You built your company for many purposes, one of which was making a profit. As you continue to grow your business, you may find that sales are increasing while profitability is decreasing.
How do you catch profit slumps before they happen?
In this article, we share pearls of wisdom found in an interview with the CEO of ProfitLinz, Karena Bell, and Adi Klevit, CEO of Business Success Consulting Group. During this interview, both CEOs discuss how businesses lose money and what business owners can do to increase profits without pricing themselves out of the market.
Ten Ways Your Company Is Losing Money
And How to Increase Profitability
1. Promoting to the wrong customers
Sometimes, a business promotes to a customer persona that no longer matches the product/service or pricing. Alternatively, the marketing team may be missing out on a customer base that could provide much greater revenue.
It’s vital to continue researching your market, even if your company is well-established. Gather buyer data, perform marketing surveys, ask open-ended questions on social media, and use data to analyze your business’s most profitable buyer persona. Evolving your buyer persona will help you market and sell to the right customers.
2. Old or few processes and procedures
Business systems are vital to company growth as they support everyday operations. If your team uses old processes or has to reinvent the wheel every time they perform a function, then every project will move slower than it should.
This is a simple issue to solve: review existing systems and document new business processes. Here is where to start.
3. No automation or spotty automation
Building processes and procedures also support effective automation. If your business systems are outdated, then any automation you have running is likely obsolete as well. One strategy to solve this problem is to review your automation when you review your business systems. You may find new methods of automation or ways to improve existing automation.
4. Focusing on non-revenue generating products
Sometimes a team does not want to let go of a pet project or a product that never really took off. However, putting too much time and effort into streams that do not create the needed revenue is counterproductive.
One way to evaluate areas where you may be spending too much time and money with little return is to use the ProfitLinz Profitability Estimator. Utilizing this tool and assessing the data at your disposal will enable you to determine where to focus your efforts.
5. Vendor contracts that do not make sense for your organization
Karena shared a story about a vendor contract with two exit clauses that negated each other, effectively making the contract impossible to exit. Another client was working with a vendor who was in breach of their own contract. She helped them renegotiate the contracts to ensure a better outcome for the business. In one case (where there was a breach of contract), she was able to recoup money lost due to the breach.
The moral of that story is, don’t be afraid to renegotiate with vendors, even as you retain them and continue working with them.
6. Improper pricing of products and/or services
Pricing is tricky because you don’t want to go beyond what the market will bear, but you also don’t want to leave money on the table. Reviewing your pricing regularly, including analyzing competitor pricing to find the sweet spot is vital. Additionally, it is essential to understand which prices will attract new buyers without alienating existing customers. Continually evaluating pricing must be done by every business.
7. Not taking advantage of incentives
Your local or federal government may have incentives such as economic development, clean energy, ESG, carbon credits, and tax incentives. Your company should take advantage of these government-funded programs if they apply to your business.
Do your research and find out if there are local or federal programs your company complies with or could easily comply with. Hire experts to advise you as needed.
8. Not reviewing your supply chain.
Many businesses are shifting their supply chains after the 2020 pandemic hit the manufacturing industry. Now, in 2024, it may be time to review your supply chain and see if savings can be made or if you can harden the supply line further.
9. Inaccurately calculating costs
Sometimes, a loss is hidden because the costs are not calculated correctly. For example, when the total cost of goods sold is higher than you have documented, your profit will be reduced without anyone in the business knowing this is the case.
The solution, in this case, is to review costs beginning with a total cost of goods sold as a baseline. Regarding services, review the number of actual hours it takes to complete a contract or transaction. Keeping up with costs is essential, so be sure to perform this review at least once a year.
10. Not taking into account more ephemeral factors
While profit is often an all-encompassing driver of business, there are also ephemeral factors that may need to be included in a client persona that is only tangentially related to profit. Adi brought these up in the interview and it’s worth reviewing them here. These include factors like:
- Is this the type of client I like working with?
- Will the team and I enjoy the work?
- Does the product fit with our company’s morals and culture?
- Does the client type make sense for the kind of company we are trying to build?
- Would working with this client drive a valuable team member to another company?
For example, many companies want to focus on green or sustainable manufacturing and packaging, which usually increases costs. However, the green focus is part of their culture and brand, so it cannot be left out without substantively changing the company. Or you may have a company like Bombas Socks that donates a pair of socks for every pair sold. That’s part of company ethos.
There is no need to change your company culture to fit with a particular profit/cost model. Instead, utilize your ethos to help you stand out. It can be a profit builder all on its own.
Increasing profitability often requires a confluence of factors. If one such factor is building or updating business systems, get in touch with the experts here at Business Success Consulting Group. We will provide a free initial evaluation to get you started on the right path.
