Greater Profits For Your Business
Unless you went to school for accounting or business, you are not likely to be familiar with phrases about profit maximizing. You simply know that you own a small business and you want greater profits. In this article, I will help you understand concepts to help you become a more profitable business while also gaining knowledge about terms your accountant or financial services professional may use.
Profit is calculated as your total revenue less your costs. This means to calculate profit you use the total income received from sales of products and services and you deduct all production costs. Production costs do include the value of your time, as the owner, if you work in the business providing services or creating your product, as well as all paid resources.
Right now, establish this number so you can see your actual profits. Next, it’s time to look at how to increase your profitability. Most business owners I mentor start out thinking they can get greater profits only by increasing prices. This belief is due to having a lack of business knowledge. The best way to maximize profits is to look at all factors that go into providing your products and services first. To reach your profit goals you may need to decrease costs associated with what you sell. This is a way to increase your profit maximizing output. Always start at the profit-maximizing level of output by seeing if you can decrease costs.
Then, take a look at the prices you are charging. You can consider profit maximizing price by having a price increase if the market is tolerant to this. I always suggest my clients decrease costs as the first measure of increasing their incomes.
After we adjust costs and get them a low as we possibly can, then I mentor my clients to look at their prices and we do a comparison of their competitors and mystery shop them for prices. We might also test some price increases to see if their target audience bears this increase well.
The number one thing I want is for all small business owners to be in the know when it comes to profit maximizing quantity. Your takeaway lesson from this article is that you want to keep an eye on your metrics and key performance indicators. I ask all my clients to do a weekly review of their numbers so we can make sure the get the maximum profit out of their business and keep their operating expenses as low as possible.
I suggest you take a look right now at what it costs you to provide your products and services. This next 30 days cut that expense by 5% and watch your profits go up. If you can, also raise prices by 5% and then enjoy your pleasant surprise of greater profits from your small business.