6 Actionable Ways You Can Increase Profits For Your Business Today

Every business owner has felt the impact of increases in supplier costs, staff costs, taxes, and utility bills over the last few years. It sometimes feels that businesses, which are so vital to the country, are constantly under attack. A lot of these costs you have no control over; you just have to suck it up.

The one thing you can do is to make sure that your business is maximising its profitability. We have over sixteen years’ experience working with owners in businesses of all sizes and in all industries, helping them to grow their profitability and become world-class businesses well placed for a future exit.

So what would be our top tips for a business owner who wants to ensure they are maximising their bottom line profit? In this article, we have highlighted the six key areas where owners can drive up that bottom line, and under each one, given tips on what to focus on in that particular area.

Article Contents

• 6 Ways to Increase Your Profitability
  1. New Enquiries
  2. Conversion Rate
  3. Average Sale
  4. Number of Transactions
  5. Gross Profit Margin
  6. Fixed Costs
• Case Study on Increasing Profitability
• Why use a Business Mentor?

6 Ways to Increase Your Profitability, Starting Today

1. New Enquiries

Enquiries are fundamental to a business; they represent the opportunity to generate more paying customers and build loyalty and therefore future repeat purchases. Where will new enquiries come from?

Normally, they will be a direct result of your marketing activities, but do you have a marketing plan? Well, 9/10 of the businesses we start with don’t have one, but it is an essential tool in scaling your business. 

Top Tips to Gain New Enquiries

• Understand the demographics of your target market - the people who will be attracted to your product or service.
• Understand the psychographics of your target market – why they will purchase, is it emotional, a necessity, or to solve a problem?
• Decide what is the best channel to reach those people, Instagram, Facebook, TikTok, email, via your website, etc.
• Prepare a simple marketing plan to show what you will do, when you will do it and who will be responsible for it. 
• Review the success of each marketing campaign, looking closely at the return on investment.

2. Conversion Rate

This is one of the most overlooked areas within businesses – the conversion percentage from the number of enquiries to the number who are converted into a buying customer. You can have the best marketing plan, driving hundreds of new enquiries, but if your conversion rate is very poor, then you are being busy fools.

Top Tips to Improve Conversion Rates

• Firstly, ensure you track new enquiries and your conversion rate to buying customers.
• Review your new enquiry process, look at every stage of what happens when you are contacted by phone, web, email, or however you are approached. 
• Ask yourself how it can be improved, what hurdles, barriers or weak points are there, is your process ‘slick’?
• How do your team talk to potential new customers? Is it how you would expect?
• Set a target to increase your conversion %.
• Continue to track the conversion % and review your enquiry process.
• Mystery shop your competitors, establish how good their process feels and what you can learn from them. Either in terms of what to do or what not to do!

3. Average Sale

This is a key one, and one that many businesses work on daily. Firstly, do you know what your average sale is? If not, calculate it by taking the total £ sales for a month/year or any period and dividing it by the number of sales during the same period. Look at ways to increase your average sale figure.

Top Tips to Improve Average Sales

• The quickest way to increase average sales is to increase prices. When did you last increase? Where do you sit against your competitors’ prices?
• Look at what other products or services you can sell that would be useful to customers, to increase the average sale. Think Amazon ‘People who bought this also bought this…’
• Encourage your staff to offer these other services, possibly incentivise them?
• Continually track your average sale and look at new ways to increase it.

4. Number of Transactions

Getting customers to come back and buy again is fundamental to business. It is seven times harder (and costly) to find a new customer than to get an existing customer to repurchase.

Top Tips to Improve the Number of Transactions

• What is your contact strategy with customers? Once they have purchased, how do you keep in touch with them?
• What offers do you make to customers to encourage a repurchase?
• Do you have a loyalty programme to reward customers and encourage repeat purchasing?

5. Gross Profit Margin

Gross profit is the true reflection of the income of your business, the income after the costs of sales. The formula for calculating ‘Gross Profit Margin’ is Gross Profit divided by sales x 100. It is an important key performance indicator to manage and monitor, and look to improve.

Top Tips to Improve Gross Profit Margins

• The easiest way to increase GP margin is to increase the selling price, see above re average sale.
• How can you reduce your cost of sales? Maybe by getting better supplier costs?
• What else is included in your cost of sale, labour costs, delivery, carriage – how can these costs be reduced? 
• Most industries have an ‘expected’ GP margin. If you’re not sure what yours is and would like to discuss an expected margin for your industry, then feel free to get in touch, and we can offer expert insight.
• Continue to track your GP margin, at least monthly.

6. Fixed Costs

These are the costs that are deducted from your Gross Profit to arrive at your net profit. It is important to manage and control these costs, as they can easily spiral out of control.

Top Tips to Improve Fixed Costs

• Decide on a short timescale to review all these costs, asking yourself, ‘What do we get from this cost? ‘Do we really need it?’
• Staff salaries are generally the largest element of fixed costs. Don’t skirt around it. Does each member of your team contribute what they should? If not, ensure you have a review with them to discuss their performance.
• Where you have been paying a supplier of services (IT, Phones, insurance, etc) for some time, when did you last get comparison quotes?

