There are three ways for you to improve your profits. First, you can sell more. Second, you can increase your prices. Third, you can reduce your overhead.
Sell More: Of course, the best way to increase your profit is to sell more. Easier said than done, you say? Maybe, but that sais, you probably sell more today than you did five years ago. The trick is to duplicate what you have done right, continue to do that, be sure to add some new profit centers.
Increase Prices: Many small business owners are afraid to raise their prices because they fear that they will drive away customers. That may or may not be true. When you use price as the primary gauge for your services, then other, maybe more important factors, get left out of the equation – things like quality, personal service, convenience, or speed.
McDonald’s and Wal-Mart emphasize low prices because that is their business model, and unless it is yours too, then constantly worrying about fees and prices is likely a mistake.
Instead, you need to decide what it is you offer that is best, and emphasize that. If price is not critical, then raising your prices is a smart way to increase profits. Think again about Mercedes – it does not battle on the cheapest-is-best battleground. Rather, it emphasizes quality, and makes a handsome profit in the process.
Because you are your own boss, you set the prices. When is the last time you raised your prices? While you should be justly concerned that you may drive away clients if you do, it is still worth a shot. If your fears are valid, you can always lower your prices again. But if your fears are ungrounded, you will be giving yourself a well-deserved raise.
By the way, if yours is a service business, simply consider testing a price increase on a few customers first. If they do not balk, then you can roll out your price increases across the board, and if they do, you can always roll back.
Reduce Your Overhead: The tried and true way to increase profit margin is to decrease costs. When a Fortune 500 company lays off 1,000 employees, they are utilizing this strategy. Of course the risk is that by cutting costs you may cut into the very thing that brings in business. That is a real danger. And that is why firing people usually is not the answer. What is?
You have to figure out a way to reduce your overhead, and more importantly, to have employees care about keeping costs down, because it is often your employees who hold the key to cost overruns. If you can get them committed to saving, then staying consistently profitable is much more likely. Is it easy? No. But with good communication and the proper culture, it does happen, and often.