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6 Ways to Increase Profits for Your Small Business

It’s easier to get a business off the ground than to keep it in the air.

To really make your business fly, it has to be profitable. And in a small business, when margins are tight, every penny of increased profits counts. A minor change or two can make the difference between celebrating or closing up shop.

Here are 6 ways to increase profits in your business and keep it soaring.

1. Be Creative With Your Sales Mix

Every item you sell contributes something different to your bottom line. This is what accountants call a product’s “contribution margin.”  An item’s contribution margin is the percentage of its sale price left over after you’ve accounted for any direct costs for producing it. This is what you have left to cover the other costs of business and any profits you hope to make.

Say you run a coffee shop that sells a variety of tasty treats. Your top-selling mocha muffin sells for $3, but the cost of ingredients and labor is $2.10, leaving only 90 cents in profit on each muffin. That contribution margin of 30% isn’t great for a muffin. For every $10 of mocha muffins sold, you’re getting only $3 toward your bottom line. The key to maximizing profitability is to get strategic about selling more of your high-margin items.

Your goal should be to interest customers in more profitable menu items, but you can go further by introducing other creative offerings into the mix. Look for inexpensive seasonal items you can introduce or other grab-and-go snacks you can buy and resell. Or you might introduce additional branded merchandise or special coffee brewing classes. Think creatively about how to interest customers in items that are more profitable for you.

2. Streamline Business Costs

It’s a timeless truth of running a business: As the business grows, so does the fat. A regular audit of your operating expenses is essential for keeping your company lean and profitable. Whatever your business, there are a few basic tools for trimming the fat:

Examine Every Expense

Before you can assess your costs, you have to determine just how every expense relates to the products and services you sell. This is easier with direct variable costs such as materials and labor involved in making a product. But you can also take your fixed costs — rent, management or administrative salaries,  overhead, etc. — and spread them out on a per-product basis. For example, you might assign your labor and rent costs to your different products based on the portion each product contributes to your total sales. There are different ways to allocate costs depending on your business. The goal is to accurately weigh every cost against what it returns to your bottom line.

Illustration of shoppers purchasing items in store and online

Simplify Software

Once you’ve allocated expenses, you might find that software is an easy target for streamlining. If your retail POS, e-commerce software, accounting system and customer relationship management (CRM) tools are all independent systems, you’re probably wasting a lot of time on manual data entry and syncing. Conduct a yearly review of your software by comparing it to the best all-in-one systems on the market. You might be able to combine at least a few business functions into one system.

Improve Your Processes

With every new product you make or layer you add to your operations, you increase the daily responsibilities in your business. If you don’t take time to document processes and systems for your employees — and automate where possible — you will be bogged down with inefficiencies. Update your standard operating procedures regularly and eliminate redundancies.

Evaluate Your Employee ROI

Are you getting a good return on what you’re investing in your employees? Not if you have high turnover or a poorly trained staff. It’s tempting to cut expenses for employee development, but this will often backfire. An effective program for onboarding and development will attract top talent, keep employees engaged and, ultimately, save you money. Make sure you’re putting enough resources into your employees to enable them to effectively do their jobs — and ensure that they’ll want to work in your company.

3. Boost Prices for Goods or Services

If you find that your profits are shrinking year over year, stagnant prices could be a factor. Costs of doing business will rise with the tide of inflation. Strive to keep not only your prices, but also your brand’s perceived value, on pace with this reality. Bryan Jimenez, director of brand strategy & creative for Archimedes, strategic branding agency, explains:

  • First we need to understand that value can be highly influenced by context. A compelling contextual story can dramatically increase perceived value. Understanding the story then allows you to identify an audience that values it more. Your “brand” is like your story. Understanding your company’s contextual brand story is the first step in identifying an audience that values it more than your current audience. This newly discovered, highly targeted audience will happily pay more for your product/service, thus allowing your business to increase its prices accordingly.

Always consider how to make your business more valuable in the eyes of current and potential customers, so you can charge what you’re worth.

4. Get Your Employees on Board

When it comes to profitability, employees will either be your biggest hindrance or your greatest asset. According to Gallup, engaged employees increase business profits by an average of 21%. Creating an engaged workforce should be a top priority in any company.

