How To Increase Profit In Your Business In 3 Easy Steps

How To Increase Profit In Your Business In 3 Easy Steps


A profitable business is what we all crave. As entrepreneurs and business owners, enough is never enough. How to increase profit in our businesses becomes a skill that we have to become adept at – fast!

What we do know is this :

We hustle hard to earn profit, when what we actually want is a neat and simple system to help us increase profitability in the most efficient way possible. So that is exactly what we’re going to demonstrate here – how you make your business more profitable by applying 1 simple, universal concept.

We’re going to see that there are only 3 things that will ever influence how to make a business more profitable, and we’re going to see why the system holds true for anyone looking to create a very profitable business.

[ctt template=”11″ link=”956XK” via=”yes” ]There are only 3 things that will ever influence how to make a business more profitable[/ctt]

You might be wondering at this stage:

  1. Will this work for my business?
  2. Will it be difficult to understand?

So let’s answer those two questions now:

This will work for any business, regardless of:

  • Geography – it doesn’t matter where in the world the business is located
  • Size – turnover, staff number or office size (office, ‘factory’ or home based)
  • Whether the business is product or service based

The actual concept around how to make a company profitable is as simple as it gets:

It is essentially based around 2 images that you need to remember (no numbers!)

We’re going to outline how building a profitable business needn’t be as tough as we had come to think. The 3 easy steps will provide you with a ‘skill for life’ that you can take into any business that you ever start or are involved in – it will show you how to create a profitable business, and diagnose where the profit is leaking.

So how can a business increase profit?

We need to start with a basic understanding of how to make profit in business:

At it’s simplest level, a business will make a profit if its revenue is greater than its expenses.

This is normally summarised in a ‘profit and loss account’. Whilst you may ordinarily be used to seeing a whole bunch of numbers on a page as presented to you by your accountant, it can actually be broken down into 8 words…well 7 actually as one of them is repeated – see it’s easier already ?

Let’s take a look at it in image format (no numbers required here, it is the principle that we need to understand):

How to increase profit - the 8 word Profit & Loss Account

The 8 word Profit and Loss Account

Before going any further we need to make sure that we have a clear understanding of the words used in the image above:

  • Sales – Also often referred to as ‘turnover’ or ‘revenue’

This is the amount invoiced to clients for your goods or services

  • Direct Costs – Also often referred to as ‘Cost of Goods Sold’

These are the costs that relate specifically to a sale – this typically can include a ‘direct labour’ element as well as a cost attributed to materials, or production costs

  • Gross Profit – This is a calculation and is expressed as an amount

Sales – Direct Costs = Gross Profit

  • Gross Margin – This is a calculation and is expressed as a percentage

Gross Profit / Sales = Gross Margin {where ‘/’ means divided by}

The Gross Margin expresses the amount of Gross Profit earned as a percentage of Sales. {This allows us to track and compare our gross profitability from month to month / quarter to quarter / year to year etc              on a comparable basis (so that as we grow our businesses we can ensure that we are not becoming less profitable, or less efficient about how we make that profit}

  • Expenses – Also often referred to as ‘overheads’.

These are the ‘everyday’ expenses incurred in the running of the business, that do not relate specifically to a sale. Examples would include rent, utilities, travel, bank charges, stationery etc

  • Net Profit – This is a calculation expressed as an amount

Gross Profit – Overheads = Net Profit

That’s it. All the classic ‘complex accountant speak’, all the ‘but I’m not a numbers person’ commentary – 8 words in a picture. Earning a profit in business is about that image.

But it gets better:

These 8 words are all that we need to tell us what the 3 easy steps are going to be – I call them the 3 #profitlevers:

  1. Sales
  2. Margin
  3. Overhead

That’s right, this is all we need to tell us how to make a business more profitable. Want to see how to increase profit in business with just these 3 words? At the end of the day, we want to make business easy, don’t we?

How to increase profit and run a profitable business

We’re always on the lookout for simple ways to do things, especially when we feel out of our comfort zone (and many business owners and entrepreneurs don’t feel comfortable with ‘the numbers’, so know that you’re not alone if that’s you ?). We want to find the techniques that resonate and are easy to grasp – we need to make business as simple as possible. Running a profitable business is no different…and here’s the proof of just how straightforward it can be…

We take our three #profitlevers and we line them up as follows as outlined in the diagram below:

How To Increase Profit - moving the 3 #profitlevers for increased profitability

The 3 #profitlevers – preferred direction of movement

So if we are looking for ways to improve business profitability, we need to focus on these three areas – sales, margin and overhead. These are the only 3 things that will ever increase profitability. Moreover, each single element can improve profit if we focus on it and taking the right actions appropriate to that #profitlever. We’ll take a look at how to maximise profit in business a little later.

