Every business wants to see continuing profit improvement.
So a key focus must be on the profitability of products and services and on the importance of increasing business profitability over time.
By improving gross margins, each sale you make generates more profit and puts more cash in the bank.
Which means you can earn more or keep money in your business to invest in profitable growth for the future.
How does a business improve profit?
Profit = sales – costs
It’s simple. There are only two levers you can pull to improve your profit:
- Sales revenue – you can change the amount that you sell and the prices you charge
- Costs – you can use less, pay less for what you do use and get more out of every £ you spend
You know your own business very well and can see ways of achieving changes to your sales and costs. You can also see some risks.
For example, if you increase your prices you may lose some customers. Executed sensibly, most businesses find a price increase leads to higher profitability.
Equally, marketing can feel like pushing on a piece of string! But effective marketing activity and spend can increase sales by a far greater amount than you invest in marketing.
How to measure profitability in your business
How good is your accounting and management information?
You need accurate, up to date financial information in order to measure and improve profitability.
Quite what information you need depends on your business and it might not be limited to finance.
A high street retailer might want to know sales by product each day, or even each hour.
If the retailer is online, they will also want information about website traffic and reliability of their courier service.
Whereas a lawyer might want to know billable hours as the month goes by to get a sense of how much to invoice at the end of the month.
Whatever you need to measure, you need to measure it accurately and consistently and draw it all together to improve profitability.
Free two-hour profit improvement review
We’re happy to meet and review your financial information and discuss ways in which you can address profitability, including:
- suggesting areas where you can reduce costs or get better value for money
- looking at credit control
- reviewing margins
- ideas to create systems that improve your bottom line.
Please call Michael Austin on 020 7125 0270 or email info@bluedotconsulting.co.uk to get started.
About Blue Dot Consulting
Blue Dot Consulting are South West London Chartered Accountants helping businesses improve profitability by efficient, effective bookkeeping and choosing the right accounting technology.
Pop in and see us – we’re in Bedford House, Fulham Green, London, SW6 3JW.
Related links:
Client profitability analysis – make more money from every sale you make
To increase profitability – We’re going to purposefully do less!
