Business Profitability

Whether you're just starting your business or opened your doors years ago, the key to business profitability isn't just attracting new customers. In fact, if your business already has a more than adequate clientele flow, what else can you look at to improve profitability? Let's take a look at the all the factors that come into play.

Other than the need to attract more customers, other reasons your business might not be experiencing the earnings you hoped to see may include:

Your gross revenue is the amount customers pay over the course of a year. It pays to research how other comparable businesses fare and to be sure your ideals are not unrealistic. To make sure you're in the ballpark, compare your business' profit margin (net income divided by gross profit) to a preferred goal of 70 percent. To see what other businesses are doing, you can check with your professional association for available statistics to help you make an informed comparison. If they don't have what you need, check with other published sources like Dun & Bradstreet's Industry Norms and Key Business Ratios.

If you're reaching for the preferred goal of a 70 percent profit margin that means you shouldn't be spending more than 30 percent of your gross profit on overhead and marketing. The answer to increasing your business profitability in this case is to cut expenses by reducing overhead.

Sometimes the old adage, "There aren't enough hours in the day," comes into play. You're the only one who can make this determination, and the answer may be that you need to hire additional help. If you're not ready to make that kind of commitment, you could consider subcontracting work out and keeping a percentage for yourself. While hiring another person will initially cut into your business profitability, if they do their job effectively, over time you will recoup that initial expense and actually see more profit.

If you think more customers is the answer to increasing your profitability, ask yourself this question. Do you have enough billable work to keep you busy? If not, you're right. You do need more customers. Tweak your current marketing plan to highlight your most marketable service or break into a new market. If you don't have a marketing plan it's time to establish one. If you're struggling to fund an effective marketing plan, you can check with other businesses in your area to see if any of them would like to form an alliance to send business to each other.

Now that you've learned how to identify the reason or reasons why your business profitability isn't what you want it to be, let's take a look at some ideas to help you boost it.

• One option is to raise your rates, but this can be touchy. If you raise your rates too much, you may chase away existing customers in an effort to gain new ones. If you want to raise rates, you may want to transition between existing customers and breaking into a customer base who are willing to pay more. Another option is to look for customers willing to buy volume.

• If time is an issue for you, consider hiring administrative help, to take the burden off you and free up some time. Your professional rates will bring in more that what you pay out for assistance.

• In order to get more from your current marketing plan, create a new strategy that incorporates a marketing activity each day, week and month. These can work as milestones to keep you focused and motivated. A daily marketing goal can be a simple as talking to someone each day about what you do.

• One last thing to consider is soliciting help. In your efforts to save money, sometimes you can trick yourself into thinking you can do it yourself, but how much money are you really saving if your business is not running at top efficiency? In reality, trying to do everything yourself may be contributing to lost profitability. Take the time to figure out where your talents are the most profitable for your business. Just like hiring administrative help to free up your time, hire help for the areas where you are least skilled, and your company will reap the benefits.

While reading this article, have you realized you don't have adequate information to analyze your earning problem? If you operate a service business, this is the information you need in front of you to help you put your finger on the financial pulse of the health of your business:

• Revenue
• Expenses
• Profit margin
• Number of customers
• Average sale amount
• Billable time

Use this list to start gathering information so you can track these measurable amounts today to help set profitability goals and to identify what steps you need to take to boost your business profitability.

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