Every business is always finding ways to increase their profit. Generally, there are a few ways that this can be done:  

1. Conducting a Market Analysis;
2. Increase sales volume;
3. Reducing and/or ensuring that costs are fully recovered;
   
4. Improving the product mix – varying the relationships between the volumes of individual products or groups of products sold;
   
5. Raise prices for select goods or overall;
6. Reduce the capital needed for employment in the business.  

Remember that a change in any of these areas affects the others; therefore, you need to consider the context of the change of all the others whether planned, voluntary or involuntary. Also look at the changes that are made in isolation that may not have the expected impact on profitability as well as other management and customer service programs.  

 

Take a closer look at current and potential markets by using focus groups, customer feedback and commercial and commissioned market research. Be sure to note that in certain product and service sectors, technological innovations can significantly change market structures and shift loyalty very quickly. Therefore, a market analysis has to be targeted to give rapid results. This research should reveal whether current markets can continue and new markets are available for penetration.  

 

Effectively Increasing Your Sales Volume

This may appear to be an easy way of increasing profitability, but this is not the case.   

 

You need to rigorously control the four components of business profitability where none increase disproportionately – costs, prices, capital employed and product/service mix.  

 

This only increases sales if it produces at least enough extra profit (not revenue) to cover the additional costs of the hired team members or expanded trading territory.  

 

If you do this to generate more business sales, you need to achieve a greater increase in your sales volume or else your total revenue will fall, while the costs remain the same.  

 

This may hinder profitability instead of the opposite effect since there more than likely will be inherent administrative costs such as invoicing and dispatching.  

 

The company will have to bear the costs with a knock-on effect on profitability if you attempt to do this in order to encourage more sales.  

 

Selling More Loss-Making Lines such as Existing Products/Services or Introducing New Ones

This may increase your sales volume, but be sure that you know what each line contributes. This can be bad for business unless it is necessary to raise the sales of profit-making ones.  

 

You should investigate and calculate your true costs in total and for unit sales. You cannot adjust your costs in relation to other parts of your business unless you know what they are. Consider the effects of specific cost reductions carefully – arbitrary reductions may not produce the desired results in the long term. Consult your accountant, auditors and bank manager for more information.  

 

This must reflect the combinations, in which the products or services that you provide are sold. The mix is normally derived from a series of historical accidents rather than from careful planning and analysis. Consequently, it may not be as profitable as it could be.  

 

You should examine each product that you sell in terms of the costs attributable to it and the net margin created. You may find that the products producing the highest unit gross profit and making the highest percentage contribution to your sales volume also attract a disproportionate amount of your selling costs.   

 

Raising your selling prices is a potential route to increase profitability; however, even if customers may accept the increases if they are part of a general price adjustment, doing so in isolation without losing business requires either a near monopoly, a vast difference between your products and your competitors or a carefully thought out and implemented policy and sales strategy.  

 

Obtaining a good return on capital and reducing what’s tying up your business normally to improve profitability.  

 

Identify the categories of capital employed in your business and consider whether the following strategies can apply to any of them:  

1. Exercising tighter control of credit;
   
2. Reducing inventory levels;
   
3. Introducing, outsourcing or expanding its scope;
   
4. Disposing of redundant buildings or locating to a new site where better terms may available;
   
5. Exploiting information and telecommunications more fully.