Which Route To Higher Profits Is Right For Your Business?

In its purest form, running a business is rather simple. 

• Your company incurs costs to provide a product or service to its customer; these costs include purchasing supplies, labor, and so on. 
• You then sell that product or service for more than it costs you to provide it. 
• The difference between your costs and the sale price is your profit. 

However, while turning a profit may seem simple in concept, in reality, it can be rather difficult – and many businesses find themselves needing to find a route that allows them to improve their profits and subsequently grow their business. 

There are two primary options for businesses seeking to achieve this goal. 

Cost savings

The lower your business’ running costs are, the greater your profit margin will be. There are a number of different ways businesses can make cost savings; reducing fixed costs (such as negotiating a discount on rent or moving to a lower energy tariff), using the likes of eFlow procurement software to achieve a better use of resources and greater understanding of ongoing spend, and improving the efficiency of the workforce are all avenues worth exploring in this regard. 

Increasing income 

The second option for increasing profits is simply to try and increase the volume of sales. For the most part, this is done by increasing customer numbers, which can be achieved by starting new marketing campaigns, improving website SEO, and similar measures. New product lines or services can also be added in order to appeal to a different demographic and subsequently increase the amount the business is able to earn. 

Which route should you choose?

Realistically, the best answer is… both. Each route has a specific application: making cost savings is a great way to boost profitability in the short-term, but it’s not a long-term strategy. There are only so many costs that can be cut and efficiency savings that can be established, so if you want to grow profits beyond these natural limits, then the income of the business is also going to have to increase.

However, skipping the process of saving on costs and going straight to attempting to increase income has the potential to be problematic to the health of your business. For a start, earning more tends to require significant investment – for example, extra marketing expenses will be incurred, and you may need to hire new staff to help manage the increase in demand. If these growth-related expenses are added to a business that is already spending too much (or, at the very least, could be spending less) on its current operations, then costs can very quickly get out of hand. 

So, in answering the question posed in the title of this piece, it’s not an either/or question at all: do both. Find cost savings in your current business and enjoy the short-term profit boost, and then look further and explore methods to increasing your company’s revenue in the future. You should find that this dual strategy gives your business the best chance for sustainable success in the future.