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Finance & Accounting, Financial Management

How to Improve Business: 4 Ways You May Be Leaking Profits

How to Improve Business

Looking for ways to increase your profits? Chances are the first thing you’ll look for are ways to increase sales. But sales alone don’t determine profits. If you want to make your business more profitable overall, you should also keep an eye out for places where your business may be leaking profits.

How to Improve Business by Preventing Profit Slip-Ups

  1. Your prices are too low.

Small business owners often underprice their goods and services when they are starting out. They reason (right or wrong) that the way to get business away from competitors is to undercut their prices. While that strategy may work to start a one-person, home-based business, being the lowest-price provider in your category can reduce your profitability and prevent growth. Once you become established, compare your prices to your competitors. If most of them charge more than you do, raise your prices slightly. If you’re doing $200,000 in gross sales a year, a 2.5 percent increase in prices could result in an extra $5000 in profits a year.

  1. Your shipping costs are higher than necessary.

If you sell shippable goods, shipping costs and shipping problems are likely to be an ongoing thorn in your site. Your customers want to pay as little as possible (and possibly nothing) for shipping costs; meanwhile, your shipping service always seems to be looking for ways to charge you more. On top of that, the cost of labor and packaging supplies to fulfill your orders may be increasing.

To plug the holes, compare the shipping rates of all the major carriers at least once a year. Look at the figures for the package sizes, weights and destinations you ship most frequently. Some services charge surcharges for shipping to residential addresses, so be sure the U.S. Postal Service is one of the carriers you look at.

If you ship merchandise that fits into flat-rate priority boxes or envelopes, compare the cost of the free box plus priority surcharge to the cost of buying your own box and sending the package via standard shipping.

Make sure that the packaging you use is the smallest possible to assure products arrive undamaged, too. The smaller the total package size, the less you usually pay for shipping – and the less filler you’ll need to use in the box.

  1. High cost of goods.

As a new business, you probably won’t be able to negotiate the best prices for the inventory, raw materials and supplies you buy. After all, you are unknown to vendors. But once you are established, you may be able to get vendors to charge you less for what you buy. The way to find out: ask for a discount.

When asking for a discount, remind vendors of the size and frequency of your orders. If they won’t give you a discount at your current order level, ask at what point you could get a price break. If they have quantity discounts, carefully evaluate how fast you’d be able to sell the inventory, and whether the savings, plus any possible savings on total shopping costs to you, make it worth ordering bigger quantities.

Get prices from other vendors as well. If they can do better, consider switching.

  1. Paying more than necessary for services.

Internet services, telephone and smart phone data services come to mind here, but they aren’t the only ones to look at. If there is more than one service provider for a particular service that is important to your business, get price comparisons. Sometimes, just threatening to cancel your current service provider will get your call switched to the services “retention” division, and get you a lower price.

In your review of service prices, don’t forget to take a hard look at the fees you’re paying for credit card acceptance. If your business has grown steadily, you may be able to negotiate lower fees from your merchant card provider.

These are only a few of the costs you may be able to reduce in your business. To increase your profits, scrutinize your payables and the details of your company credit card bills every few months to spot expenses you can reduce or eliminate.


Janet Attard is an author, small business expert and the founder of BusinessKnowHow.com. The website provides free small business information, tips and hints to millions of small and home businesses each year.