Businesses must have a healthy bottom line in order to thrive. Have you recently taken a close look at the financials of your product-based business and discovered that the overall profit is significantly lower than you anticipated? Even if your company is generating a lot of sales each month, the numbers don’t lie — profits may be much lower due to the money your company has to spend each month on payroll, manufacturing costs, and other overhead expenses. This can be extremely aggravating for any business owner!
Now you might be wondering, “How can I increase profits without making major changes to my company’s operations?” Is there a way to increase net profit without increasing sales or marketing efforts? Now you don’t have to wonder any longer! I’ve discovered a number of simple but effective ways for a product-based business to boost monthly profit.
Here are three that I’ve encouraged other business owners to emulate:
1. Make a budget and review it now to save money later
Because you never set up a budget or set one up at the beginning of the year or quarter and then forgot about it, your profit may be much lower than you anticipated. Allow this to no longer be the case! Your monthly budget serves as a roadmap for exactly what your company requires to run and deliver its services to customers. Take the time to create a spreadsheet that details exactly which costs are required for each month’s operations, such as CRM and sales management software subscriptions, payroll, manufacturing necessities, and so on. Include ALL costs, no matter how insignificant! Better yet, keep track of everything with an accounting system.
After you’ve completed this budget, the next step is to compare it to your company’s actuals. You may have written down your monthly overhead costs in your budget to make them permanent, but your actual expenses could be much higher than you realize! Take a look at the expense lines on your last financial statement to see where the biggest deviations from your budget are. You might find that the cost of office supplies or cloud-based file storage is higher than you anticipated. Once you’ve identified the inconsistencies, you can make adjustments to ensure that your actual expenses match your budget.
2. Look for waste in the manufacturing process
You may be completely unaware of waste generated during your manufacturing process. For example, a manufacturing process you use may result in a lot of wasted materials, which can be very costly and reduce your overall profit. So think about how you can reduce or eliminate waste entirely. Examine all of your production processes for waste and consider what changes can be made to eliminate it. Even a minor change in the process can drastically reduce waste, making this a must-do step for any product-based business!
In an inefficient process, waste can also refer to costly, unnecessary manpower. For example, suppose you have several people working on one aspect of the manufacturing process when only one person is required to do so. The extra manpower is a waste of money in this case, and it may even reduce the overall efficiency of the process!
3. Make an effort to bargain with vendors
Do you collaborate with a variety of vendors whose products are incorporated into your final products? Do you, for example, buy bulk materials from several vendors to make your company’s products and then buy packaging supplies from a different vendor? If that’s the case, see what you can do to get the best deal on these items by negotiating with them. You can do this in a variety of ways, including:
Check to see if you can get any early payment discounts.
Every business owner wants their invoices paid on time so that they have enough money to cover their operating costs. As a result, see if your vendors are willing to give you a discount if you pay your monthly invoice early. Even if the discount is only a small percentage, it can add up to a significant amount of money saved! Let’s say you buy $4000 worth of materials from one seller every month. You’ll save $200 per month if you can get a 5% discount for paying your invoice early. And if you get 5% off early payment discounts from every vendor you buy from, the savings will quickly add up and boost your monthly net profits!
If a seller is unwilling to offer an early payment discount, see if any of their competitors are. If one of your competitors is, tell your current vendor about it, and they may be persuaded to offer you one as well. They’d much rather give you a small discount for paying early than lose your business to one of their competitors.
Pricing should be negotiated.
See if you can negotiate pricing with your vendors, which is related to the previous point. Reach out to your vendors’ competitors once more to see what kind of pricing options they have and how they compare to your current vendors’. If any of your competitors offer the same materials at a lower price, see if your current vendors are willing to match it. If they aren’t, consider switching vendors — even if the price difference is only $50 per month, you’ll save $600 over the course of a year! Always keep the long-term savings in mind.
Finally, to Sum Up
Are you looking for ways to boost the net profit of your company? You can accomplish this by planning and reviewing your budget now in order to save money in the coming month (s). Additionally, evaluate your manufacturing processes to eliminate costly waste. See if you can get discounts on early payments and lower the prices for your monthly purchases by negotiating with your vendors. Following these easy-to-follow but highly effective steps can help you save a lot of money and increase net profits, which will improve your company’s overall bottom line.