12 Practical Ways to Make Your Small Business More Profitable

If you're wondering how to increase profit in a small business, the answer isn't always to find more customers or work longer hours.

One of the biggest mistakes business owners make is concentrating almost entirely on turnover.

More sales can be good.

But more sales don't automatically mean more profit.

A business can increase its turnover significantly while the owner works harder, employs more people, takes on additional costs and ultimately sees very little improvement in the amount of money the business actually makes.

The better question is:

How can I make my existing business more profitable?

There are several areas worth investigating.

1. Know Your Current Profit Margins

Before trying to increase your profit, you need to understand exactly where you are now.

Many small business owners know their turnover and roughly how much money is in the bank, but don't regularly monitor their margins.

Start with some basic questions:

• What is your gross profit?
• What is your net profit?
• What is your gross profit margin?
• Which products or services generate the highest margins?
• Which customers generate the most profit?
• Where are your costs increasing?
• Which parts of the business are underperforming?

Knowing your numbers allows you to make decisions based on evidence rather than instinct.

You can't effectively improve what you aren't measuring.

2. Review Your Prices

One of the quickest ways to potentially increase small business profits is to review your pricing.

Many established businesses are undercharging.

Prices may have been set several years ago while wages, materials, fuel, insurance, software and other overheads have continued to increase.

Ask yourself:

When did you last properly review your prices?

Even a relatively small increase can have a substantial effect on profitability because much of the additional revenue can flow directly towards your bottom line.

Don't automatically assume customers will leave if you increase your prices.

Customers often buy because of:

• Quality.
• Reliability.
• Expertise.
• Convenience.
• Reputation.
• Trust.
• Service.
• Results.

If your business delivers genuine value, make sure your pricing reflects it.

3. Stop Competing Primarily on Price

Trying to be the cheapest can become a race to the bottom.

There will nearly always be another business prepared to charge less.

Instead, give customers compelling reasons to choose you.

Consider what differentiates your business.

Why should somebody choose you rather than one of your competitors?

It could be your:

• Experience.
• Guarantee.
• Specialist expertise.
• Speed.
• Customer service.
• Convenience.
• Processes.
• Reputation.
• Results.
• Aftercare.

When customers understand the value you provide, price can become less important in their decision.

4. Identify Your Most Profitable Customers

Not all customers are equally valuable.

Some customers:

• Buy repeatedly.
• Pay promptly.
• Recommend you.
• Value your expertise.
• Require relatively little administration.
• Purchase higher-margin products or services.

Others may negotiate heavily, consume large amounts of time, complain frequently or purchase your least profitable services.

Analyse your existing customer base.

Identify the characteristics shared by your most profitable customers.

Then ask:

How can we attract more customers like these?

This can be far more effective than simply trying to generate as many enquiries as possible.

5. Improve Your Sales Conversion Rate

Before spending more money generating leads, look at what happens to the leads you're already receiving.

Imagine your business receives 100 enquiries and converts 25 into customers.

If you could increase that conversion rate to 35%, you've potentially generated 10 additional customers without generating a single extra lead.

Review your sales process:

Enquiry → Initial response → Conversation → Quote/Proposal → Follow-up → Sale

Where are opportunities being lost?

Small improvements throughout this process can produce significant increases in revenue and profit.

6. Increase the Average Customer Value

Another way to increase profit is to generate more value from each customer.

There are three useful strategies to consider.

Upselling

Can customers purchase a higher-value or premium version of what they originally intended to buy?

Cross-selling

Are there complementary products or services that existing customers would benefit from?

Repeat Business

What could encourage customers to return more frequently?

Increasing customer value can be considerably cheaper than constantly finding new customers.

7. Introduce Recurring Revenue

Predictable income can make a small business considerably easier to manage.

Depending on your business, recurring revenue might come from:

• Maintenance packages.
• Service agreements.
• Memberships.
• Retainers.
• Subscriptions.
• Support packages.
• Annual contracts.
• Regular servicing.

Instead of starting every month at zero, part of your expected revenue is already secured.

Recurring revenue can also create stronger long-term relationships with customers.

8. Review Your Costs – Without Damaging the Business

Increasing profit isn't only about increasing revenue.

Reducing unnecessary expenditure can improve profitability too.

Review your regular costs including:

• Software subscriptions.
• Insurance.
• Suppliers.
• Vehicles.
• Premises.
• Marketing.
• Professional services.
• Finance costs.
• Utilities.
• Telephone and technology.

However, don't simply cut costs indiscriminately.

Saving £500 while damaging something that generates £5,000 isn't good business.

The objective should be to remove waste rather than remove value.

9. Improve Productivity

Time is one of the biggest costs in many small businesses.

Look at where time is being wasted.

You may find opportunities through:

• Better systems.
• Automation.
• Templates.
• Improved scheduling.
• Clearer responsibilities.
• Better staff training.
• Improved communication.
• Removing duplicated tasks.
• Using technology appropriately.

