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Advices and insights Business financing

A successful company must always be committed to improving its profitability. The ecosystem of the very dynamic professional world and the economic crises that follow one another further support this truth. Wouldn’t you like to know the levers to work on to boost the profitability of your structure? We tell you all about it in this article.

What can explain your low profitability?

The bad figures achieved in your company or the stagnation of your profits are not the result of chance. There are a few things that can explain it.

Here are the main causes of low profitability in a company:

  • The high level of fixed costs (personnel and structure costs which are too high if you take into account the turnover);
  • The preponderance of unforeseen expenses (unforeseen events can very quickly degrade the profitability of your company);
  • The too low level of activity;
  • The margins realized are insufficient;
  • Difficulties to adapt to the market evolutions…

Once the diagnosis of your bad situation is established, it is time to find solutions. This requires the determination of your profitability model and the respect of certain financial recommendations. If you need financial advice for SMEs, do not hesitate to ask for help from specialists. 

Knowing your profitability model: A must

If your business model is inadequate or suffers from a major deficiency, you will never succeed in making your business profitable, no matter how much you change it. It is therefore imperative that you identify the profitability model that suits your industry and your specificities.

Here are the steps to follow to achieve this:

  • Conduct a market study (this will allow you to find your positioning and design the offer that will perfectly meet the needs of your targets);
  • Estimate the selling price that is most consistent with your positioning;
  • Review your list of suppliers (there are certainly other partners who offer subsidized prices that will increase your margins);
  • List your expenses and your different sources of cash flow;
  • Determine your break-even point by specifying the turnover that will allow you to reach your objectives in terms of profitability;
  • Ensure that this turnover is realistic and work on the following levers that will allow you to increase your profitability.

Streamline administrative expenses 

Administrative waste is a big problem for many companies. You can easily make your structure profitable if you rationalize your administrative expenses.

How can you do this?

Make an exhaustive list of all the administrative supplies you need during a given period. On this reference list, specify the quantities to order for each item. If there are certain items that you order in large volumes, don’t hesitate to ask for discounts on the purchase price. 

If you only order what you need, at the best prices, and avoid wild purchases, you will make significant savings. The use of a business finance management tool can help you avoid unnecessary expenses.

How to increase your company's profitability

Renegotiate bank fees downward

You use banking services for different reasons. The banks, in return for the services they provide, are paid through bank fees. These may seem negligible. But if you add them up, you will quickly realize that they reduce your earnings.

The objective here is to review your various banking fees. Even if financial institutions are reluctant to comply with such a request, you can get other benefits from them. For example, if they don’t lower their fees, they may reduce the time it takes to get payments into your account. Indeed, having access to your funds in only 24 hours instead of waiting 4 days is a considerable advantage that can boost your activities and therefore your profitability.

Don’t hesitate to play the competition if your bank is adamant.

Computerize certain processes to limit management costs

You can also save a lot of money by computerizing certain activities within your company. This is the case for document management. Electronic document management has not only environmental benefits. If it allows you to use less paper, it also reduces your investments in equipment. 

You will no longer need to equip each workstation with a printer, a photocopier and paper. The money spent on repairs to this equipment and related items will be used for other purposes. In fact, you can save up to 40% by computerizing some of your processes. 

Diversify your business or find new markets

In addition to reducing your expenses, you need to think about boosting your revenues. One of the best ways to do this is to diversify. 

Who says you can’t do a lot more than you do now?

By reaching out to new markets, you will diversify your revenue streams. Don’t think that developing new skills is all you need to succeed in this endeavor. You also need to implement a winning strategy. Whether you choose to diversify vertically, horizontally or geographically, remember to work on your competitive advantage. This is what will make you stand out from the crowd and convince your new targets to choose you.

Increase the conversion rate

If you increase or explode your sales, your profitability will inevitably be better. So why not think about what you can do to sell more?

Don’t overthink it. To increase your sales, you need to bring more traffic to your website. So make sure it is well referenced and review your web communication.

If you don’t have a website, you can think about optimizing your social networks, animating them regularly and orienting the content towards the needs of your potential customers. You can also use sales tunnels to boost your sales. 

Other levers to improve the profitability of your business 

There are other actions you can take to make your business more profitable. Here are some of them:

  • Increase your prices (remember to justify this increase);
  • Prioritize your high-margin products or services;
  • Delegate some of your tasks in order to better invest in your core business;
  • Be more present with your customers;
  • Improve your productivity by investing in productivity optimization tools;
  • Involve and empower your employees or different teams…

Francois Oikpe - Senior Content Manager | Francois loves all things about marketing and entrepreneurship. You name it, he’s most likely read it. When he’s not reading or strategizing, you can find him working on is next content that will help leaders empower their workers.

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