You can’t increase your profits…..
Author: Russell SmithApril 22, 2012
Have you ever sat down and thought ‘you know what, its been a good year but next year I want more, I want a bigger profit increase”. If you are a business owner that’s committed to business growth, you’ve probably said something similar. Maybe you have a detailed plan about how to do it, but here’s the thing…..
You can’t increase your profits.
Despite what anybody will tell you, despite what I say on the home page of this website asking you to sign up for my profit increasing tips, it is impossible to increase your profits.
What do I mean?
If your goal is to increase the profits, then you may be missing the point. The profit number in your accounts is an equals, it’s an outcome of other things. To be able to increase the profit, you have to increase the profit drivers behind the profit. The profit is merely an outcome of the profit drivers.
Here’s where it get’s interesting. What are the profit drivers in your business and how can you increase them? For different businesses it could be different things. It could be cost control, gross margin improvement, average sale per transaction, sales conversion rate, employee productivity, employee turnover, multiple sources of income, stock control, recruitment drives, the number of times a customer buys from you or a combination of any of the above.
The goal will be to isolate the profit driver that will have the biggest impact and work to increase this. This will then lead on to increasing the profits. But which profit driver should you start with?
This is where the maths come in. If you can isolate your profit drivers and then run some ‘what if’ scenarios such as ‘what if we increased this profit driver by 20%’ then calculate the impact on the bottom line. You will then be able to find out your critical profit drivers.
There is a slight pitfall to be aware of though. Increasing your profit in the short-term is fine but it is long-term profit increases that will have the impact so be aware of an unhealthy focus on short-term profits.
So find out your profit drivers, work out the one with the most impact and balance this with short vs long-term and see your bottom line increase.