This infographic contains eight key areas to focus on when wanting to improve the profit of your business. Positively and efficiently changing each area builds both success and profit. It’s important to monitor each area consistently and implement change when it’s needed to better your profitability. Check out this infographic to see how your business aligns with each area.
1. MINDSET AND CULTURE
The importance of a profit-driven mindset and a winning company culture.
Your business mindset plays an important role in the profitability and productivity of your business. With a profit and growth driven mindset, you are constantly looking for cost-saving ideas, additional services for existing clients, new revenue and better pricing options. A growth mindset turns negative perceptions or setbacks into opportunities. The key is holding yourself and your team accountable for embracing and maintaining this open mindset.
Culture goes hand-in-hand with your business mindset. It’s your firm’s competitive advantage in the marketplace, and regardless of business size, it can make or break your success. Establish a culture with no expectation of staying the same – the work environment is constantly changing and there are always new opportunities to be discovered. Develop a culture built on values, rather than rules, to guide business motives as well as a culture that is proactive rather than defensive. Winning cultures are client-centric and influence the productivity, creativity and profitability within a business. When you maintain a balance between a strong culture and a profit-driven mindset, the output will be constant profit improvement.
2. PRICING STRUCTURE
Stop pricing by the hour. Price every project Upfront.
The pricing by the hour model causes inefficiencies, wastes and loss of time. You need to learn to price your projects in upfront. Start by assessing your value to the project – time, contribution, resources – and price in advance based on your value. Work hard to deliver the project in the least amount of time possible while maintaining the highest quality control. The best way for a business to realize its profit potential is to get its prices right. The right price can increase profit quicker than increasing volume, but the wrong price can decrease just as fast.
When was the last time you fundamentally rethought your pricing structure to consider price increases? More often than not, businesses set their prices, too low, at the launch of their business and don’t take the time to look at it again. Developing a strategic pricing structure that understands the market, identifies underperformers, sets prices to capture value and implements differential pricing will produce a profit increase almost immediately for your business.
3. COST STRUCTURE
Classifying an expense as fixed or variable is key to understanding your firm’s profit.
To fully understand your firm’s profitability, it’s necessary to know the relationship between your revenue and your expenses. Your cost structure is determined by how expenses change in relation to changes in revenue. Establish your fixed and variable expenses and recognize the relationship between sales or revenue and expenses. Determine if you can shift a cost from a fixed to a variable expense to provide greater flexibility and protection of your cash flow.
Since profit is the difference between sales and total expenses, profit always increases directly relative to sales. That is, as long as variable costs don’t exceed sales, because that would mean there is a major flaw in your cost structure. In terms of cost flaws, the largest expense in most firms is often how much you pay for labor. Consider implementing offshoring to lower this cost. Offshoring allows you to build the ideal team you want in a more cost-effective location.
4. EFFICIENCY MODEL
Completing the job in the shortest time with the highest quality control.
For a business to operate successfully, efficiency and organization are key. With an efficient workflow model, you will be able to drive down turnaround time, minimize the number of open jobs, find additional opportunities for clients, decrease your hours budget and achieve higher margins on your work. All of which play a major role in increasing business profitability.
However, very few businesses take the time to really understand the efficiency model and the many steps involved in a successful workflow process. Redesign your systems, monitor your workflow, cut steps, reorder processes, rework your physical work environment and convert all clients to cloud-based technology are just a few strategies you can implement to improve efficiency. With the advances in technology and cloud accounting, increasing efficiency is easier than ever.
5. NUMBER AND TYPE OF CLIENTS
Accept clients that appreciate your work and you can profit from.
Clients are the key to improving profitability because to do so you must find someone to pay for your services. However, this doesn’t mean taking on any and every client. You must be selective because onboarding the wrong or “bottom-feeding” clients can actually cost your firm more money than they are paying you. If you haven’t taken the time to monitor and classify your clients by ‘A’ class, ‘B’ class and ‘C’ class clients, you need to start there. Find clients who appreciate your work, contribute a profitable lifetime value for your firm and align with your business culture and processes. These ideal, more profitable clients are your A-class clients. If it turns out you have more B or C-class clients, you aren’t operating at your highest profit potential. Losing (refer out) your lower class clients and replacing them with those who are A-class will directly influence a profit increase.
6. YOUR SERVICES
Redesigning your low-margin services to focus on those with higher margins.
When examining your product portfolio, it’s important to understand the profitability of each service you offer. More likely than not, some services you offer are just not turning a profit. These are often services of low value and low margin (i.e. compliance services). Compare your low-margin services against those of higher margin and decided whether or not to keep or let go of the service. The low-margin services you keep should be redesigned to increase the value and efficiency. Keep in mind, though, that you don’t have to do everything for everybody so if one of your lower valued services can be done more efficiently by someone else, somewhere else than it might not be a service you want to waste your time and resources on. The more high-margin services you offer, the greater your profit potential.
7. CLIENTS BUYING MORE SERVICES
Services that provide more value to the client equals higher margin for you and more profit.
Have you offered all your clients every service you offer that would benefit them? The answer is most likely no, which means there is always room to sell more services to a client. The objective, to provide every service that would help each of your clients achieve their goals. This requires you to understand your clients’ goals and offer the best services that match.
Create a client service matrix that lists each of your clients and each service you offer, then check off each service in use or used by each client. Click here to download your free copy of a client service matrix. Chances are, each client in your client base has needs for additional services that have gone unmet. Don’t be afraid to search and find opportunities to fulfill that need. The best part – new or additional services to existing clients won’t be compliance work, it will be of higher value which means higher margins, and it can be priced completely different from your other services.
8. YOUR LEVERAGE
Fewer partners and greater leverage equals more profit per partner.
Leverage is key to team success, efficiency and profitability. Most firms are “over partnered” and “underleveraged,” which means the ratio of people to partner is typically low. This is not the business model you want to be operating under. If you’re operating at a low leverage, consider restructuring so positions under partners are more client-facing. This will enable more clients per partner which equates to more revenue per partner. Partners successful at bringing in revenue need the ability to leverage their team to bring in more clients. This can prove difficult with low people to partner ratios. For example, three partners with 30 team members total means 10 team members per partner. That ratio has more limitations and less leverage compared to one partner with 30 team members. The latter option allows for higher leverage meaning an increase in profit per partner.
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