Profit growth or improving the bottom line is a priority for business owners — especially now as they look to bounce back from the Pandemic. But too often they look for the magical silver bullet. The one big innovation or idea that will turn a business around and make people notice.
Innovation is important in all areas of your business, but often small improvements over time can make a big difference on the bottom line. In fact, a mere 1% improvement in revenue or sales, cost of goods sold and expenses can produce double-digit profit growth!
The Power of 1%
Here’s a simple example to demonstrate the Power of 1-1-1
Revenue: With a 1% increase, revenue goes from $500,000 to $505,000
COGS: With a 1% reduction, cost of goods sold goes from $300,000 to $297,000
Expenses: With a 1% reduction, expenses go from $160,000 to $158,400
The result, Net Profit goes from $ 40,000 to $49,600. An increase of $9,600 or 24%!
Check it out with YOUR numbers to see for yourself.
So now ask yourself “Do I have what it takes to achieve a 1% improvement in these three areas”? Absolutely! Can you do more? Probably. The key is to start – so set a goal. By focusing your efforts in these areas, you too can make progress 1% at a time.
Of course, a goal without actions won’t do much to get you there. So here are some things to consider as you plan your profit growth initiatives:
Revenue / Sales: There are hundreds of ways to grow sales. While generating more leads is an obvious one, here are a few that are often overlooked. You can improve revenue by improving your sales conversion rates, get customers to spend more or buy more often or expand your products or services. Need some ideas, check out 155+ Profit Building Ideas
Cost of Sales or Goods Sold: Based on experience with hundreds of small business owners, this area offers a lot of opportunity for profit improvement. The costs included in the cost of sales or goods sold will vary based on your type of business. These are variable – and link directly to sales levels. Examples of costs include inventory, incoming freight, direct labor (associated with service delivery or production), raw materials, service related suppliers and sub-contractors.
So how can you improve this area? Consider some of the following: improve labor efficiency by eliminating waste, renegotiate prices with key suppliers and vendors, outsource or utilize sub-contractors, improve scheduling, plan purchases to get volume pricing, and eliminate rejects or reworks.
Expenses / Overhead: These are relatively fixed and include everything from wages and benefits to marketing and rent. In today’s economy, many have focused on trimming the fat – but the key is to do so without impacting your ability to grow and deliver on your promise to customers.
Here’s a few things to consider: re-evaluate staffing levels to align with sales and service requirements, re-evaluate benefits, develop compensation model that includes pay-for-performance elements (not just guaranteed wages), evaluate outsource options or leasing, re-quote service contracts and insurance, renegotiate rent or relocate where appropriate, track marketing to improve ROI, and establish a budget – and live with it.
Small improvements in all areas have a compounding effect on your bottom line. They build on each other. All it takes is a clear focus, some simple proven strategies and a commitment to do it.
Ready to Put Your Business on the Path to Success?
Would working with a business coach help you take your business to a whole new level? Then let’s explore the possibilities with a complimentary 30-minute session. It’s a chance to get to know each other, discuss your goals and the obstacles that hold you back. Together we can determine if there is a good fit between your needs and my services. Book appointment now.
Got questions? Call Joan Nowak at (856) 533-2344 or email Joan@HybridBizAdvisors.com