Being profitable is about more than just boosting sales. It involves watching your expenses and making adjustments where necessary to cut production costs, labor costs, and more. Here are seven areas of your finances you’ll want to watch if you want to be more profitable.
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1. Labor Costs
What’s the number one cost of running a business? Labor.
While providing competitive pay to your employees is not only ethical but can also put you ahead of the competition, you need to keep an eye on your labor costs. Calculate how much labor you need, and how much labor it is fair to ask one employee to complete.
After you’ve decided how much labor you truly need, you can either trim the unnecessary employees or engage in outsourcing your labor to another country.
Another way to cut labor costs is to analyze purchasing trends. If your business experiences higher sales volumes during the afternoon, schedule employees to compensate. If summertime is your busy season, you may require extra temporary staff.
Good labor management practices can help boost profits by keeping the cost low. Remember to treat your employees like people though, and provide them with good work opportunities and fair pay.
2. Production Costs
If you can cut production costs without endangering employees or sacrificing the quality of your products, you’ll want to do so.
While this sounds complex and perhaps even nearly impossible, there are several ways to do so.
First, you can compare prices of your suppliers. If you need to outsource supplies overseas, do so, but only if it creates substantial savings for your business.
An inventory management system can help cut production costs by tracking the supplies you already have, and only ordering what you need. You can set reminders when supplies run low, and encourage your customers to provide exact figures so can produce only what’s needed.
Overstock is “dead” inventory. It doesn’t recover the cost of production or create a profit, so try to steer away from having excess inventory if you can.
3. Retained Earnings
Retained earnings allow your business to invest in research and development, new products and supplies, and other advancements. It’s important to emphasize driving retained earnings so that you can progress as a company.
Keeping an eye on your retained earnings will help you allocate money where it should be, as well as identify key areas where you need to tighten up costs. The higher your profits are, the more money you have to invest in the business.
Generating a statement of retained earnings will show you exactly how much you’re retaining and where it’s coming from, so you can plan accordingly to boost the earnings.
4. Benefits Costs
While we already mentioned labor, the cost of employee benefits is a separate entity in a way. It involves the perks of working for your company, providing health and life insurance or other services to your employees.
Like everything else, they cost you money. Always keep an eye out for better, more cost-efficient health or life insurance plans. Chances are you may find a better rate, which will make the services cheaper for everyone, and put money back into the revenue stream.
A company that offers good benefits is more likely to retain employees, and when it comes to insurance, cheaper is not necessarily better. You don’t want cheap insurance, but rather more cost-effective insurance. If you can find the same coverage for a lower price, that’s a win-win for everyone.
5. Your Marketing Campaigns
If your marketing efforts aren’t generating sales, then you’re essentially throwing money out the window. Do a thorough analysis of your marketing efforts and decided if you’re getting a return on your investment.
A good marketing campaign drives sales by creating interest in your brand. You should have a target audience, and be constantly looking for ways to expand to other audiences and branch out to new customers.
6. Credit Card Processing Services
When a customer runs a credit card in your business, the processing service charges you, the vendor, a nominal fee. This may not seem like a lot until you start generating large sales numbers, and realize that small percentage has no become very large and expensive.
Shop around and compare credit card processing services. You may find there’s a local service that charges significantly less than the one you’re using. You may also find that the service you’re currently using is willing to renegotiate if you express your desire to go elsewhere. Don’t be afraid to be a little assertive.
7. Professional Services
If your business is paying for an attorney, cleaning company, or another professional service, you may want to cut these services unless they’re absolutely necessary. A cleaning service isn’t actually necessary, since you can train your employees to clean their workspaces, and while an attorney is useful, you really only need one in times of legal need.
Cutting services like this can save you surprising amounts of money, which you can then redirect into the business to grow it. Growing your business is worth a lot more than having a professional cleaner tidy up at night.
Check your Spending
Only spend money on absolute necessities for the business. The rest of your profits should be going into market research and expansion, so you can boost your earnings and become more competitive. Remember that the best way to earn money is to save money.