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Know Your Numbers, Grow Your Business

April 12, 2022

Four Ways to Optimize Profit

One of the biggest challenges that business owners face is increasing profit. Many business owners assume that the only way to increase profit is to increase sales. In reality, the first place to start is not increasing sales/revenue but optimizing the profit already in your business. Today, we will discuss how to optimize your profit and increase your bottom line without focusing on finding new clients. 

Know Your Profit Margins

Look closely at where the money comes from in your business. What are the products or services that bring money into the business? Spend some time listing how your business makes money and how that revenue compares with the cost to make the product or deliver the service. 

optimize profit

If you have a service-based business, remember that the time it takes for you to provide the service is worth the money. Often, service providers do not value their time as a finite resource and ultimately undercharge for their service. 

Focus on Highest Profit Offerings

One of the key traits of entrepreneurs is that ideas are constantly flowing. The constant stream of ideas means that a business might have MANY product or service offerings. While creating new products and services is exciting, it may not be the most efficient use of time and money. This is why knowing your profit margin by product or service, and not just in total, is so important. At 4 Corners CFO, one of the first exercises we do is determine the most profitable product or service in your business. While you can, and should, still offer other products and services (think sales funnels, upselling, and just general diversity of income), focus your efforts and marketing budget on the promotion and visibility of your business’s money-making offers. 

Increase Prices

As we mentioned before, many business owners assume that the way to higher profit is more customers. But more customers means more costs (for product-based businesses) or work (for service-based businesses). The quickest way to optimize profit is actually to increase prices. In our experience, there is always room for price increases for two main reasons: 

reduce expenses to optimize profit

You are undercharging. Plain and simple. Many businesses do not charge what they should. This is especially true for service-based businesses because we don’t tend to value our time and expertise as highly as it should be. 

If you offer a service at $1,000 per month to 10 people, you make $10,000/month. If the market value for that service is $1,500/month, you are missing out on $5,000 a month in revenue.

“But I’m going to lose clients if I raise my prices.”

Maybe…but if we use the scenario above, you could lose three clients out of 10 and still be making more money than you were when you started.

If you are overwhelmed with work or have a goal to work fewer hours, you could serve 6-7 clients and still make the same $10,000/month. Increasing prices can net you more profit and/or earn you more time. 

The second reason to raise prices is that it has probably been YEARS since you did. Businesses should revisit their pricing every 6-12 months. The cost of doing business changes over time, and so should your pricing. As I’m writing this, inflation is at an all-time high. Have you raised your prices to account for all the cost increases you’re seeing? Whether it’s the costs of creating a product or simply the fair value for your services…values have increased, and your prices should too. 

Service-based businesses should also be increasing prices as their longevity in the market increases. People pay service providers for the expertise and skill they bring to their clients. If you have been in business for five years and have a strong education and a solid client roster, you should not compete on price with a new-to-market company. Price your services based on what you bring to the table, and you will find your ideal clients that value your skills and the results you provide. 

Much like not charging for time, service providers often do not charge for all the expertise, education, and proven results they provide to their clients. Whether you are a service or product-based business, increasing prices is a quick way to optimize profit.

Decrease Expenses

The other way to quickly optimize your profit and increase revenue is to reduce expenses. At first glance, many business owners can’t think of anywhere to trim costs, but you would be surprised how quickly you can reduce your monthly expenditures with just a little research. 

First, look at all the things you subscribe to monthly or yearly. We have never met a single person who does not have at least one recurring expense that they do not even realize exists. While $10 here and $20 there does not seem like a lot, those subscriptions add up quickly! Look through a recent month of bank and credit card statements, review all the subscriptions, and cancel those you do not need. 

Next, take a look at the essential services to your business. Phone, internet, and insurance are a few necessities that can feel like immovable expenses. While you need these things, you can also shop around for a better rate. Simply asking your current provider for a better rate can get a price reduction. If that does not work, then start comparison shopping! Many competitors will offer lower rates to earn your business. Take advantage of that! Whenever these contracts are up for renewal, shop around or ask for a lower rate. You may be surprised at how much money you can save. 

Another way to reduce expenses is through automation and increased efficiency. Let’s say that you have an assistant that manages your email and is answering the same questions over and over via email. Creating a standard email that addresses common questions reduces the time you pay your employee to answer those questions. This is even more important if YOU’RE the one answering those questions or sending those repetitive emails. The same thing can be done for repetitive tasks with the same process. Examples include: 

  • Client onboarding
  • Client Offboarding
  • Email Automation
  • Contract Creation
  • Discovery Call Information Gathering
  • Onboarding Employees & Contractors

If you have a product-based business, you should be reviewing the costs associated with producing the product regularly. If there is a way to save on raw materials or production costs, make adjustments! When was the last time you asked your vendors for a discount or looked into different vendors? A regular cost review can keep costs low and put more profit in your pocket. 

If you don’t think you have time to make the calls or review the invoices, we know referral partners whose sole job is to reduce company expenses, and their fee is just a fraction of the savings! Check out Thomas Gilman and let him know we sent you.

No matter where you are in your entrepreneurial journey, increasing profitability is always a great goal! Regularly reviewing your pricing and expenses are simple ways to optimize profit and increase revenue without having to bring in a bunch of new clients. Book a discovery call if you would like to chat more about how 4 Corners CFO can help you keep more money in your business! We would love to help!

Filed Under: Budgeting & Forecasting, Business Finance, Cash Flow, Fractional CFO Tagged With: Budget and Forecast, CFO, Small Business

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