By Graham Lamont, Chief Executive at Lamont PridmoreManaging the costs of a business and increasing profits has never been an easy task, but with tumultuous times forecast on the horizon there has never been a better time to review working practices to drive profit improvement.
The obvious option seems to be to simply cut costs or pass them on to customers by raising prices but this is not always desirable, or in some cases possible.
There are, however, five simple steps that all businesses should consider if they want to improve their profits:
Understand your supply chainWhether you are just starting out in business or have inherited a business from a family member, it never hurts to review your supply chain and input costs to ensure that you are getting the best service.
When looking at your supply chain it is worth receiving additional quotes for the supply of the same service or raw material to see whether a competitor can offer a better deal.
However, remember cheaper isn’t always better and your businesses could suffer if, for some reason, the supply chain is disrupted.
By reducing input costs businesses will not only enjoy more profit, but savings can be passed on to customers, which could make a product or service more attractive.
Pricing strategyIf a business can get a better idea of their running costs then they may be able to more accurately review their pricing strategies.
Businesses should first conduct research into the prices charged for similar products from competitors before they start increasing their own prices.
You need to consider whether your product or service offers something more to a customer and what value should be placed against this benefit.
For example, if a business sells a food product that weighs 1kg, but competitors sell something similar at the same price that weighs less, then the business should charge more, or at the very least should be encouraging customers to recognise the benefit of getting more for less.
Similarly, in a service setting if a team is more experienced or skilled this should be communicated to clients so that higher prices can be justified.
Increase the value of goods and servicesIf, having reviewed a pricing strategy, a business intends to charge substantially more for what they offer then it might be worth increasing the value of the goods or services provided to make the price point match the product it intends to offer.
This can often require a fine balancing act between the cost of the resources invested into a product or service and the quality delivered.
If a business can clearly demonstrate the value that they can add to a customer they will be in a much stronger position to charge more.
Do away with unprofitable elementsAs businesses expand, they tend to grow their product lines and services. However, what may once have been a profitable service or good may not always remain so, even when it continues to sell well.
Owners should, therefore, consider cutting products or services that simply don’t have a sufficient cost vs profit ratio.
Similarly, a business may find that a regular customer is no longer offering sufficient profit from the products they receive.
This could be because they are enjoying legacy prices that are lower than other customers or, as is often the case, they think that their loyalty allows them to pay slightly later than other customers would, which can cause issues with cash flow.
No business wants to get rid of a longstanding customer, but sometimes it is necessary to do so to free up capacity for higher value work.
Energy costsWhether you are managing an office space or working within a manufacturing environment, energy is an underlying cost that all businesses have to meet.
If you have been with the same supplier for a number of years any introductory deals you may once have enjoyed may no longer offer the same benefits.
Just like a domestic setting, changing from one energy supplier to another can help save hundreds of pounds a month, particularly in industries where the use of gas and electric is heavier.