How to increase revenue is a big question for many business owners. It doesn’t always mean growing sales numbers – though of course that helps. Keeping more of every dollar you bring in will help you increase your revenue without hiring a larger sales team or testing aggressive advertising tactics.
Finding the right profit margin formula is a crucial success factor for any business. A profit margin formula is what’s left from your income after you pay your expenses. That’s why logically, our 4-step Wealth Creation Program starts by looking at expenses, then reviews performance improvement opportunities before looking for ways to grow profit margins.
If you’ve been following our blog, you’ve seen our recent articles on reducing expenses and improving business performance. Now we’ll provide details on the third step in the program focused on developing a high profit margin.
6 Steps on How to Increase Revenue
We’ll outline six steps you can take now to increase your revenue by improving your profit margins. These steps can help take an average profit margin and increase it to a high one.
You might be asking yourself, how much profit should I make? Ultimately, it depends on your industry and your product’s potential.
In some industries, 10 percent is considered an average profit margin and 20 percent is considered high. But in other industries, those numbers will be far too small to succeed. You’ll need to analyze the market to understand the price points it can sustain and what your competitors are achieving with their profits.
Here’s a look at the steps you can take to improve your profit margins, even if you think they’re average or pretty good.
1. Speed up Turnaround Times
The longer it takes for you to deliver your product or service, the lower your profit margins will be. This is true for physical goods, but it’s also true about services. Consider the time that it takes a salesperson to close a deal. If it takes one month but the competition is doing it in one week, you’re missing out on other opportunities.
2. Upsell and Cross-sell
The more you sell to one customer at a time will decrease the number of resources it takes to bring in that income. Taking advantage of relationships with current customers is the best way to increase revenue without increasing expenses. You’re already taking the time and resources to attend to those customers, so having them spend more with you means increased profit margins.
3. Eliminate Low-margin Products/Services and Clients
Within every industry, there are highly profitable products and services and those that are not nearly as profitable. Don’t allow any product to pull down your overall profit margins. Instead, eliminate that product so you can invest your resources in high-producing areas.
The same is true for service-based businesses that have low-margin clients. Sadly, you can’t continue to sink precious resources in this area. Work to find a better solution for the client so you can transition out.
4. Retain Customers
Customer acquisition costs decrease profit margins quickly. It’s so much more valuable to retain existing customers than it is to acquire new ones constantly. Focus your efforts on customer retention.
Plus, happy customers are more likely to refer your business to their friends. According to Temkin Group, 77 percent of customers would recommend a business to a friend after a positive experience.
5. Avoid Waste
Waste can come from a variety of sources in a business, including unused supplies, spoiled supplies or wasted time. Avoid ordering more than what you know you’ll need because this can decrease profit margins quickly.
And in service-based businesses, avoid unprofitable projects or projects that don’t show good promise for your business. Get really good at knowing who your ideal client is so that you don’t find yourself in a situation of wasted time.
6. Increase Your Prices
Sometimes increasing prices is a reasonable way to improve profit margins and sometimes it isn’t. You have to know your industry and the market well before increasing prices. You might be the cheapest option, but that also might be a selling point if you have no other way to differentiate your business.
This step takes careful analysis and consideration because it could do more harm than good for your business if you aren’t careful.
Resources to Grow Revenue
If you’re still feeling a bit unsure of the best next steps for you, download our worksheet that guides you through the 4-step Wealth Creation Program one step at a time. It truly is a building process that requires your time and attention.
Small business owners that still have questions should schedule a free consultation with John Yeager, CPA. Wealth creation is John’s passion and he enjoys the opportunity to help other business owners achieve more with their business.