How to improve profitability of a company/How to calculate/Mistakes
Do you know how to increase your company’s profit? Developing strategies and seeking actions for financial growth are the main tasks of a manager. However, this type of action needs to be taken with a lot of planning and in an informed way. improve profitability of a company
In this post, we explain better how to calculate the company’s profit and which mistakes should be avoided when investing in business growth. In addition, we’ve listed 10 practical tips to increase your profit. Do you want to start growing right now? So, read on.
After all, what is profit?
To understand what profit is, it is also necessary to explain the concept of invoicing . According to the definitions in the dictionary, to make money is to earn money . Therefore, we can associate billing with the amount of sales your company had in a given period.
Thus, it is possible to observe that billing is not “concerned” with the costs and expenses that the organization had to make that sale. And that’s where the concept of profit comes in. The profit represents all the revenue for the period minus the costs and expenses to make the sales.
Thus, it is necessary to consider expenses with marketing, raw materials, electricity, equipment depreciation, employee salaries, among others. In conclusion, revenue is everything that was sold, while profit is the net amount that is left over after all expenses are accounted for.
Understanding all the variants and calculating the profit generated in each period is essential to ensure the financial health of the business . That’s because, even if your company is earning well, it may spend more than it should and not be able to generate the necessary results.
Finally, financial control is important to know everything that is coming in and going out, as well as which sectors we can make the biggest investments. In this way, the company will be able to grow in a healthy way, improving its production processes. improve profitability of a company
How to calculate business profit?
When we want to calculate the profits of a company, we can focus on two indicators: gross profit and net profit . Next, we’ll explain further how to arrive at these two values.
Also known as “sales profit”, gross profit refers to the financial result obtained after subtracting variable costs , that is, those that are related to the expense of producing or acquiring a product or offering a service.
As an example, think of a t-shirt store where each item is sold for R$50. It costs R$30 to produce the piece. Thus, the company’s gross profit is R$20 per item.
The net profit, in turn, considers, in addition to variable costs, the company’s fixed expenses , such as water, electricity, taxes, rent, salaries, among others. Thus, the calculation must be done by the total revenue minus the total cost .
As an example, let’s use the same t-shirt store, considering that it sold R$ 10 thousand in pieces during the month. With variable costs, R$5,000 were spent. With fixed commissions and expenses, another R$ 2 thousand. Thus, performing the calculation, we found that the store had a net profit of R$3,000 for the month. improve profitability of a company
What are the most common mistakes made when trying to increase profits?
When talking about how to increase a company’s profit, it is important to keep in mind that this type of action must be done strategically, especially when it concerns an increase in sales. In these cases, it is important to be careful not to make mistakes.
Below, we list the most common failures committed by entrepreneurs at this time.
Do not develop the structure
This is a very common mistake when you want to increase sales without planning. Many managers end up investing in attracting new customers, but forget to create the infrastructure to serve them. Thus, they end up losing quality in the processes and still cannot deliver everything that is sold.
Do not prioritize service
With the increase in demand, another point that cannot be neglected is service. Therefore, it is necessary to keep in mind that good service makes all the difference for the customer at the time of purchase and can even be a decisive factor .
Do not prepare stocks
Mismanagement of inventory is another common mistake that happens when the manager tries to increase sales without planning. In this sense, items purchased in shortage can affect the sales result. On the other hand, excess inventories affect working capital and can represent losses, especially when we talk about expiration dates. improve profitability of a company
10 tips on how to increase your company’s profit
To increase your company’s profit, it is important to implement actions that maximize revenue and minimize expenses . Now, we’ve listed some important tips you should put into practice. Check out!
1. Expand the customer base
This seems like an obvious tip, after all, the more customers you have and the more sales you make, the greater the profitability of the business. However, it is important to seek strategies to publicize the company and reach these new audiences .
The main tool for this is marketing . Therefore, using good marketing strategies, you attract more people and make your business become a reference within the niche.
Here, the tip is to seek new channels for dissemination and sales , such as marketplaces, resellers and distributors to increase the offer of services and products, even to customers who already buy like you.
2. Seek loyalty strategies
In addition to attracting new customers, it is essential to retain the old ones to maintain a constant flow of consumption . That’s because selling again to the same consumer is much cheaper than conquering new audiences. improve profitability of a company
So, the tip is to focus on a good after-sales service and create strategies, such as loyalty programs or affiliate discounts. The loyalty of customers , in addition to increasing profit, is also a good way to save with marketing , after all, satisfied consumers tend to recommend their products and services to other people.
