Profitability. All companies strive towards it. But it’s notoriously hard to attain and maintain, especially in the early years.
A successful company is not just about profitability – it’s impact stretches into meaningful job creation for many people, contributions to human welfare and large-scale social impact. But no business can run at a loss indefinitely.
The only way to realise the full vision of your company is to build and keep it profitable. Taking care of yourself first in order to also be able to take care of others. But getting to and staying in the green is a big ask for any business in a tough economy. Luckily there are some simple levers that all business owners can engage in order to engineer better profitability. We chat to the founders of Outsourced CFO, both Chartered Accountants and entrepreneurs, how one can go about crafting a strategy:
1. Increase Prices
“The first lever is to increase prices”, says co-founder Dana Pretorius. “If you are running at a 10% net profit margin and with all other things constant, a one percent increase in prices will lead to a ten percent increase in your profit. That’s good leverage! But how do you justify asking more for your product and service in the new year?”
- Annual increases
Annual price increases across your client portfolio makes a big difference. Most existing clients will be accepting of an annual increase. Don’t miss the chance to roll this out annually to avoid costs climbing faster that revenue. - Increase new acquisition prices
Work hard at building your brand and credibility. A stronger and more credible brand can charge much more for its products and services than a lesser known and untrusted one. New clients will expect and accept a higher price tag when coming on board with an established industry brand. - Show clients love and value
In the absence of love and value there is price. Sincerely connect with your clients. If you and your staff are truly passionate about the work you do and deliver value each time, price becomes much less of a talking point. Ensure that your sales and onboarding teams show prospects love and value each and every time.
2. Increase volume
That sounds simple enough, right. Just sell more. But the mix of factors that enable entrepreneurs to do so remains complex. Co-founder Louw Barnardt’s best tips for increasing how much you sell?
- Referral business is the best new business
Your existing clients are your ultimate sales team. Firstly, make sure that they are very happy with what they are receiving from you. Once you have that right – ask for referrals! All business owners know a network of other similar business owners who can also benefit from your offering. Referrals from someone trusted close much easier than cold sales efforts. - Build an outbound sales strategy and systems
Don’t just wait for the phone to ring. Identify platforms where you can find your perfect clients and reach out and connect. Starting a relationship and offering value first will ensure that you are not brushed off as another salesman. Be creative in your outbound efforts. - Keep delivering as you scale up
Getting new business in is one thing. Being able to scale your team, systems and operations to meet increasing demand is a whole other ball game. Apply proper scale-up methodology to your entire company to ensure that your people, systems and operations can grow as fast as your revenue.
3. Reduce cost
Co-founder Jacques le Grange shares his cost reduction thoughts: “The answer might not be to squeeze all suppliers and fire half your staff. Obviously don’t be wasteful on expenditure. If you have applied steps one and two above, chances are that your income will be growing fast. Instead of cutting costs, try to focus on operational efficiency.
Identify breakdowns in your sales, onboarding, delivery and recovery processes. Then bring in the systems to smooth those over. Also keep investing in your people. Motivated, trained and cleverly incentivised staff are a massive driver for profitable growth.
Lastly, do take a fine comb to your cost budget. A detailed budget will ensure that you decide in advance what you are willing to spend on various expense line items. This helps you to be disciplined when tempting purchase opportunities come knocking.”
Final thoughts
Understanding how to increase your profitability comes from a command of your numbers. You can only start increasing profitability when you know what your current income, cost structure and bottom line is. Make sure that you know your numbers ahead of crafting your strategy.
In a difficult business environment, it’s even more important that you spend the time to carefully craft your strategy for improved profitability. We see founder teams achieving exceptional growth and beautiful profit margins all the time – in spite of the surroundings. It can be done. It will just not happen on its own. Go out there and apply your profit strategy with intent and discipline.
Dana Pretorius, Jacques le Grange and Louw Barnardt are the co-founders of CFO and cloud accounting services firm Outsourced CFO.
