Car payments

Not all of these may apply to your business. If expanding your business requires more space, rent or property taxes might increase as well. The more the fixed costs stay the same, the more you can expand without the costs rising at the same time.

Online businesses are on the other level in scalability. You can have one webstore and have X amount of costs. If you wish to start another one, that might only cost you for the setup and hosting, and you can manage that with the same equipment you already have, without much extra costs.

You probably wont need another office and computer to run another webstore. Like I said, situations are always unique. Even if you don’t want to expand, you could find ways to do things differently, a little bit more efficiently and better. That way you can save in costs and make your business a little bit more profitable.

4. Select the best customers to increase profitability

By selecting the best customers, I mean two things.

  1. Focus on the most profitable ones, the ones that bring you the most money.
  2. Drop off unprofitable customers

When I talk about focusing on the most profitable customers, I mean the ones that are keeping your business alive. Your business should not rely on just one customer, but there are almost always a few best ones, that bring you the most money.

The 80/20 rule can be applied here, in this case it means that 20% of the customers bring 80% of the revenue. Focus on that 20% and do everything you can to maximize their sales and to keep them as customers.

I have a dedicated post about how you can apply the 80/20 rule in your business. You can read it here.

Dropping off the unprofitable customers is the other point of selecting the best customers. Even if a customer(s) brought in some money, if they still require the same or, in worst scenario, even more work than your best customers, it might be time to drop them off.

You might try first to get a bit higher price from them. Explain that it is not profitable for you in current terms to do business with them.

Focus on the 20% that makes you the most money. If 80% of your revenue comes from the best 20% of customers with 20% of your work, if you focus all your work and energy towards those customers, you might even increase your sales and profitability with less customers.

Less is sometimes more, and even if your sales dropped a little bit, your profitability could go way higher, when the work required to manage the business would decrease as well.

Final words

If you happen to have your own business, the main motivator in most cases I would say has been the money. Well, you might have a product that will change the world, but behind that there is also the financial side.

Having your own business can be intimidating and exciting at the same time, but it should be worth your time. If you realize your business is not making enough, try to do some of these things to fix that. There is no point of working 24 hours a day when making no profit.

There are other ways you can make your business more profitable as well, not just the things I listed. This, however, might be a good place to start the journey to make it more profitable.

And at the same time, get you thinking, what could be better. What could be done better, more effectively. If you don’t yet have a business, I have a post about why you should start your own business, you can read it here.

Hopefully this was helpful, have a nice day.

This is not financial advice. Always do your research before risking you hard-earned money or hard-built business. Every business has its unique situation, and what might work for one, might not work for another.