3 Ways to Increase Profitability

profitability

Old school or not, when companies want to increase profitability, there are three common strategies to implement: raise prices, reduce expenses and sell more.

Profitability Strategies

  • Raise prices. While sometimes necessary, this is not a popular strategy in any business environment. Customers often respond negatively. They wonder what additional value or improvement they will be receiving for the higher price they will be paying. Sometimes, the increase in price will result in lost customers, which will negatively impact the organization. In addition to customer attrition, employees, especially the sales team, are less than enthusiastic about this approach. In their minds, it often makes the sales job more difficult, especially if competitors’ price points remain stable or are already lower than yours.
  • Reduce expenses. Every company wants to be prudent and fiscally responsible, especially if a reduction in expenses goes directly to the bottom line. When companies reduce expenses, however, it is often seen as a reactive strategy. It might mean severing existing relationships with current suppliers.  Or it means eliminating or reducing purchases that are important to the operation of the company. For this approach to be successful, it is important to have good data to determine where cuts can be made with the least impact on employees and customers. It’s also important to communicate the reasons for cost-cutting measures and to get employee buy-in to reduce potential disengagement and turnover.
  • Sell more. This is the most positive and proactive of the three strategies. A small increase in sales can have an incremental, yet major impact on profits. So the question is: what can companies do to support their sales and business development teams to generate more revenue? Of course, the answer is multifaceted. It requires a comprehensive review of the business development process including:
    • recruiting
    • training
    • compensation
    • motivation
    • sales management.

Profitability Best Practice

profitability

In addition, profitability strategies might also include: a competition review, re-branding, modification of products and/or services and, most importantly, an ongoing and effective marketing that supports the sales efforts and increases visibility, credibility and name recognition in the marketplace. Ask any salesperson and they will tell you the more often the company advertises, promotes, generates publicity, offers incentives and attends industry tradeshows, the more likely they will be to achieve their sales goals.

Faced with the challenge to increase profitability, consider these strategies. The best approach might be a combination of all three.

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