For the continued growth of a business or organization, ensuring profitability is essential. Long-term goals are vital along with a sustainable workflow. However, complex long-term strategies to increase profit are not the only methods available.
There are simpler ways to bring about an improvement in profitability with the 5 tips that we’ve detailed below.
1. Examine Pricing Strategy in Detail
An organization’s pricing strategy has a major impact on its bottom line. Price hikes or decreases directly affect profits. The price of each product or service must be determined only after a careful consideration of the market conditions.
Review and examine current pricing strategies. By understanding the rationale behind pricing each product or service, you can gain a deeper insight into the value of each. In turn, you may discover opportunities where the prices can be increased based on their value.
2. Discover Where Time Is Spent
For any organization, time is a valuable commodity. It is vital for the workflow of the organization to be accounted for. This requires measurement of all processes. Utilize a time-tracking system to determine the time being spent on each process. This in turn helps to eliminate time leakage, which can save a significant amount of money.
To enhance profit margins, it is essential to identify the areas where each employee spends most of his or her time. The following areas require special attention.
Realization: In this concept, the seller recognizes the revenue when it is earned regardless if cash from the transaction has been received. For example, Company A wants to outsource their marketing and Company B wants 20% upfront and 80% upon completion of a project. In this case, Company A should not recognize any of the revenue until the risks and the rewards are transferred over to Company B.
Utilization: The rate is the calculation of chargeable work that can be billed to the client. For example, during a 40 hour work week, you have 35 hours of chargeable time and 5 hours of unassigned or general tasks. Your utilization rate would be the following:
Operating Hours x 100 / Available Hours
35x 100/40 = 87.5%
3. Implementation of Job Costing
To know how to increase profit, you must have an in-depth understanding of the numbers on the financial statements.
Job costing or labor cost allocation provides a glimpse into the actual costs of the workflow. This provides the opportunity to examine profitability. You can also identify opportunities and bottlenecks with respect to the following:
• Products & Services
• Employees & Teams
4. Management of Employees
Knowing how to improve profitability involves knowing how to manage human resources effectively. Developing proper human capital management strategies can improve the levels of productivity. The simple mantra is to engage employees to increase productivity and, in turn, profitability. Here are a few pointers that can help in this area.
Talent Management: It is essential to define what constitutes employee success. Discover what motivates your employees. This allows you to leverage their strengths while recruiting new talent with these behaviors.
Maintain Scores: Review the performances of departments as well as individuals. This provides a better understanding of how employee contributions affect the overall profitability of the business.
Recognition: All employees respond when their efforts are personally recognized. An organization that cares for its employees and recognizes their contributions will find better performance and better results.
5. Improve Hiring Processes with Leading Indicators
Monitoring proposals and leads result in a better experience for both potential clients and employees. To do so, it is important to have a detailed understanding of leading indicators.
Hiring: For hiring, new talent must be acquired at the right time. Advanced hiring puts excess burden on the payroll. After all, the extra cost cannot be supported without a corresponding increase in production. By bringing in new talent at the right time, employees can start delivering immediately.
Client Management: It is vital to have the resources on hand to handle new business. Without these, issues with client management and retention can result.
Knowing how to make a small business profitable may seem difficult. However, with enough patience and effort, it is possible to see some major improvements.
Another way to increase profitability is to reduce your accounting and bookkeeping costs. Contact NuVest Management Services to learn about how we can help your small business become profitable through outsourcing.