Every entrepreneur needs to focus on growing profits for their small business.
Just because you can pencil profit into the financial projections doesn’t mean it will automatically come to fruition. As an entrepreneur you have to commit fully to “minding your own business” to generate the profits that you seek.
Here are several strategies I encourage you to follow as you look to achieve the profits in your small business.
Focus on Profits and Outputs
To operate a profitable small business, you have to constantly evaluate the productivity gains from people and resources. I don’t hire someone without knowing the potential return on investment for my business. In other words, I evaluate new hires and contractors by how much revenue they can bring in. As a small business, you can’t afford to hire anyone who’s work you can not quantify in billable hours or in work productivity that enables others to achieve more billable hours. Before buying a building, equipment, inventory or supplies, consider the direct or indirect impact the investment has on your bottom line.
Get Your Hands Dirty
Putting pen to paper and analyzing profit potential doesn’t take a lot of painstaking effort. However, putting hands to dirt to execute your plan often does. It is rare to generate profits without hard work. Occasionally, you can fall into an opportunity, but by and large you will fight for most business opportunities, particularly if you operate in the B2B marketplace. As the business owner, you must always do what is necessary to reduce costs. Initially small business owners often change light bulbs, do routine plumbing, clean and perform other laborious tasks, until they realize their time is more profitable doing high value activities like selling the next job. Hiring someone to do these things is more effective.
Always Look for Efficiency Gains
Even if things are generally going well, the key to maximizing profit potential in a small business is to always look for efficiency gains. Saving $100 per month on building expenses, reducing banking fees or buying more used equipment instead of new equipment could all improve profitability. Efficiency isn’t just about cost reduction. You can also do things better or to find ways to get the same or greater value without a lower investment. For example, you can look for a business credit card that offer rewards or cash back for purchases. You are spending the money anyway, and now you can benefit from it as well.
Profits don’t just come from controlling costs. In fact, the key to optimized profits usually lies more in your ability to scale your revenue up at a higher ratio than your costs.
Training your sales team to generate maximum value from each customer is an effective way to accomplish this. More importantly, emphasizing a quality customer experience that leads to repeat purchases, loyalty and referrals helps amplify long-term revenue. Attracting new segments of customers is a common revenue growth strategy as well.
Evaluate your pricing strategies to enhance profits. Don’t undersell your products and services to drive a high-volume of inefficient sales. Precise pricing attracts the right buyers who are willing to pay for quality and innovation. Regular discounting minimizes gross margin, and should only be done strategically. Remember, you teach customers how to treat you.
The path to profitability includes emphasis on optimizing revenue and reducing costs. Profitable business owners create business strategies that optimize resource productivity and pricing strategies as well. Eliminating waste and controlling costs are important too.