3. Organize your finances and cut unnecessary costs
As we’ve already mentioned, to calculate your company’s profit, you need to subtract the costs and expenses that the company had to produce and sell that item.
Therefore, seeking actions to minimize costs is essential to improve your profitability. The first step towards this is to organize your finance department, better understanding expenses, costs, income and investments.
This type of organization is essential for putting the house in order and identifying unnecessary and excessive expenses , such as interest due to late payments. After organizing the sector, it will be easier to create strategic action plans and understand which areas need more investment and which can be streamlined.
4. Have good supplier management
Another efficient strategy to increase profit is supplier management. Therefore, it is important to create solid partnerships with companies that have quality, fair prices and good service levels.
With this good partnership relationship, it is easier to negotiate terms and values for recurring orders, which will minimize costs.
5. Learn to price correctly
Pricing a product or service is an important and very challenging task for the organization. Because of this, it can not be made based on guesswork or without foundation.
The selling price of an item totally influences the customer‘s purchasing decision , however, lowering the value to sell more can cause you to lose your profit. Thus, a lot of balance is needed when setting prices, always seeking to offer the best offer in order to be profitable.
Thus, the first step when defining the values is to know the cost of production or purchase of products and services. Only with this data in hand, it will be possible to define a positive profit margin. improve profitability of a company
In addition to the production cost, the company must consider the contribution margin , which represents how much of the sale will cover the company’s fixed costs and expenses and also generate profit. Thus, if this margin is not enough, the company may be showing excellent sales, but still not having the desired profit.
Another important factor that needs to be explored to break even is knowing the minimum monthly revenue the organization needs to be able to pay the bills and start making a profit.
6. Invest in technology
Technology can be a great ally in optimizing processes and increasing a company’s profit. With a good management system , the organization can have a more complete view of each sector and minimize the time spent on repeated and bureaucratic tasks.
You’ve probably heard the expression “time is money” and, in the business world, that maxim couldn’t be more right. By automating processes and optimizing teams, it is possible to guarantee a team that is more focused on what really matters: strategic management that seeks to minimize expenses and maximize profits .
7. Have good people management and retain talent
You may never have associated these two things together, however good people management is also an excellent way to increase your profits . That’s because, by improving team productivity , it’s possible to create economies of scale. improve profitability of a company
So, think, for example, how much time in your employees’ hours is actually spent on productive work. Some research suggests that only 39% of the period actually generates results, while the rest is wasted and incurs unnecessary costs .
Thus, the more productive your team is, the greater the use of time and cost savings. Therefore, managing people is a crucial strategy. That’s because it guarantees the creation of intelligent and challenging goals, as well as the motivation and training of employees.
Another factor that impacts profits is high turnover rates . Also, dismissals, hiring and recruitment and selection processes cost companies money and time.
Furthermore, when you invest in the training and development of a professional and he leaves the company, this investment does not bring the expected returns either. Therefore, it is essential that HR and managers maintain a good organizational climate and seek talent retention strategies to keep qualified professionals in the company.
8. Increase the average ticket of customers
In addition to retaining your customers, another strategy that can help improve profits is to increase the average purchase ticket, in other words, make them buy larger amounts than they used to buy.
But there are some ways to increase this ticket without having to change the value of the products . A tip, for example, is to offer free shipping above a certain purchase price. Another interesting strategy is to create product combos that encourage customers to discover new items and shop together.
However, it is important that these combos pay off financially for the consumer, so they should feel that it is more worthwhile to opt for the kit than for the individual products.
9. Recover bad debt
Charging delinquent customers is always a sensitive issue , yet it is critical to keeping revenue up to date and minimizing the impact on profits. improve profitability of a company
To facilitate this charge, it is worth looking for tools that automate the approach , for example, sending emails or text messages. In this way, it is possible to remind the customer, whether in the case of overdue invoices or even before payment, by recovering abandoned carts in virtual stores.
10. Track performance indicators
Finally, to ensure an increase in profit in the organization, it is important to always pay attention to performance and performance indicators , also known as KPIs.
Closely monitoring the profitability, profitability and productivity indexes is essential for managers to make more assertive decisions and be able to control sales targets over time, as well as reversing scenarios that are not generating the desired result.
Understanding how to increase your company’s profit is essential for drawing up action plans and investing in strategies that enable business growth. For that, it is important to keep a financial follow-up and look for tools and technologies that help to optimize the processes .