Tips to improve your firm’s profitability

firm profitability

No matter how altruistic your company goals might be, all businesses exist to turn a profit and can only exist if they find ways to keep a handle on their spending while improving output. Over the years, countless businesses have gone to the wall by not keeping a close eye on their expenditure, and lack of funds remains the most common cause of early business closure. 

The basics of profit

At its most basic, a firm’s profits are calculated using a very simple equation: Sales–Cost of sales=Profit. Of course, it can get considerably more complex than that, and there are numerous online guides to help you work out your Return on Investment (ROI) when making business decisions. However, as a very basic rule, a company will operate successfully if it remains in profit.

The important difference between profit and sales

Often, business owners consider sales as being the single most important factor for company growth where, in reality, profit is the figure you should focus on most. Here are just a few tips for ways you could improve your company’s margins and raise profitability.

Increase prices:

Perhaps the most obvious (and, arguably, laziest) way to increase profits is simply to increase your prices. Very often, bosses feel that if they put up prices, they’ll drive trade away. Unless you’re in a highly competitive market with many firms jostling for limited customers, you may well find just a small increase of, say, 5% could have a dramatic impact on your overall profitability. Don’t be afraid to price-test – to see what your market can happily bear and get a better idea if you can maximize your margins. 

Find ways to attract more customers:

It doesn’t take a genius to understand that having more customers translates into more sales, but, often, business owners struggle to find ways to attract more clients. However, there are more opportunities in the digital age than ever for building and increasing your client-base – everything from performing Search Engine Optimization (SEO) on your website to targeted social media promotion or email campaigns. If you’re in any doubt about your options, you should check online marketing guides for ideas. 

Improve your company efficiency:

Remember that two-way process of profits – Sales minus the cost of sales? If you can find ways to drop your sales or production costs, you’ll go a long way to future-proofing your firm to keep it running in profit. One of the greatest ways to increase your company’s efficiency is to install a streamlined IT network to enhance everything from your data management to remote access solutions allowing your staff to work more effectively while on the road. Professional IT companies like have vast experience of working with businesses of all types and sizes in all sectors and can tailor-build solutions bespoke to your company. 

Try to increase the frequency of purchases:

The respected Pareto Principle states that 80% of a company’s profits come from just 20% of its customers so, when you gain a client, it’s your obligation to ensure you maximize the number of sales you can achieve from them. This doesn’t mean being pushy or forward – rather just ensuring you give them the best possible sales and after-sales service to guarantee they come back again. 

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