Look for ways to engage them specifically in creating a more profitable company. Here are a few suggestions:

Share the Numbers

Wherever possible, be open with your employees about the bottom line. Show them the monthly and quarterly numbers and help them make connections. Explain what they can do to increase sales and reduce waste. Share stories of top-notch customer service. Ask them what they need to meet your objectives, and take their feedback seriously.

Invite Ownership

Most of your employees want more responsibility. Don’t just assign tasks — get them involved in the creative process of increasing profits. As you’re gathering their feedback, ask them for their solutions as well. If projects present the opportunity for some team members to take on new leadership roles, then invite them to jump in.

Reward Results

Nothing will deflate employee engagement like feeling unappreciated. Don’t let their efforts go unnoticed. If they’re contributing to real progress in your business’s profitability, then reward them. This might mean a promotion or a raise, but it might also be as simple as directly recognizing their contributions.

Illustration of shoppers running to purchase sale items.

5. Refine Your Marketing Plan

Trimming your expenses is an essential part of increasing profits. But it’s not the only part. You’ve also got to sell more — and to do that, you need an effective marketing plan.

“Establishing your target market is, of course, priority number one when developing your marketing strategy,” says Brittany Hardy, owner of small business marketing firm Empty Desk Solutions. “But once you have that figured out and in place, it’s time to move on to learning more about their “psychographics” — a fancy word for the ‘why’ a person will buy your service or product (the demographics which we are all familiar with is the target or the ‘who’).”

The idea is that you want to get a clear picture of your ideal customer’s persona. “The questions you might ask will shift depending upon the nature of your business,” she adds.

  • Some questions you might ask about your audience include:

    • Where do they spend their time (physically or online)?
    • What do they value?
    • What are the pain points they experience that your product or service can solve?

Once you have these answers, you can evaluate the current tactics you’re using to reach your market. For instance, say you determine the primary audience for your CrossFit gym is tech-savvy millennials who spend a lot of time online. If you’re not engaged on social media, your new marketing plan might include hiring someone to run your social media accounts.

Your goal should be to make sure the tone, style and placement of your messages are tuned to your target audience. Eliminate marketing initiatives that don’t meet these criteria and introduce new methods that do.

6. Secure Additional Financing

The startup phase isn’t the only time to consider outside funding for your business. At times, the only way to grow profitability is to grow the business itself. And, if you’re short on capital, that may require new investments or loans.

Funding options to consider include:

Selling Equity

Whether through a new partner or venture capital, offering a portion of your company’s equity is a way to bring in new money. The amount of equity you’re willing to share will depend on your comfort level and business model, of course. But the benefit is that you’re not on the hook to pay a lender back on their timetable. That being said, some partners will expect faster or higher returns than others, so be sure to conduct thorough interviews and review the business plan together before signing an agreement.


Crowdfunding has exploded over the last decade, with more than $4.7 billion pledged for Kickstarter projects alone. If you have a new project or business initiative that can directly reward your backers, then this might be a great option for you. With most crowdfunding platforms, you don’t have any obligation if the project fails, so this is a relatively low-risk option. Just be sure you’re prepared to deliver on what you’re offering, or you risk losing loyal customers.

SBA Loans

Sometimes your balance sheet could make getting a loan difficult. Many lenders offer SBA-guaranteed loans to businesses that might not be in a position to secure a traditional loan. The Small Business Administration’s Lender Match program helps owners connect with SBA-secured lenders.

Private Loans

If you have enough assets to secure a loan with a bank or other lender — and the financial health to repay it — this can be a great way to fund your growth. You won’t hand over any equity to a new partner or risk losing customers. Be sure your business plan and financial documents are up to date, then talk with several lenders to compare terms and ensure you get the best deal.

Raising the Bottom Line

Increasing profit for your small business takes effort and commitment, but it’s not rocket science. If your business plan includes regular evaluation of these areas, you’ll be set to keep your business soaring for years to come.

Luke Daugherty is a freelance writer, editor and former operations manager based in St. Louis. His work covers business, marketing, and personal finance, as well as many of his personal passions, including coffee, music, and social issues.
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