Are your profits stagnating? Are you struggling to grow your bottom line? Are your profits not where you want them to be?
If you answered ‘yes’ to any of the above, you’re not alone. Every business has its ups and downs, but taking steps to steer the ship back in the right direction can make all the difference.
How do you get back on track? These strategies can help you maximize profitability this year and beyond.
1. Use Zero-Based Budgeting
There are many types of budgeting – realistic, stretch, worst-case, etc. – but zero-based budgeting can be an advantageous strategy for boosting your bottom line.
Zero-based budgeting (ZBB) takes a different approach to the process. Rather than basing your budget on last year, you start from the ground up. Every expense will need to be justified for each new period.
Yes, this approach is time-consuming, but it will help you eliminate expenses, like subscriptions and dues, that you don’t really need.
How effective is ZBB? A survey from Deloitte found that 43% of global companies that used ZBB hit their cost targets.
So, how does ZBB work? Follow this five-step process:
- Start from scratch. Create a new budget without using last year’s actuals as your baseline.
- Evaluate every expense category and eliminate or reduce any unnecessary costs.
- Justify each expense and identify ways to lower necessary expenses without compromising on quality or efficiency.
- Streamline wherever it makes sense. Automating tasks and standardizing processes can help improve efficiency and save on costs, which will boost your bottom line. Investments in new technology or staff may be needed to achieve savings over the long term.
- Finalize your budget and allocate your resources effectively to ensure your changes are implemented effectively.
Like any other budgeting approach, it’s important to involve all stakeholders in the process, including decision-makers and anyone else who will be affected by the budget. Make sure that you’re keeping clear and transparent documentation of all decisions to ensure everyone is on the same page.
Think of ZBB as a real-time expense tracking system. Because your budget is refreshed every new period, there’s no risk of carrying over wasteful expenses.
ZBB has many advantages, but there are some drawbacks to consider.
- It’s time-consuming and resource-intensive.
- Long-term perspectives are often overlooked.
That said, ZBB is great for short periods when you need to get costs under control – like when your profits are stagnating.
While reducing expenses is a quick way to boost your bottom line, it’s important not to be overzealous. The goal is to eliminate unnecessary expenses, so make sure that you’re not compromising on your quality or your ability to serve your customers/clients.
2. Revenue Boosting Initiatives
Profitable sales need to grow. If you don’t have profitable sales, you need to ask: how can we improve this metric? You have a lot of work ahead of you because you’ll want to:
- Review all of your pricing and profits on individual products or services
- Determine which services or products are most profitable and how to scale or improve marketing for them
- Work through your least profitable products or services and figure out if there’s an easy way to fix the lack of profitability or if you need to get rid of them completely
You should never be “married” to products or services. If you find that a great product is no longer profitable or takes too much time to produce, get rid of it. Businesses that have a unique foothold in an industry may even want to consider spinning this segment off and selling it.
For example, if you make white widgets and profitability has declined to a level you’re no longer comfortable with, can you sell off the unit? If not, you can simply wind down sales of these products or services and stop offering them. This enables you to reallocate your resources to more profitable products/services
And if you have legacy customers or clients that still have high demand and bring in a ton of profits that still utilize this product and it keeps them buying your profitable products, you can even consider just offering these special products or services only to them. Otherwise, “cut the fat” and focus on what adds to your bottom line.
If you boost revenue and follow the ZBB strategy above, you’ll be well on your way to increasing your profitability.
You need to focus on just one more area to make sure that you maintain healthy margins: marketing.
3. Revitalize Your Approach to Marketing
Marketing is evolving and changing – it always has. Your prospects may be on social media – 55% of marketers use Instagram – but your audience may not be Internet-savvy or spend their time on LinkedIn, networking events or offline.
You need to review your marketing approach to learn:
- What’s working
- What’s not working
How can you get the word out to the best prospects for your business? If you find that you’re spending $15,000 on Instagram ads but have a much higher return on Google Ads, you may want to reallocate your budget.
You need to differentiate yourself from others in the market, and you need to meet with key stakeholders to learn what this really means.
We often find neat ways that clients can increase pricing. For example, you may be able to offer something that costs 1% more but the perceived value it creates allows you to charge 10% more.
If your clients or customers need the services or products that you plan to add for this perceived value, you can make more money without needing to attract new business. Perceived value will also help improve customer satisfaction, which is always a good thing.
Final Thoughts
Boosting your bottom line and maximizing profitability needs to be a top priority for every business owner this year. You need to have adequate free cash flow to reach your growth goals and adjust your approach to remain profitable.
Products and services that were once some of your most profitable may no longer have the same profit margins.
If you follow the strategies above, we’re confident that you’ll maximize your profitability and continue offering the best products or services to your customers.
To learn more strategies for boosting your bottom line or to schedule an appointment, click here.