How To Increase Your Business Profits In Four Steps

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Before we go through the actual steps there are some prerequisites that should be met. First you should decide to increase your profits and set it as one of your goals. Secondly you should have sound business records and bookkeeping in place and you should be familiar with basic terms used in your Profit and Loss statement such as Gross Profit, Net Profit, Cost of Goods Sold and Overheads (Other Expenses).

Step 1 - Increase your sales by 5%

There are many ways to increase your sales and the most effective may be: find new customers, increase sales for the existing ones, organizing free seminars and promotions, new advertising campaigns, organizing competitions and draws, use internet and your website. If you use any of the methods from above or a combination of two and more you should increase your sales even more than 5%.

Step 2 - Increase your prices by 5%

Before taking this step you should analyze your competition and compare prices. Price increase is newer popular and any increases should be justified to your customers. It would be a great idea to add value to your products/services by e.g. offering free advice or extended warranty with your price increase.

Step 3 - Cut your Cost of Sales by 5%

Most of suppliers would offer 5% discount for cash or early payments so this could be the easiest way to manage this area. Some other ways could be to reduce waste and spoilage, better time management, better job efficiency and effectiveness.

Step 4 - Cut your Overheads by 5%

Basically in this area you should try to reduce your other expenses like e.g. policies to reduce printing and office costs by implementing ‘paperless office policies', refinancing your credit card debts or finding a better mobile phone plan... Reducing your variable overheads by 5% should be fairly easy thing to do however you should never compromise quality of your products/services.

Example
Company Joe & Company has the following financial position:
Sales $10,0000
Cogs $30,000
Overheads & Wages $50,000
Net profit $20,000

After implementing 5% changes in the four key areas:
Sales $110,000 (5% increases in sales + 5% increase in prices)
Cogs $28,500 (5% decrease)
Overheads & Wages $47,500 (5% decrease)
Net profit $34,000

From the example above we can see that by implementing our four simple steps total profits have increased by incredible 70% which is quite impressive result. It is important to try to combine and target all four key areas: sales, price increase, cogs and overheads in order to achieve this kind of results.

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