Every business needs strong profits to survive and to thrive. One way to grow your business profits is to understand the Profit Ladder and the 4 components of profit: Price, Productivity, Expense Management and Sales Volume.
Price – This is where strong profits start and I always tell clients that the profit is in the price. Unlike large businesses that can rely on a low price / high volume strategy, small businesses need to make sure that they position themselves in the market so that customers are willing to pay a higher price for their products or services. This is achieved by developing a point of difference compare to your competitors.
Productivity – Achieving more in the same amount if time will lead to lead to better efficiency and profits for your business. This means having a team that works efficiently and effectively, with minimum errors and re-work. This can be achieved by hiring the right people, training them and managing them well. It can also be achieved by having good business systems that make the business run smoothly and cut down the work for your team.
Expense Management – Profit is the difference between sales and expenses, so it’s vital that you manage your expenses well this applies to your productions expenses (cost of sales) but also to your general office expenses and wages I always look at individual expenses items as a percentage of sales and then compared this over time to highlight expenses that are growing at a faster rate that sales growth
Improving these 3 areas will ensure that your business has good “margins” – that it’s making good profits from each individual sale
Sales Volume – Once you know that you have the fundamentals in place and you are making profits on each sale, then it’s time to ramp things up through better sales and marketing.
Work on all four of these areas and you’ll have a business that is highly profitable, and that’s the first step towards a business that provides you with strong cashflow, which is a topic for another video and article…
By Anil Puri