We all know one of the top goals in business is to make a decent profit, but sadly, not all emerge successful in achieving this. If only they knew the secret formula to increasing business profit – also known as the ‘3 Profit Layers’, then the outcome may have been different. So, what are the profit levers, and how can you use this to maximise profit?
Firstly, you must be good at your record keeping, and have the numbers handy. At a minimum, these are revenue, fixed costs, and variable costs. Ask your accountant for an up-to-date Profit and Loss (or find this by going Accounting > Reports > Profit and Loss on Xero). Once you have this on hand, you will be able to use the 3 profit levers of your business to improve profitability.
Profit lever 1: Expenses
You can increase your profits by cutting your expenses. Look at your Variable costs and see how you can reduce them. Imagine if you serve 500 customers a week and reduce costs by 50 cents per customer, you will save $13,000 a year. Just make sure your cost-cutting doesn’t affect your products or services negatively!
Profit lever 2: Price
Are you charging enough for your products or services? Look at the pricing of your competitors and look at your price from your customer’s perspective. Look at the value you offer to your customers and how much more they are willing to pay. Increased prices will directly impact your bottom line.
Profit lever 3: Volume
Of course, you can increase your profits by selling more. Attract new customers and encourage existing customers to buy more. Identify your high-profit clients and high-profit product/service mix and make sure your marketing and sales teams give them the highest priority.
Pull all the levers
Can you find a way to reduce costs, increase your price, and increase volume to ultimately increase your profit? If you can’t quite figure it out, why don’t you enlist help from an accountant? Give us a buzz and tell us more about your business.
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