When it comes down to it, the way to return a business to profitability is extremely simple. Cut expenses or increase revenue. What could be simpler than a problem that has only two options? As it turns out, quite a lot.
Making the cut(s)
If your company makes products that need to be delivered to customers you need to move them from point A to point B. Maybe even to points C, D and E as well. You can either invest in your own fleet of trucks, perhaps even airplanes, or else you have to pay someone else to provide the means of transport. In the latter case, you are going to want to reduce freight costs. One way to accomplish this is by negotiating a lower rate with whomever you use to move your products.
Another option is to call competitors of your current contractor to see if they can do better. But here you don’t want to fall into the penny wise, pound foolish trap by grabbing a great deal now that ends up costing more in a few years. Another trick is to audit your shipping invoices very closely for errors. Small mistakes here and there can turn into big bucks over time.
One factor common to nearly every business is payroll. Historically, labor accounts for the majority of a company’s budget. This is a classic catch-22 for businesses, as the economy grows labor costs also rise. As the demand for employees rises causing the combined salary and benefits to go up as well. This presents a big target for those looking to improve the bottom line, but hitting the bullseye requires finesse. If you get too stingy with compensation and you won’t be able to attract or keep the top talent. If you try to keep things running with fewer people to lower labor costs, you risk overworking your team causing them to become disgruntled leading to reduced productivity or an exodus of personnel.
Increasing the flow
The other side of the profit coin is increasing the amount of money coming in. This can be accomplished in a few ways.
- Increase the prices of your products. This is the simplest idea. If you charge more per widget while maintaining current sales levels your income rises. Notice the caveat. You need to at least hold sales to current rates.
- Increase sales. This will require your sales staff to work harder, convincing your current customers to order more products or get more clients to sell to. Of course, this is predicated on the idea that the market for your particular commodity will absorb more inventory.
- Decrease prices. This may seem counterintuitive but it can work. This method also requires enticing your customers to buy more from you. The hope is, that by lowering the per unit cost you can generate more interest in your product. This way the net profitability will rise.
To reiterate, at the core of profitability there are really only two options. Increase inflow or reduce outflow. Granted, the components making up those two broad categories are more complex, but it can be done. Hopefully, the ideas above can create a spark for you to accomplish your goal.