I’m sure you started your business because you wanted to make money, support your family, and have control over and flexibility of your schedule. I’m sure you want to work less and make more money, give more to charities or people in need, and the way to be able to do this is by increasing your profitability.
I know that for most people, thinking about money, finances, and the management of these things is not their favorite part of their business. However, you must know about profitability and how to increase it in your business.
So, what is profitability? Profitability is the degree to which a business or activity yields profit or financial gain.
Profitability is something you need to think about if you own your own business. You need to take steps to increase your profitability, and there are a few ways to do that, so let’s dive on in.
Of course, you can always make more money, BUT making more money doesn’t exactly mean you are increasing your profitability. I want you to think about ways in which you can decrease your expenses and increase your revenue, thus increasing your profitability on both ends of the spectrum. It is time to stop trading your time for money. I want you to be able to spend more quality time with your loved ones—while making money!
Let’s talk about cost analysis—that is where you look at the cost of things like your fixed and variable expenses. Next, I want you to identify areas where you can reduce or optimize costs without compromising quality. What I don’t want you to do, is to cut corners in your business and buy cheap supplies to decrease your expenses. I do want you to reevaluate your costs and expenses and see if there are any you can get rid of or lower.
Let’s say you are using 3 CRMS, Customer Relations Management Systems because they each operate a little differently and each one has some features you like and some you don’t like. So between the 3, you have what you like and need, however, you are paying for 3 different systems. All of these platforms, subscriptions, and software/technology add up and that is where things get expensive in business. What if you cut your CRMS down from 3 to 2 or even 1 system, thus cutting your expenses and increasing your profitability?
Yes, you might be giving up a couple of nice features, but is it worth the money you are spending on those features?
How have you allowed “business creep” into your business and life? Have you heard of lifestyle creep? This is where, the more money you make, the more money you spend. For example, let’s say you were making $45,000 annually and you had an 8-year-old vehicle. Then you got a raise at work and you are now making $55,000 per year, so you decide to upgrade your vehicle to a 3-year-old one and decide since you are getting paid more you are going to take 2 family vacations a year. Plus you figure since you got that raise and are making more money, you will start flying first class from now on. This my friend, is lifestyle creep and you can do the same thing in your business.
As your business brings in more money and revenue, your expenses tend to increase, but do they need to? Maybe some of them do, but probably not all of them.
Let’s say you have been renting an office space for $400 per month for the last year. Your business has been taking off and you’ve been eyeing up that gorgeous new office space across town that is at the price point of a pretty penny, like $1400 per month. But you love it, the space is three times the size, it would be so nice to have, and you could even have a front desk employee! So, you splurge on the new office space, because your business can “afford it” and you hire the new employee.
Then after 6 months or maybe a year, you decide you don’t really need the front desk lady, bless her heart she is sweet as pie but you aren’t really meeting many clients at the office anyway, so you let her go or decrease her hours. Then you find yourself realizing that you aren’t really using the fancy conference room that was included in your $1400 per month rent. In fact, you are working from home more because your kids are in school, and being home allows you to switch out the laundry in between client calls and meetings.
Did you really need to switch offices? What else could you have done with that extra $1,000 per month that you are spending on your rent? Could you have taken an additional certification or course? Hired a business coach to grow personally and professionally? How about saving it for an emergency fund in case business slows down or you get injured and can’t work? Maybe you could have even, dare I say it, paid yourself with that extra $1k per month?!?!
My point is, as your business makes more money, most business owners spend more money and their profitability doesn’t increase, in fact, many times it goes down! This is not what I want for you. So, think long and hard about what you NEED in your business and what you can live without. Because the point of you starting your own business was to make money, have a flexible schedule, and be able to help others while spending more time with your family.
Ok, moving on, next I want you to consider your pricing. Yes, I know, the dreaded pricing question, “What do I charge?” Well, there are many formulas and ways to figure out your pricing, just ask my good friend, Google. But, what I actually want to talk about is your mindset around your pricing.
As you contemplate your pricing strategy, particularly when considering an increase—which is often a necessary step—what emotions surface for you? Reflect on the price point that resonates positively with you. Additionally, explore the reasons behind any discomfort you might feel about adjusting your prices. Understanding these emotions is key to making informed decisions about your pricing structure.
Many business owners, especially female business owners need to increase their prices. As women, many of us feel the need to nurture and help others and that is often reflected in our low prices or we end up giving discounts more often.
Now, if you can take a trip to Bali and live like a Queen every month or two, you probably don’t need to increase your pricing. But, for the vast majority of business owners, especially in the service industry, we need to increase our prices. So, what feels good to you? What resonates with you? I suggest that you start at the end and reverse-engineer it.
