There are many measures business owners use to judge the state of their company, including the number of employees, the number of visits to the company website, and the number of leads sitting in the pipeline. The most important measure, however, is a company’s profitability. Profitability is the underlying purpose of every business transaction, and it is the easiest method to gauge the success of a company. How, though, does one increase a company’s profitability? There are three financial levers that, when managed correctly, will increase a company’s profitability.
Lever One | Raising Prices
Raising your prices can be an excellent way to raise your company’s profitability. Many business owners are self-conscious and insecure about the value of their services, which leads them to undervalue their work and provide unnecessarily discounted prices.
There are a couple of signs that indicate a company’s prices are too low. The first is that a company is spending all of its time juggling customers, unsure of how to fit everyone onto the calendar. In spite of all the activity, this company is struggling to maintain a positive profit margin. Another sign is a company that continually adds services to its customers. Such a company is likely giving far more to its clients than the clients are paying to receive.
There are a few risks that come with raising your prices. Many of your customers may be very comfortable with their current business arrangement, and a sudden price change is likely to upset at least one of them. Any price changes must be presented and explained to your customers in a way that shows them the future benefits they will enjoy because of the price increase. You also run the risk of raising your prices so high that you cannot acquire new customers. This is a very sensitive lever that must be placed in just the right position to maximize your company’s revenue.
Lever Two | Lower Your Expenses
You do not have to simply rely on raising your prices to increase your profitability. Consider lowering your expenses. It is always good to reconsider your business activities and determine which ones are contributing to future growth and which activities are not. Ensure that all activities eventually create a positive ROI. Many companies spend too much time and money on projects, customers, or services that do not contribute to the company’s growth.
There are several potential drawbacks to lowering your company’s expenses. The first is that expenses are limited. You can only cut out so much before you run out of expenses to eliminate. The second is that too much expense cutting may make yours or your employees’ work miserable. That is certainly not the goal. The third drawback is the risk of eliminating the wrong expenses. Certain expenses are not providing immediate returns, but are instead investments that will yield increased revenue in the future. Cutting or avoiding these expenses will limit your ability to grow and leave you wondering why you cannot break out of your current revenue expectations.
Lever Three | Sell More
This is the biggest and heaviest of the three levers. Lowering your expenses and increasing your prices both carry mostly short-term results. Increasing your sales is a lever that you can pull that will have a lasting impact on your business for years. There are many ways to increase your company’s sales.
You can begin by evaluating your company’s value proposition. Do you have clear and concise company goals? Determine how your company’s services fit in its industry. Other ways to grow your company’s sales include consulting with a professional marketing firm, begin working with an advertising agency, rebuilding the company website, speaking at or writing for relevant trade associations, and hiring a sales manager.
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