How to make better decisions and improve profitability

How to make better decisions and improve profitability

Every action you do and decision you make has an impact on a company’s profitability. As a result, you should have a greater knowledge of the decisions that you make. Here are 7 recommendations for increasing profitability:

There are four strategies to boost your company’s profitability.

There are four primary areas where profitability can be increased. 

  • Reduced expenses
  • Increased turnover
  • Increased production
  • Increased efficiency 

You can also diversify your business by entering new markets or developing new products or services.

Keep track of your expenses

Your profitability can be boosted by proper expense management. While most organizations can discover ways to minimize costs, it’s critical not to sacrifice the quality of your products and services.

Activity-based costing is a useful tool for determining the true cost of various company activities. It determines how much it costs to perform a certain business activity by allocating proportions of all expenditures – such as salaries, office space, and raw materials – to specific activities.

Examine your offer

Examine what you offer, who you sell it to, and how much you charge to determine if you can improve.

  • Pricing Factors to consider: Regularly reviewing your pricing. Changes in your market may allow you to boost your prices without risking your sales.
  • Determine who your best customers are: Your profitability is influenced by more than just your price list; the type of clients you sell to can also have a significant impact.

Think about the following possibilities:

  • Upselling – selling customers higher-priced items that contribute more to your bottom line.
  • Cross-selling – entails analyzing what customers buy and recommending comparable items.
  • diversification – Identifying a demand and generating new products and services to meet it.

Increase your purchasing power

Buying more effectively is one of the most obvious ways to boost your profits. It’s a good idea to check your supplier base on a regular basis to see if you can get the same raw materials at a lower cost or with greater efficiency. At the same time, make an effort to maintain a high level of quality.

Get the greatest price from your vendors

  • Identifying your major spending categories will reveal where you spend the most money.
  • To get a better price, consider using your status as a trusted client to negotiate long-term contracts or realistic annual minimum spending with your regular suppliers. Consider switching to a different supplier if you can’t find a better bargain.
  • Examine the number of vendors you work with. Purchasing from a large number of vendors can be inefficient because it takes more time and dilutes your purchasing power. Avoid putting all of your business with just one or two providers, as this could leave you susceptible if something goes wrong.

Reduce waste in the workplace

  • Reduce your energy costs by turning off all equipment while it is not in use
  • Remove unused phone lines or photocopiers that you are paying for

Broaden your customer base

Moving into new markets can completely reshape a company and, if done successfully, can greatly boost profits. Expansion into new markets, on the other hand, can be dangerous, and costly mistakes might be made.


  • Research before you begin. Are you able to alter or adapt existing products or services to meet the needs of new markets? This can generate additional money at a low cost, which is great for increasing profits. 
  • Do you know who your potential new consumers are, why they’ll buy your product or service, when and how they’ll buy it, and how much they’ll pay?
  • You can also utilize social media to do research and solicit alternate perspectives, ideas, and comments from your customers.

New product and service development

It’s important to think about the viability of a new product or service before producing it for a new market. The following are some important questions to consider:

  • Do you have the necessary skills and expertise on staff, or will you need to hire them?
  • Do you have the commitment and resources to make the new endeavor a success?
  • Is it possible to reduce the risk?
  • Can you be certain that there will be a demand for the new product or service at a price that will allow you to profit?
  • Partnerships and joint ventures, rather than going alone, might give you more security in establishing yourself in a new or expanded industry.

 Increased output

  • Choosing the right key performance indicators (KPIs) for your company will help you set clear goals. They should reflect your objectives, be quantifiable and comparative, and allow for adjustments to keep you on track.
  • It’s beneficial to gain a sense of how similar companies address similar problems. Benchmarking can be as simple as comparing energy expenses between similar organizations or as complex as sharing data and analyzing production and stockholding habits with other companies you trust.
  • Benchmarking can generate new ideas and energy for making your firm more efficient by providing a different perspective.
  • When benchmarking, it’s a good idea to focus on areas that are similar to the KPIs you’ve already defined.

Checklist for Increasing Your Business’s Profitability

Improving the profitability of your company can help you cut expenses, enhance turnover and production, and plan for change and expansion.

The way you boost the profitability of your business will be determined by a variety of criteria, including the industry you work in, the size of your company, and its running costs. You could, however, consider the following choices:

  • Identifying areas in your firm that could be improved or made more effective
  • Evaluate your general business costs, such as overheads, how reduced deals with loyal customers affect your revenues, and how productive your employees are, as well as identify and reduce areas of business waste, such as electricity supply prices.
  • To increase your profit margins, use up-selling, cross-selling, and diversification tactics.
  • Identifying and limiting areas of expenditure via bargaining with your suppliers’
  • long-term contracts with suppliers to get a better bargain on products explore new opportunities in your industry and figure out where you could extend your market
  • Install monitoring systems and processes, such as benchmarking.

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