7 Ways to Boost the Profitability of Any Company
The primary goal of almost every company is to remain profitable and increase revenue in order to facilitate expansion. In fact, the term profitability is practically a synonym for success in the world of business, so it makes sense that CEOs are always pressured to raise the bottom line year after year.
The opposite of profitability is insolvency, or the inability to keep up with the company’s expenses, which inevitably leads to negative outcomes like bankruptcy, liquidation, and eventually the closure of the business altogether.
Sadly, the majority of new startups fail within their first three years, and many of those failures are caused by suboptimal planning that leads to poor profitability. The good news is, with a bit of research and persistence you can take steps to make sure an endeavor becomes increasingly lucrative over time.
That being said, here are seven universally applicable and actionable tips that can be used to increase the profitability of any company.
1. Re-invest Profits
The base monthly income that your company brings in can be invested in many different ways to increase annual profits. Funds can be re-invested into the business itself or allocated towards high-return investments in other industries.
In this way, it’s possible to use the company’s profit as an investment seed, adding a significant percentage to your bottom line on an ongoing basis.
2. Set Premium Prices
Many companies make the mistake of trying to compete on price, even though they can’t afford to sustain such an approach in the long-term. Instead of trying to undercut the competition, consider the benefits of positioning yourself as a premium provider.
Setting your prices high may reduce conversion rates and slow down sales, but it can multiply profit margins significantly. Furthermore, in some cases having higher prices can actually make your brand more appealing due to the fact that prospects will perceive your products as being more valuable, effective, or luxurious simply because they’re priced higher.
3. Find New Audiences to Target
Many companies run into plateaus when they run out of ways to reach additional clients and customers. While organic search traffic is always touted as being better than visitors who come from ads and social media, sometimes it takes tapping into untapped demographics and applying more aggressive marketing methods through the use of innovative targeting strategies. For example, if you’re trying to market a new platform that is unlike anything that has come before it, there might not be a lot of people who are actively searching for what you’re offering.
The solution to a problem like that is to focus on a general audience initially and collect analytics on the visitors who convert. You can then use retargeting strategies to target the same demographics that showed the most interest by assessing the results of the previous general targeting campaign.
4. Reduce Overhead and Expenditure
The vast majority of business expenses can either be reduced or eliminated altogether with a few adjustments. In fact, many startups overspend in almost all departments because they buy into the myth that you can only obtain quality results with a huge budget. Make a list of all of your expenses and address each one individually to bring down costs wherever possible.
Eliminating unnecessary expenses frees up cash flow, but don’t go to the extreme of cutting corners. Excessive budget cuts can lead to operational issues and unsatisfied clients or customers who may bear the brunt of the change if you’re not careful.
5. Automate and Consolidate
Excessive payroll commitments can cause a company to pay out a huge chunk of the profit to employees. Most digital tasks can be automated or streamlined through the use of scripts and software. Although you may have to invest funds into the development of such solutions, once they’re working properly they can be used to replace employees that are unnecessarily draining your profits.
In addition to automating tasks, you may also be able to consolidate multiple jobs into fewer positions. Believe it or not, there are companies that are able to get more done with a few virtual assistants than those that are employing a team of 12 to work in an office building all day. Proficient employee management and specific task allocation can go a long way in protecting your profits from dwindling.
6. Incentivize Referrals
Turning your existing client base into brand advocates can seem challenging, but with a bit of incentive most people will be willing to refer their friends and family. This can be approached in two ways – an affiliate program and a referral program, both of which are very similar.
An affiliate program lets marketers sign up to promote your products or services in exchange for a commission, whereas a referral program can be used by any customer without an extra sign up procedure but typically provides lower commissions than those earned by affiliates.
7. Negotiate with Suppliers
Finally, negotiating lower prices and obtaining credit with suppliers are other steps you can take to turn more of your revenue into profit. If you have decent business credit and have been dealing with a supplier for a while, they’ll usually be open to the idea of invoicing you on a net-30 or net-60 basis instead of upfront. While you’ll still have to pay them back, in the meanwhile you can hold onto the cash flow and invest it in more marketing that leads to additional profits.
Find a Problem and Be the First to Solve It
One reason why many companies have trouble becoming more profitable is because they’re competing directly with other providers who are offering similar or identical products and services. In other words, they don’t have a unique value proposition – something that sets their brand apart and offers a solution that no other company has.
Thus, one of the best ways to boost sales, increase profits, and even the playing field is to find gaps that your competition hasn’t filled. Such competitive analysis will not only lead you to making better decisions in your current endeavor, it might also help you stumble upon new business ideas for future ventures.