Focus on Profitability

It’s tough out there for many businesses, but many businesses are also flying high – sales up – profit up - market share up. Working with, and coaching, high growth SME’s may mean that I have a biased perspective that ‘business is really good’ out there. It’s not for everyone though. So, what makes the difference?

Essentially it comes down to 2 things: attitude and attention to detail, and that’s attention to detail in everything that successful businesses do.

One area is paying lots of attention to detail to KPI’s. Firstly you need to set the right ones and then not only track performance but where performance is dipping (or rising quickly); you must act upon the findings, every time. If you want to ensure that profitability is on track then the KPIs you track must focus on profitability.

Here are 7 things to help you focus on profitability:

1. Understand what the most profitable parts of your business are. Which product lines deliver most profit, which customers and which markets are the profitable one’s for you to operate in. By looking for the most profitable you will also find the most costly or profitless markets. You’ll need to get out of these markets quickly or focus on their profitability by making changes to enhance profit above break even.
2. What is the trend for profitability in the short, medium and long term? You can’t always focus on short term profit, you should have strategies to bring in profit over all periods, but in order to survive short term profit has to be your focus. Be clear where products or markets are in decline and adjust your strategy accordingly. The same goes for rising markets and products too.
3. What are your business ‘advantages’ that are driving your profitability? Are your services the best they can be, products manufactured as simply as possible with exceptional quality, does your procurement drive a hard bargain, are you developing new products, markets or customers?
4. What could go wrong? Understand where you are vulnerable and have contingency plans in place, just in case. If you product range is thin or you rely on just a few clients then you need to work hard to drive more customers and add new products to ‘protect’ yourself. Conversely too many products or too much discontinued and obsolete stock can be a catastrophic situation.
5. What is the best way to continue your growth? Standing still is generally accepted as not an option! Complacency soon sets in and the end usually creeps up on you. Continued development of products, markets and customers must be top of your agenda. So review your position now and where you are going to then you need to develop those profitable strategies to fill the gap.
6. Focus on cutting unnecessary costs. Increased costs hit your profit hard – everything you spend must come off the bottom line. So, if you can reduce your costs and overheads and improve the margin then profit will follow. Whilst focusing on your spend is important don’t go too mad and cut what is really necessary.
7. Finally, keep talking to customers, suppliers and competitors and understand how market changes and economic conditions are affecting those around you. Once you know what is happening it’s much easier to adjust your approach.

It is tough in business but then no-one said it would be easy. Keep your focus on your profitability and you should not only survive but thrive too!

What are your top tips to help you focus on profitability?