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Monthly Business e-Tips Vol 2
Issue 10

Show Me the Money!

Clients often hire me to help them get to the next level of business. Most companies want to focus on revenue, but that is just one part of the picture. Another major element of growth is profit. Revenue is the amount of money that a company actually receives from its activities, mostly from sales of products and/or services to customers. Profit is gain that remains when subtracting expenses and losses from revenues. Profit increases a company's retained earnings.

I am surprised that increasing profit is not of equal importance to most business owners. Improving profitability increases the value of your business, makes it more sustainable and provides a better income for you, the owner. Let’s look at ways that a company can become more profitable.

Your business can increase profit if you:

  • Evaluate pricing strategies and cost of sales. Measure the effectiveness of current sales and marketing programs. Look at the cost of sales and make sure your pricing strategy is in line. Consistently evaluate your margins on sales. The numbers are probably reducing right before you. Good financial records will help alert you to those changes.
  • Increase productivity of employees and operations. The more effective a business is, the more profitable it becomes. Clean out the deadwood among your staff and eliminate mediocrity. Make sure your operations function like a well-oiled machine.
  • Optimize your existing customers and relationships. It costs much less to sell to existing customers. Train and reward employees to up-sell and cross-sell, increasing the value of every sale and each customer. Keep in touch regularly with all customers and referral sources.
  • Develop reasonable budgets and stick to them. Reward employees for meeting budgets. Also, analyze return on investment for all expenditures. Make everyone accountable for being cautious in spending.
  • Invest in training employees. Cut costly turnover of valuable staff. Offer professional development plans for employees. Evaluate the effectiveness of outsourcing functions like Human Resources (HR), Information Technology (IT) or other areas that are not directly core to the business.

Here is an opportunity to have a two-way conversation with employees. They see a lot from a different perspective. Ask for and reward them for suggestions that improve the bottom line. Too often, management doesn’t tap into the frontline for feedback. This is a lost opportunity. Don’t make that mistake.

Customers can offer valuable comments as well. They might suggest different options on payment structure, delivery of products and services, or selection from menu or bundled offers. By listening to customers you can create more business.

Profit doesn’t seem as attractive as revenue because of the lower numbers but it is essential to your success. It allows your business the resources to grow; it builds a cushion for the rough times and it supports your life so it is worth the effort. Look closely at how you do things to increase profit. Don’t wait, start now.

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