Saving several hours every week across a team can quickly translate into improved capacity and profitability.

10. Measure Which Marketing Actually Produces Customers

Do you know where your best customers come from?

Small businesses often spend money on marketing because they feel they should be doing it rather than because they know it produces results.

Track your lead sources.

For example:

• Google.
• Website.
• Networking.
• Referrals.
• LinkedIn.
• Facebook.
• Email marketing.
• Advertising.
• Existing customers.

Then measure:

Leads → Appointments → Sales → Revenue → Profit

You may discover that one marketing activity generates lots of enquiries but very little profitable business, while another produces fewer enquiries but considerably better customers.

Invest more time and money in what actually works.

11. Generate More Referrals

Your existing customers and business contacts can be one of your greatest sources of new business.

Yet many businesses leave referrals entirely to chance.

Create a deliberate referral strategy.

Think about:

• Who regularly meets your ideal customers?
• Which businesses serve similar customers without competing with you?
• Which existing customers could introduce you?
• How could you make referring you easier?
• When should you ask customers for introductions?

A recommendation from somebody the prospect already trusts can dramatically shorten the sales process.

12. Focus on Profit – Not Just Turnover

Turnover can become a vanity number.

A £1 million business isn't necessarily better than a £500,000 business.

The smaller business could potentially generate more profit while requiring fewer employees, lower overheads and considerably less stress.

Instead of asking:

"How can we increase turnover?"

Try asking:

"How can we increase profit while building a better business?"

That question can produce very different decisions.

A Simple Profit Improvement Exercise

Take an hour away from the day-to-day running of your business and look at these five areas:

1. Pricing

Could prices be increased or structured differently?

2. Customers

Which customers generate your best profit?

3. Conversion

Could more existing enquiries become customers?

4. Customer Value

Could customers buy more, buy again or purchase additional services?

5. Efficiency

Where are you wasting money, resources or time?

Now identify one improvement in each area.

You don't necessarily need one enormous change.

Several small improvements working together can transform profitability.

Increasing Profit Without Working Harder

One of the most important lessons for established SME owners is that business growth shouldn't automatically mean working more hours.

The goal should be to build a business that becomes more effective, more profitable and less dependent on the owner.

That requires you to occasionally step away from today's urgent problems and look objectively at how the business operates.

Ask yourself:

What would need to change for this business to generate more profit without requiring more of my time?

The answer might involve pricing.

It might involve your team.

It might involve systems.

It could be your sales process, marketing, customer selection or financial management.

Usually, it's a combination of several areas.

Want to Increase the Profitability of Your Business?

I'm Kim Wheatley, a business coach and mentor working with SME business owners across Essex and the UK.

I help established business owners identify what's holding their business back and implement practical strategies to improve profitability, generate better-quality customers and create a stronger, more sustainable business.

We can look at areas including:

• Pricing and profit margins.
• Lead generation.
• Sales conversion.
• Referral marketing.
• Customer retention.
• Cash flow.
• Systems and processes.
• Staff and leadership.
• Time management.
• Accountability.
• Sustainable business growth.

The objective isn't simply to make your business busier.

It's to help you build a better and more profitable business that gives you greater time, freedom and choice.

Book Your Free Business Growth Accelerator Meeting

If your business is generating reasonable turnover but you believe it should be producing more profit, let's take a look at where the opportunities could be.

During a Free Business Growth Accelerator Meeting, we'll discuss where your business is now, where you'd like it to be and some of the obstacles preventing you from getting there.

There's no obligation.

It's an opportunity to step back from the day-to-day running of your business and look at what could be improved.

Book your Free Business Growth Accelerator Meeting today.

Frequently Asked Questions

How can a small business increase profit?

A small business can potentially increase profit by reviewing pricing, improving margins, reducing unnecessary costs, converting more enquiries, increasing customer value, improving productivity and focusing its marketing on the most profitable types of customer.

What is the quickest way to improve business profitability?

There isn't one solution for every business, but reviewing pricing, gross margins and sales conversion can reveal opportunities relatively quickly. Businesses should also examine unnecessary expenditure and underperforming products or services.

Should I increase sales or reduce costs to improve profit?

Both can contribute, but the greatest opportunity depends on the business. Increasing higher-margin sales can be more valuable than simply increasing turnover, while eliminating unnecessary costs can improve profit without requiring additional customers.

How can I increase profit without getting more customers?

Look at increasing average transaction value, repeat purchases, upselling, cross-selling, pricing, recurring revenue and efficiency. Existing customers may provide significant untapped opportunities.

Why is my turnover increasing but my profit isn't?

Costs may be rising at the same rate or faster than sales. Other possible causes include low margins, underpricing, inefficient processes, increased staffing costs, excessive overheads or selling too much low-margin work.

Can a business coach help me increase profit?

A business coach can provide an external perspective and help you examine pricing, margins, sales, marketing, costs, productivity and strategy. Coaching also provides accountability to help ensure agreed improvements are actually implemented.