How to increase profitability
Checklist
- Ensure managers (and other employees) are focused on profitability - but without losing sight of the need to manage cashflow.
- Identify the key drivers of profitability; set and monitor key performance indicators (eg sales per employee, gross margin).
- Avoid distractions for example, one-off projects which don't play to your strengths or contribute to your strategic goals.
- Create plans with measurable objectives and set budgets; learn from experience to make continuous improvements.
- Continually gather market information; build a dialogue with key customers and suppliers.
- Anticipate the knock-on effects of any changes you plan.
- Focus on a niche market you understand.
- Invest in advertising and other promotional techniques (such as social networking) to increase sales volume; actively sell and deliver a service that builds customer loyalty.
- Maximise the value of sales: consider moving upmarket and charging the highest price you can justify for the product; innovate to stay competitive.
- Focus on your most profitable customers and products.
- Specify the right quality of supplies and negotiate favourable prices; monitor competing supply offers.
- Monitor and control overhead costs and eliminate unnecessary activities.
- Maximise the cost-effectiveness of assets: base purchasing on lifetime costs; sell unnecessary assets (or sub-let surplus capacity).
- Recruit the right employees; provide a working environment, training and motivation which maximise their effectiveness.
- Create systems to reduce errors and wasted time; create policies to reduce the need for managers to repeatedly make the same decisions.
- Invest in information technology and other labour-saving equipment.
- Share best practice across the company.
Cardinal rules
Do:
- identify the key drivers of profitability
- focus on profitable customers and products
- invest in building sales
- control costs
- create systems which improve efficiency
- learn from experience
Don't:
- ignore cashflow
- waste effort on distractions
- make changes without considering the consequences
