In business, we tend to do what we have always done. You are probably like many business owners, you want to know how you can increase the profits of your business without having to make too many changes. What can you do with the tools and resources that you already have?

You can double your profits and it doesn’t take a lot of effort.

Here are 3 ways that you can increase profits:

  • Pricing

  • People

  • Purchasing

Let’s start with Pricing. Have you changed your pricing recently? Many businesses have a fear of losing customers or clients when they raise their price. What will they do if I raise the price?

I like to describe fear as False Expectations Appearing Real (F.E.A.R.).

By raising the price just 2.5% it can have a dramatic effect in your business profitability.

Let’s take an example of a business that has the following income and profits:

Income   $ 2,500,000

Profits         $ 300,000

Increase average price by 2.5%

Income    $ 2,562,500

Profit          $ 362,500

An increase of $62,500 in profit by changing the price of their product or service by just 2.5%. What could your business do with another $62,500?

You could support another employee, buy additional equipment, fund your retirement, etc.

How much will your customers or clients will be affected by a 2.5% increase in price?

When we raise our prices most customers or clients do not leave. We find that the loyal customers and clients don’t even realize that you raised the price. The customers or clients who do are the ones who are only looking at price. They are not loyal to your business or don’t see the value of your products or services. Many times, we undervalue our own business more than they do.

Next let’s look at the People perspective. When I say people, I am referring to your employees or staff. Are you getting what you pay for? Do they take too many breaks, are they sick often, do they not always show up?

Here is an example of a business that has 35 employees. The labor cost of the business with income of 2.5 M is 56.5% of their income which is $1,412,500 in labor costs. If the business could increase their productivity and efficiency they could reduce the time their people were spending on activities.

Just by doing this the business reduces the amount of overtime costs. I have seen some businesses able to eliminate overtime all together. This reduced their labor costs by 5% amounting to an additional $70,625 in profits.

Many times, a business does not address the amount of overtime and if the same people are working overtime. People can become dependent of overtime pay as part of their regular pay.

Finally, we will look at Purchasing. When you look at the products or services that you purchase are you overpaying for them? Do you take advantage of early pay discounts? Do you shop around for a better price often?

In the example business, their non-labor expenses are $787,500. By reducing their non-productive marketing costs, getting competitive pricing, consolidated and refinanced loans, eliminated company memberships and subscriptions that were no longer utilized they reduced their expenses by 5% which amounts to $39,375. This increase in savings went directly to their profit.

In the example business, they increased their profitability by $172,500.

Just by addressing three areas of your business you can increase your profitability much more than you think. As business owners and leaders, we become so consumed with the day-to-day and don’t stop to look at what we can do with what we already have.

Where can we improve the business?