Let’s say your goal is to have more money in the business. Do you want more revenue or profits? Many business owners think of revenue and profits as the same thing, but they are different. Revenue is how much money your business brings in, and profit is how much money remains after all expenses have been paid.
Insight into how to increase your revenue is a different conversation that may feature sales and marketing strategies. I want to share a 7-step framework to help you increase your business profits. With a few strategic tweaks, you can have more money in your pocket without any fancy marketing funnels.
7-Step Framework to Increase Your Business Profits this Year
1. Engage in Strategic Planning - This is the crucial first step that builds the foundation for a profitable business. Think about what’s important to you and what will define your success. Start by reflecting on your business so far and think about your long-term vision for where you want the business to grow. Write down the ultimate vision for your business.
2. Define Success Metrics - With your strategic plan and goals in place, let’s define your success metrics. These will act as a guide as you work towards achieving better profitability. Here, you’ll want to create SMART (specific, measurable, achievable, realistic, and timely) goals for your business that you can track on a regular basis. Since we’re discussing profitability, let’s assume one of your goals is to increase profits. Take your current profits and set a goal you want to achieve this year using a dollar amount or a percentage increase as your success metric.
3. Perform Profitability Assessment - During this step, you’ll need to review your business financial statements, including expenses and income streams. This will take some time, but it is worth the effort to know exactly how your money comes in and where it goes. For an in-depth walkthrough of this process, read my blog on how to analyze the profitability of your business.
4. Focus on Profitable Services/Products - After performing your Profitability Assessment, look for key trends. Which of your products or services are the most profitable? Note, don’t just look at which is the highest in sales. If you sell a product for $10, but it costs $9 to produce, you’re only making $1 profit. However, if another product sells for $7 and costs $4 to produce, that’s a $3 profit. Consider if you do anything different for your $7 product revenue stream that you could replicate for your $10 product to make it more profitable? Conversely, can you focus your efforts on the $7 product to increase the volume of its sales?
5. Increase Your Pricing - It’s not a cut-and-dry decision but should be made after reviewing whether your prices reflect their value and whether the market and your existing customers can support a raise in your prices. Even a small, strategic bump in prices can result in more profits.
6. Reduce Expenses - Now that you’ve analyzed all of your business expenses in step 3, can you make any reductions? Not only that, you may have found errors that result in saving money. While performing a business expense analysis, I’ve discovered duplicate charges, uncanceled subscriptions, and misclassified expenses. These may seem like small things, but they can quickly add up.
7. Process Improvement - Now that you’ve reduced expenses and are focusing on your most profitable services, this is the time to increase the efficiency of your products or services. Take your results from step 4 and map out the entire process of creating and delivering your products to your customers. How can it run smoother? What can be automated? Is the process even documented? The smoother and faster your processes are, the quicker they get into customers’ hands, thus leading to more profits.
How to Build a Profitable Business with the Right Support
Now that you have a solid framework to increase your business profitability from this article, you have all the tools that you need for success! There could still be one more tool in your toolbox to hit these goals, and that is the right support to get it all done. Finding a financial planning and strategic management consulting firm can offer expert advice on your business planning and profitability. Lighthouse Advisory supports clients across the USA of all shapes and sizes to achieve better profitability through a holistic approach to their business finances. We’d love to see if we’re the right fit for your business. Take action here by scheduling your free consultation.
