How to increase profitability
- 1 Ensure managers (and other employees) are focused on profitability - but without losing sight of the need to manage cashflow.
- 2 Identify the key drivers of profitability; set and monitor key performance indicators (eg sales per employee, gross margin).
- 3 Avoid distractions for example, one-off projects which don't play to your strengths or contribute to your strategic goals.
- 4 Create plans with measurable objectives and set budgets; learn from experience to make continuous improvements.
- 5 Continually gather market information; build a dialogue with key customers and suppliers.
- 6 Anticipate the knock-on effects of any changes you plan.
- 7 Focus on a niche market you understand.
- 8 Invest in advertising and other promotional techniques (such as social networking) to increase sales volume; actively sell and deliver a service that builds customer loyalty.
- 9 Maximise the value of sales: consider moving upmarket and charging the highest price you can justify for the product; innovate to stay competitive.
- 10 Focus on your most profitable customers and products.
- 11 Specify the right quality of supplies and negotiate favourable prices; monitor competing supply offers.
- 12 Monitor and control overhead costs and eliminate unnecessary activities.
- 13 Maximise the cost-effectiveness of assets: base purchasing on lifetime costs; sell unnecessary assets (or sub-let surplus capacity).
- 14 Recruit the right employees; provide a working environment, training and motivation which maximise their effectiveness.
- 15 Create systems to reduce errors and wasted time; create policies to reduce the need for managers to repeatedly make the same decisions.
- 16 Invest in information technology and other labour-saving equipment.
- 17 Share best practice across the company.
- identify the key drivers of profitability
- focus on profitable customers and products
- invest in building sales
- control costs
- create systems which improve efficiency
- learn from experience
- ignore cashflow
- waste effort on distractions
- make changes without considering the consequences