12 Ways to Boost Profit (2024)

Profitability is a measure of a company’s ability to generate maximum revenue whileincurringminimal costs. In the most basic sense, profit goes up as sales increase and/or costsdecrease.

In reality, though, achieving profitability is anything but simple. Because salesand costs are not necessarily incremental, focusing too much on increasing sales could leaveyou at risk if there is a sudden, unforeseen decrease in demand. And cutting costs bysubbing in lower-quality materials could lose you customers.

Given that, business owners have a perennial, burning question: How do you maximizeprofitability, anyway?

For this article, we’ll focus specifically on two topics: What does it mean, exactly,tomaximize profit? And how can we also increase resilience and customer satisfaction?

1. Assess and Reduce Operating Costs

Operating expenses, commonly referred to as OPEX, are the costs associated with running abusiness. Operating expenses include rent; utilities; equipment and inventory; marketing andadvertising; research & development (R&D); selling, general and administrative(SG&A); and payroll.

OPEX does not include costs directly associated with product production—these areaccountedfor in cost of goods sold (COGS) or, for big-ticket items like buildings or machinery,capital expenditures.

When companies need to cut costs, OPEX is often the first place they look because theseexpenses are not directly related to production. However, if done preemptively or unwisely,OPEX cuts can have long-term negative effects on the business. Executives must review allreductions and understand how a decrease in, for example, advertising and marketing willimpact sales in six, 12 and 18 months. Likewise, slash R&D today and you may end up withno new products to release 12 or 24 months from now.

2. Adjust Pricing/Cost of Goods Sold (COGS)

Cost of goods sold (COGS) are the direct costs associated with making a product or deliveringa service—mainly raw materials and labor. It’s critical that COGS is calculatedaccuratelyand kept as consistent as possible so that products or services may be priced correctly.

To achieve this, companies must define, track and price the time and material resourcesneeded to complete each build. By standardizing the manufacturing process, you should beable to accurately anticipate true costs and avoid large discrepancies from one build to thenext—thus standardizing COGS.

Although COGS may be decreased immediately by decreasing labor or substituting less-expensivecomponents or raw materials, again, as with OPEX, consider the long-term implications: Willyour production speed or product quality suffer?

3. Review Your Product Portfolio and Pricing

Related to both of the above items, it’s important to understand the true unit marginsfor each product in your portfolio and update that data frequently.

A good rule of thumb: Before adding a new offering, review your current portfolio. Areproducts underperforming? Do you have difficult-to-produce items that are eating away atyour margins, time and money? Would a price decrease of your highest-margin productsincrease sales? At the same time, don’t be afraid to discontinue products with thelowestmargins, or raise their prices.

4. Up-sell, Cross-sell, Resell

It’s expensive to acquire new customers. Instead, smart companies know that one of thebestways to increase sales is by introducing current customers to additional products, viaupselling, cross-selling and reselling.

Make sure all sales reps are trained in upselling techniques and know how to approach theconversation without being pushy and turning the customer off from the purchase altogether.Use an informative/educational approach and explain how premium features add benefits thatcould help the customer. Clear comparisons, perhaps in a grid or informative graphic, arehelpful for educating consumers on the features and benefits of various available models.

Cross-selling is also an easy way to increase a current customer’s consumption ofproducts.Consider promotions to introduce customers to additional products, especially newones—thinka free bottle of shampoo with the hairspray they’ve come in to buy. Cross-selling canalsobe successful without a special promotion, or discount, simply with a recommendation fromthe sales rep that items pair well together, as in: “I brought this top for you to trywiththose pants.” Finally, consider cross-selling by automatically promoting personalizedoptions based on items in a customer’s online cart.

Finally, reselling is one way many companies are generating additional revenue from existingproducts. By offering a resell program, customers can donate (or sell back) merchandise theyno longer want but that is still in good condition. With some minor refurbishing andcleaning, this merchandise can often be resold, increasing your profitability and decreasingwaste of unwanted items.

5. Increase Customer Lifetime Value

Aka: Never underestimate the power of happy clients. Understanding your customers anddelivering consistently excellent experiences is perhaps the most cost-effective way toincrease loyalty and acquire new customers via referrals.

You can show appreciation for your existing customers, increase their lifetime value, delivernew leads and boost your profits. How? Consider:

Incentives:

Offer personalized promotions of products a current customer has expressed interest in, plusa code to share with friends or family.