These six areas are fundamental to driving profitability and scaling a business and represent one of the areas we focus on with new clients. Expert guidance and simple changes in these areas can make huge differences to the bottom line. If you need help in tracking the areas detailed above, please get in touch, and we can provide you with a copy of our Microsoft Excel dashboard, which will help you track all these key performance indicators and more.

UKBM Case Study on Increasing Profitability

Here is a real-life case study of how the above areas helped one business owner:

The Client and The Problem

Several years ago, UKBM was introduced to Vernon and Sandra, who had purchased an existing large London-based children’s nursery. Historically, the business had been very profitable, but over the last year or two, profitability had dropped, and the business was having cash flow issues; indeed, HMRC Revenue was chasing hard for outstanding PAYE arrears.

The owners blamed the downturn on the effects of the recession and felt that parents just couldn’t afford childcare fees.

Now, when parents are considering a nursery for their child, there are several psychographics (reasons to buy) that come into play. 

• Speed and quality of response to the enquiry, whether by phone or website, are important.
• As is the latest Ofsted (Office for Standards in Education, Children’s Services and Skills) report grading on the business. 

However, in our experience, the two key factors are price and the quality of the nursery as seen by the parents when they go on a visit to the nursery, a ‘show around’. After all, if you’re leaving your loved one in strange new surroundings, in someone else’s care, you want to be comfortable with the environment and, above all, the carers.

Vernon and Sandra didn’t track the enquiries and therefore didn’t know their conversion rate. 

The Process

We persuaded them to track their enquiries, including:

• Where they came from (web/recommendation, etc.)
• What percentage then came on a ‘show around’ 
• The percentage of those who registered their child for a nursery place.

We also arranged to mystery shop the nursery to test how it felt from a prospective mum’s point of view.

During the first month of tracking, seventeen enquiries were received, the vast majority of which were via the website contact form. Of those enquiries, six (35%) came on a show around and three (17.6%) registered for a place. So, nearly 1 in 5 people who enquired have chosen a different nursery.

Let’s once again look at the financial implications of these conversion rates.

The average fees paid by parents at this nursery were then £900pm, £10,800pa. The average includes parents who have just one or two days of care per week and those who have up to a full five days.

So, based on one month’s figures of seventeen enquiries and three ‘registrations’, if changes could be implemented which would improve the conversion rate to say 33%, we would sign up five (rounded down from 5.6) rather than three. That would bring in two extra registrations per month, which on an annualised basis is an extra twenty-four children per annum, so:

2 X £900 = £1,800pm or £21,600 per annum

Annualised 12 X 2 registrations per month = 24 extra per annum

24 X £10,800 = £259,200 per annum

£259,200 turnover times by gross profit margin of 46% = £119,232 extra NET PROFIT (as no extra fixed costs required)

So, the low conversion rate was costing the business circa £120k of net profit!

Our mystery shopper highlighted the following positives and negatives following the show around: 

The Action Taken

On the back of all this information, the following actions were agreed:

• An existing deputy manager was trained to handle all enquiries and conduct show-arounds at times convenient for parents.
• A downloadable PDF information pack was added to the website, accessible after parents submitted their contact details, removing postal delays.
• Upon receiving a web enquiry, the deputy manager called parents to arrange a show-around and sent email confirmation. If unreachable, an email was sent, followed by calls after 24 and 48 hours.
• Show-arounds were extended to 45 minutes, covering all rooms, activity explanations, and links to the curriculum. Visiting children were encouraged to join activities.
• Visits ended in the nursery’s soft-seating area, where parent testimonial letters are displayed, to discuss childcare needs.
• Certain areas of the nursery were repainted in bright vibrant colours.

In addition, some of the Nursery Manager's duties were delegated to other staff to relieve the pressure on her.

The costs involved in the above changes were minimal; the web company made the downloadable PDF changes as part of their existing maintenance charge, and the only additional costs were some tins of paint and the owner's time at the weekend to do the painting.

The Results

This business has since grown its turnover by £500k (up 70%) and improved its net profit from £34k to £325k through, increasing the enquiry conversion rate to consistently over 35% and other activities such as:

• Introducing an effective Google pay-per-click campaign (driving enquiries from 200 to over 400) 
• Registering on National Nursery websites (for referrals)
• Managing staff numbers/wages to consistently under 48% of income (and well within staff to child ratios)

Vernon and Sandra are still clients to this day.

Why use a Business Mentor?

Our business mentors help owners to firstly identify areas that need improving, provide guidance to identify the solutions and help implement the changes required. A business mentor can be the difference between ‘just bumping along’ and truly scaling your business with a defined strategy and planned exit. Get in touch to take advantage of a no obligation complimentary mentoring session to experience the benefit of having a mentor working alongside you.

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