Tip: 6 tips to improve the profitability of a company (2024)

The profitability of a company is perhaps the most important metric, (the KPI Key Performance Indicator) because it is really what a company generates in net profits/benefits; therefore, this value is crucial for investors, owners, bosses, and everyone in the company. So, if you're asking yourself: How can I improve the profitability of my company? You are reading the right article.

To improve the profitability of a company, the analysis must be based on two options:

• Increase the income.
• Reduce expenses.

For each of these possibilities, we can be found different actions to achieve it:

1. Increase sales

The first thing you should think about if you are looking to increase profitability is to think about better sales. It is not the easiest thing to achieve, but with good monitoring, implementation, and the professionalization of a CRM, you can achieve it.

It requires 100% commitment, and working through clear goals, which may well be with the SMART methodology:

• Specific
• Measurable
• Attainable
• Realistic
• Timely

A clear example of a goal would be:

Achieve 20% more clients (From 1000 to 1200) in the next 12 months.

In this way, we manage to have objectives that can be met and thus pursue them until we achieve what we want.

2. Increase profit margin

Another thing you can realize if you ask yourself "How to increase the profitability of my company?" is that there are two ways to increase what you earn from each product sold: raising prices or decreasing expenses (Points 4 and 5).

In the same way, it can also be considered that you implement a promotion or some action that allows you to increase the value of the average ticket.

3. Consider the 80/20 law (Pareto Law)

For everything, be it invoicing, expenses, costs, purchases of all kinds, you can use the Pareto Law for everything. What is it about? Simple. for example, in billing, it says that:

20% of your clients will give you 80% of your billing, therefore, 80% of your clients will give you 20% of your billing.

This very famous law allows us to know and organize our priorities; in this way, we know which clients we must serve, which the biggest expenses in the company are, and pay attention to them.

4. Lower other costs

This is surely the most difficult decision to fulfill. Reducing costs refers to the fact that you can negotiate terms and prices with your suppliers, thus achieving fewer resources for raw materials and other factors, thus increasing profitability.

You can achieve this by committing yourself to quantities, purchase promises, purchase orders in advance, etc. Ideally, the bottom line here is to make your business more profitable, and reducing costs may be an option (Tip: Use this decision when you've already exhausted the other instances).

5. Reduce expenses

Have you ever seen that some companies spend and spend on unnecessary things? Haven't you noticed that sometimes they don't take care of the electricity or the belongings of the company? This is what you should stop doing, start being more rational, and don't waste money.

These minimal but unnecessary expenses often lead to loss of profitability and little by little they manage to rot the company. Think that if you generate senseless expenses, your employees will think that they can too, and this modality is contaminating to the point that nobody cares about profitability.

6. Shop effectively

And finally, if you keep asking yourself "How to make my company more profitable?" It is essential that you train and raise awareness in the purchasing area of the company. Keep in mind that they must have all the tools they need to do their job effectively and don't forget to pay attention to those key management indicators, such as orders, quantity purchased, processes completed, etc.

Purchases are the backbone of the company, they must be in order and working correctly. Make sure of that!