Encourage referrals:

Launch a referral program that rewards customers for recommending your product or service.

Recommendations and reviews:

Incentivize customers to talk up their favorite products on social platforms. After all, thebest advertising is free advertising.

Customer retention:

Today, experiences are paramount toconsumers. Interactions with a company can trigger animmediate and lingering effect on their sense of trust and loyalty. Value, reliable serviceand quality products will always be important, but experience and connection are what set acompany apart in highly competitive markets.

6. Lower Your Overhead

That’s retail. How can profitability be improved in manufacturing? Often, the fastestway tohigher margins here is negotiating better terms with suppliers to lower COGS. Ifyou’reusing more than one supplier to deliver the same component, consider economies of scale: Ifyou increase your order incrementally with one provider while decreasing incrementally withthe others, could you capitalize on a price break?

For example, say you purchase 21,000 bottle tops every month, and you have three suppliers.To ensure a resilient supply chain, you place an order for 7,000 from each. But supplier Aoffers 20% off if you purchase 10,000 or more units. By increasing your order to supplier Aby 3,000 and decreasing by 1,500 from B and C, you’ve saved 10%.

Likewise, look across your portfolio: Have you started purchasing additional products from anincumbent supplier? If so, have you renegotiated at each step and asked for discounts?

7. Refine Demand Forecasts

If you have more componentry or raw material inventory than demand, you’ll end upspending tostore it, or worse, have it expire and need to be replaced. But if you don’t haveenough,you’ll pay for rush orders and expedited shipping—both of which increase COGS.

And, did you know that in 2019, U.S. shoppers returned merchandise worth more than $300billion, with a significant chunk of those items ending up back in the hands ofdistributors? Make sure you have a plan to extract maximum revenue for returneditems.

The ability to accurately predict required inventory based on historical demand, seasonalityor sales forecasts helps mitigate both problems.

8. Sell Off Old Inventory

In a related problem, say you make a promotional or seasonal product, it doesn’t sell asexpected, and you’re left with obsolete inventory. Each day, this inventory sits inyourwarehouse, taking up space that could be used to store goods that are high movers and yielda tidy profit.

First, try to sell that obsolete inventory. Options include third-party retailers, such asAmazon or eBay, discounting or outlets and reverse-logistics vendors. Barring that, considerdonating items for a tax write-off. Deciding which path to take depends on factors includingthe costs of transportation, inspection and restocking.

Then, figure out where things went wrong and how to avoid over-producing in the future.

9. Engage/Motivate Employees

Depending on your industry, one innovative way to engage workers is to enlist their help inreducing waste. This is a way to ease into a corporate social responsibility project whilesaving money.

Your employees are the experts on the most efficient ways to use materials, such as cut plansfor fabrics. By collecting their insights and incorporating these ideas into the buildprocess, you minimize waste, ensure the proper componentry is used such that the finishedproduct is completed correctly and passes quality inspection and provide a way to give backto the environment and help with customer satisfaction.

Products that must be disassembled and fixed, or worse thrown out, increases labor costs andwaste. The more specific you can be about which components to use, such as specifying thebin in which each is located or having the bin light up when staff is picking componentry,the more accurate your builds will be—and the greener your industry.

10. Increase Order Efficiency

Ensuring the correct product is sent to the customer the first time ensures satisfactionand maximizes your profit. If an incorrect item is delivered, you will need to sendthe correct item, incur a second shipping charge—or a third for the original item ifyouwant it returned—and spend on labor to receive the returned item, inspect it andeitherrepackage it to be put back on the shelf or eat the cost and dispose of it.

Aside from being a hassle, the costs from incorrectly shipped items are 100% avoidable. Whencollecting those employee efficiency ideas, ask about how to get it right, every time.

11. Add Recurring Revenue

Recurring revenue is a great way to add consistency to sales. There are two main routes toincrease monthly recurring revenue (MRR) or annual recurring revenue (ARR).

Added services to products

Think routine cleaning and maintenance for an additional fee—increase customersatisfactionby removing the burden of making sure upkeep is done on time, effortlessly.

Product subscriptions

Also simplify the customer experience through automatic fulfillment of routinely purchaseditems. Consider offering discounts on automatic replenishments of your most commonlypurchased products

12. Use KPIs and Benchmark Regularly

Establishing benchmarks is key to evaluating your performance and enables continuousimprovement. Reviewing KPIs regularly and addressing any outliers ensures problems arecaught, and remedied, before major issues, and costs, arise.