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Myriad Ways to Enhance Profitability

Approaches to Improving the bottom line

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Like they say, there’s more than one way to skin a cat. I’ve never understood why one would want to skin a cat in the first place, but………, in the same way, there are multiple ways to look at increasing profits. It could be by reducing costs or by increasing the price of goods sold. Between these two, there are also multiple ways to tweak aspects of these and to enhance potential profit opportunities.

For instance, if we were to take a retail store as an example one could increase footfall into the store, increasing business and in turn, profits. Secondly, if one were able to convert more of the generic footfall in that store into customers (e.g. Conversion rate of footfall – visitors to customers, from 20% to 30%) there would be a marked difference in profitability. Similarly, if one were to improve avg. sale spend per customer (Avg. sale amount / spend per customer) from USD 25 per sale to USD 30 per sale there would be a large uptick on the bottom line.

So enhancing traffic footfall, converting more of the footfall into buying customers and then ensuring the average spend per sale is higher, all have impact on the bottom line. Upselling and cross selling to customers provides yet another substantial opportunity.

The other route to take could be lowering cost. Luckily, there are multiple expenditures one can look at for this. Though, shedding headcount (Firing your employees) should surely be one of the last options.

  • Reduce Rent: Move to a cheaper location
  • Reduce Cost of goods sold: Look at other potential suppliers to provide cost savings
  • Save on logistics: Reduce flights or shipping costs to import/distribute your products
  • Go digital: Save on brick & mortar store rental, salaries & related costs
  • Move H.O.: Moving the head office to a lower tax bracket domain / location. Examples include the Cricket Association moving from UK to Dubai where there are no corporate taxes for them. An electrical power generation entity moved from Spain to Dubai and started making 35% more profits just by being based here as they did not have to pay the 35% taxes they were paying in Spain.
  • Move non-customer facing support functions: (IT / Training / Back office etc.) from high rent and high profile locales to lower rent areas e.g. suburbs.
  • Channel utilization efficiencies: Utilizing multiple channels to get to your customers and assessing each one’s efficacy in terms of their costs per customer etc.
  • Product utilization matrix: Checking how many of your products your existing customers are utilizing. (If they are only utilizing one or two, there is scope for cross/Up selling to them).
  • Procurement practices can be revisited and tightened.
  • Consumables can be monitored and controlled (printing paper / toners etc.)
  • Outsourcing: Certain aspects of your business could be outsourced (e.g. canteen)
  • Cost centers can be converted to profit centers by tweaking their workings e.g. Training department could continue training your staff, but, would be allowed to offer and provide training to anyone, even outside the organization. This would open up a business opportunity with additional revenue streams being created for your original business. Similarly, the Recruitment function could be provided the opportunity to expand their remit from only the organization, to providing their services to anyone.

Converting these traditional cost centers into profit centers is a good way to not only cut costs, but initiate additional and new revenue streams that previously did not exist for your organization.

  • Consolidation: Buying up or into your suppliers and distributors, supply chain consolidation, backward integration as well as forward integration could also provide cost savings and efficiencies. Their profits from your previous purchases from them, become your profits as well.
  • Substitution is yet another example wherein organizations look for cheaper, less expensive substitutes for their operations, e.g. Linux as opposed to Microsoft & so on.
  • Inventory controls: Reducing large sized holdings, raw materials, stock & inventory etc., and practicing on-time deliveries not only reduces the investment in these stocks, but also curtails requirements of large warehouses and so on.
  • Credit period extensions: Negotiating with suppliers for longer credit periods provides space to breath as well as reduced requirement for bank borrowings as your suppliers end up funding the sales, if done right.
  • Work from home  Remote work brings in several benefits, including cost savings on multiple fronts, like requirement for large office spaces, bills to maintain the same and insurance for these etc.
  • Outsourced workers: Utilizing contractors and sub-contractors, freelancers and interns for short term work instead of hiring new employees to finish the job. These save on multiple levels including salaries, insurance, end of service benefits etc.
  • Collaboration: Finally, looking at collaboration opportunities to share resources. E.g. If several small business owners decided to share their auditors, accounting and tax people, their HR and training people etc. they would end up paying a fraction of what they would pay if they had to setup their own departments respectively.
  • Miscellaneous: Cut training and development budgets for your staff, reduce free perks such as Flights / paid holidays, reduce entertainment pools/free flows, substitute travel with Zoom/Teams etc.

So, to summarize the above opportunities:

  • Reduce rent
  • Reduce cost of good sold
  • Save on logistics
  • Go digital
  • Move HO
  • Move non customer facing support functions
  • Channel utilization efficiencies
  • Product utilization matrix
  • Procurement practices
  • Consumables
  • Outsourcing
  • Cost center conversion
  • Consolidation
  • Substitution
  • Inventory controls
  • Credit period extension
  • Work from home options
  • Outsourced workers
  • Collaboration

The above are apart from the initially mentioned footfall increase, enhancing conversion of this footfall, average spend increase, Upselling & cross selling etc.

There are multiple approaches to achieving the same thing. These could be used individually, or as a collective approach or even as a dovetailed approach with other initiatives. At the end of the day, these different approaches provide opportunities for entities to conserve, save and ensure sustainability of their enterprise.

Just a reminder: Do ensure a balanced view and not overdo any of these to the extent that it starts impacting the effectiveness of your products, delivery, service or profits.

Now, let the profits rise.

Author: Uzair Hassan, CEO, 3H Solutions Group (uzair.hassan@3hsolutions.biz)