If you want to make $50k per year, how many clients at $1000 do you need to have? 50! Easy math. How about if you increased your program to $1200? What if you increase the amount of money per year you want to make? Say, you want to make $100,000 and your program is priced at $1500, how many clients/programs do you need to sell?
Also, remember you are basing your prices on the VALUE you are providing to your clients and customers, not necessarily the amount per hour you are spending with them. I am a life and money coach and my coaching calls are currently between 45-60 minutes. However, I do prep work and other work after my hour with my client. I am also always taking courses and hiring my own coach to improve my services and coaching. I base my prices on the value I provide, not only on the time spend coaching my clients.
If you offer products, you need to assess the profitability of each product (or service) you offer. I encourage you to focus on promoting and selling those that generate the highest profit margins.
I recommend you identify and target your most profitable customers as well and tailor your marketing efforts to attract and retain customers who bring the most value to your business. Also, make sure your customers and clients are individuals that you want to work with. No one wants to spend hours coaching someone who isn’t a good fit. I want to work with clients who are ready to take action, not those who deplete my energy.
Another way to increase your profitability is to make sure you have processes and systems in place. I will be transparent; this is not a strong suit of mine. But if you have a good system in place and streamlined operations in your business this will improve your efficiency. Automating as much as possible, especially those repetitive tasks is key.
Upselling is another way to increase your revenue and if you are upselling your products and services that are your most profitable, boom, you’ve just increased your profits!
If you have employees, investing in employee training and engagement to boost productivity will help your business succeed. Employees who are skilled and engaged contribute more effectively to the success of the business. Plus you will have less turnover and happier employees who actually want to work for you and they want your business to flourish.
Empowering your employees to take responsibility for how your business is doing will allow them to do their very best. Which in turn will allow your business to grow and your employees to feel a sense of satisfaction at the success they helped build.
Another way to increase your profitability is to negotiate with suppliers to secure better terms, discounts, or bulk purchasing. This can lead to cost savings and improved profit margins! Whoop whoop.
Have you thought of what your community needs? Or what would be a good new market, or expanding your current market reach? By diversifying your customer base you can reduce your dependence on a specific segment.
Customer Retention is often more cost-effective than constantly being out marketing to and acquiring new customers and clients. I suggest putting in place a customer loyalty program or personalized services to retain your current clients.
And you definitely want to be regularly monitoring your financial statements and key performance indications. This will allow you to identify trends, spot potential bleeds/issues, and make informed decisions to enhance profitability.
Before we go any further let’s talk about what key performance indicators are. KPIs are measurable values that indicate the performance of a business or a specific activity within an organization. These indicators help businesses track progress toward their goals, assess the effectiveness of their strategies, and make informed decisions.
I wouldn’t be me without mentioning the fact that it is super important to make sure you have a budget for not only your business but also for your personal finances. Having a budget is simply a plan for your money. You will always know where your money is going when you have a budget. Create your budget and try to stick to it as much as possible. But be sure to give yourself grace when it isn’t always perfect.
I also suggest paying yourself first in both business and personal finances. I set up my savings to automatically transfer from my checking account into my savings every single month. I recommend doing this for your business as well. So make sure that out of every single sale and transaction you are putting a percentage of that into your savings, paying yourself, and also setting aside money for taxes. You will thank me and yourself come tax season.
A good rule of thumb is that you will need to pay 30% of your revenue into taxes. If, after settling your tax obligations for the year, you find extra cash, consider it a win that can be allocated elsewhere in your budget. This could be directed toward increasing your income, contributing to charitable causes, or even rewarding your employees with bonuses if you have a team.
Effectively managing cash flow is the backbone of a thriving business because 82% of all businesses fail due to cash flow problems. It’s not just about numbers but making sure your financial operations are running smoothly. Optimizing cash flow means striking the right balance between money coming in and money going out. This strategic approach ensures you can meet your short-term obligations, seize opportunities, and navigate unexpected challenges. Through practical planning, timely invoicing, and smart expense management, you establish a financial rhythm that not only sustains your operations but drives your business forward.
Lastly, let’s dive into the importance of building robust customer relationships because, without them, your business won’t reach its desired growth. Achieve this by offering exceptional customer service, providing a reliable money-back guarantee, and emphasizing a service-first, sales-second approach with your customers. Consider implementing a loyalty program to demonstrate your appreciation for their support and commitment. Always seek customer feedback, genuinely address their concerns, and be proactive in making necessary changes based on their responses. This approach ensures a reciprocal and mutually beneficial relationship between you, your clients, and your business.
So, what are the steps you will take to make sure your business is achieving increased profitability? How will you know what is working and what might need to be changed? Your business is your baby and I know you have big dreams for it. So being profitable is needed to make these dreams a reality.
XOXO
Jess Wayne
