Financial Data
Updated 24 Sep 2020

How to achieve profitability

Increasing your profit margins can be as simple as cutting costs or as complicated and challenging as finding new customers.

14 April 2009  Share  0 comments  Print

All the answers to your unique business lifestage questions

If you want to determine why your business is not earning enough to sustain it, or meet your expectations as an entrepreneur, start with the four most likely culprits:

1. Not enough revenue (turnover)

Concentrate on increasing revenue, rather than squeezing more out of profit margins. Can you sell more goods/services or sell existing ones at a slightly higher price? Also analyse your customers: are some just too demanding on your resources, but not worth the end result? Target those who give high Rand volume and are worth the effort you put into servicing them.

If you can sell a product in addition to a service (or vice versa) then you've already created an extra revenue stream. Better still, if you can sell products created by your company (and not sourced from a wholesaler), your profit margin rises considerably.

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During the course of running and growing your business, you will need access to both short-term and long-term cash savings to pay salaries, suppliers, or even to save for a future project or large payment. Standard Bank provides a range of flexible Savings and Investment solutions, with competitive interest rates, to help you meet your business’s savings and investment needs.

2. Low profits

The first thing business owners do is to look for ways to cut expenses by reducing overheads. But don't be tempted to cut down on your marketing expenses just when you most need to advertise and get your name out into the marketplace. There are other options, which could have a greater impact in the longer term.

Analyse your products/services and focus on the most profitable line of business. If you're supplying hardware stores, for example, and find that the highest-selling item is paintbrushes, then concentrate on this line. Focus on selling more to existing clients, and build relationships with those customers who will become long-term clients because you service their needs so well.

3. Too few customers

The best way to get new clients is to impress existing clients so much that their word-of-mouth referrals keep people beating a path to your door. If you're not at that stage yet, there are a few other things to put in place:

  • Create a marketing plan that spells out how you will expose your business (trade shows, mass distribution of flyers, advertising in specialist media, giving workshops where you share your knowledge).
  • Focus on the most attractive service you offer, the one that will set you apart from the rest and one you know people will pay for.
  • Look for a more appealing way to package your services - maybe your packaging is old-fashioned, maybe people only want to buy one or two items or services and don't want to pay for the whole package.

4. Too little time

This is the most common challenge in a one-man operation or an emerging business. As time is finite, the only advice here is that old cliché work smarter, not harder.

Firstly, see if it makes a difference when you focus on the most lucrative market and clients instead of trying to satisfy too many markets. If your needs are more pressing, then first try to subcontract to a reliable source before moving on to the next step of hiring an employee or bringing in a junior partner.

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