There are four real ways to increase your profit:
- Get more customers
- Put prices up
- Negotiate better prices from your suppliers
- Reduce your operating expenses
Each option will have a different impact on your bottom line – i.e. some have a bigger impact than others.
Here’s a quick example:
|1. Increase customers by 10%||2. Put your prices up by 10%||3. Get a 10% discount on raw materials||4. Get a 10% discount on operating exp|
|Less Cost of Goods Sold||($3,000)||($3,300)||($3,000)||($2,700)||($3,000)|
|Less Operating Expenses||($5,000)||($5,000)||($5,000)||($5,000)||($4,500)|
|Improvement in Net Profit||35%||50%||15%||25%|
As you can see, net profit goes up the most (50%) iif you put your prices up by 10%, and only goes up 15% if you get a 10% price reduction on your raw materials.
Now admittedly this is an exceptionally simplistic example. For example it doesn’t take into account any loss of customers from putting your prices up. It also doesn’t take into account anything specific about your business. That said, the general theme of the example should hold true.
So, the next step from here is to figure out what would in fact happen for your business. Give Hamish a call on 04 212 4977 to run through what it might look like for you.