Let’s break down that image above and check through the logic:

  1. If we increase our sales, whilst keeping our direct costs and our overheads at the same level, we will make more profit
  2. If we decrease our direct costs (ie increase our gross margin), whilst keeping both our sales and our overheads at the same level, we will make more profit
  3. If we decrease our overheads whilst keeping our sales and direct costs at the same level, we will make more profit

This is the single image and concept that every business owner and entrepreneur needs to keep at the forefront of their mind when trying to make your business more profitable – it doesn’t get any more complex than that.

This image will become your profitability compass:

When you’re short on profit, or need to proactively generate more profit, this is the go to model. It is the simplest model to understand, and it makes it easy to implement because we can break things down into simple strategies and tactics against each #profitlever which will keep us more focused on the task at hand – which in turn will help us to achieve our business and profit goals!

Let’s see the theory put into practice:

We can see from the example below, that just by changing each #profitlever (Sales, Margin, Overhead) by ‘2 units’ we can improve profit by 20% in this particular business model. A 20% uplift for such a small change is an amazing return.

It also helps us draw three conclusions:

  1. Increasing the profitability of a business can be done using a very simple concept
  2. A small change in the right direction for any one of the #profitlevers can have a dramatically positive effect on our profit, proving the fact that we don’t need to over-complicate things to create a high profit business.
  3. The concept and the maths is so straightforward, anyone who considers themselves to not be a ‘numbers person’ can see that this is not difficult to understand – consequently, there is no reason to hide from it any more!

How to increase profit - increasing profitability with small changes for disproportionately positive profit impact

The disproportionately positive profit effect of small changes to each #profitlever

Here’s how to make your business more profitable

Step 1 – Sales

  • Review your current sales and break them down into sales channels (type of client / customer etc) that you sell to, or into product and service types
  • Consider how you could increase the sales any one of those categories
  • Put your sales plan into action

Step 2 – Direct Costs & Expenses

  • List out all of your expenses into simple categories (I tend to use the following as a guide – admin wages and support, rent & rates, utilities, banking & finance charges, office costs including stationery, postage etc, premises expenses, professional and consultancy fees, travel & subsistence, phone and IT costs, marketing)
  • Now take that list and isolate any costs that are direct costs (ie relate directly to a sale, eg manufacturing or production costs, any labour cost that is dedicated to sales specifically (could be a sales rep, could be an ‘installer’ etc), and marketing costs that are dedicated to a sale (eg Facebook advertising costs as part of a sales funnel that leads directly to a sales page)

Step 3 – Review & Implement

  • Take the overheads listing first and review to see where you could reduce any expenses. Remember your objective here is to recognise the expenditure which is not adding to the effectiveness of running a profitable business – it is likely for example that there are subscriptions being paid for that are not being used (surprisingly common), along with other costs where expenditure has been ‘discretionary’ rather than ‘necessary’.
  • Remember not to discount reviewing any area – remove the costs that are unnecessary – or at least recalibrate them. The cumulative savings will add up. For example, you only need to save $50 on $2,500 of expenditure every month to recognise a 2% decrease – that’s worth $600 of extra profit every year…
  • Now review the direct costs and determine where you could make some savings – could you ask a supplier to reduce their prices by 1%? Could you pay closer attention to your Facebook advertising metrics to see where you might be wasting some money on adverts that aren’t converting? You could save 2% ($0.40) on a $20/day ad spend ($600/month total spend) just by stopping an underperforming ad one day sooner than you normally do, perhaps (ie get closer to the analysis piece sooner and make the decision!)

Steps – Summary & Comment

You can see that the key to all of the steps above is breaking things down into manageable pieces. This makes it easier for us to focus on how to improve net profit, because we can take a series of smaller but more focused actions to create a positive cumulative effect. Unfortunately this does mean that you have some work to do initially, but your bottom line will thank you for it for ever more!

How to maximise profit in business

Following on from what we have already seen above, extending the logic of the concept we can increase profit most effectively when we move all three of the #profitlevers at the same time, ie we will develop and work with each one of the #profitlevers as individual strategies, but we can run all three strategies at the same time so that we can create the following scenario:

Increase sales, decrease direct costs (increases gross margin), decrease overheads

[ctt template=”11″ link=”9dl44″ via=”yes” ]Increase sales, decrease direct costs (increases gross margin) and decrease overheads at the same time = most efficient profit growth[/ctt]

All of these can be happening concurrently. This compounds the positive effect on our overall profitability, so instead of making one change whilst leaving the other two #profitlevers constant, we are working towards moving all three #profitlevers together at the same time, thus multiplying the positive effect on our profitability.

Here’s the truly brilliant part of it:

We find out that we only need to make small changes to each #profitlever to create a relatively huge increase in profit and thus it makes it much more straightforward to see how we can create a very profitable business much more easily than we may have thought.

Action Point

Create an overall strategy for each one of the #profitlevers, and break each one down into a series of smaller tactical actions – then work against each tactic to create the benefit in a simple and manageable way (ie reduce the feeling of overwhelm). Remember that every action you take will help to compound the overall positive effect in creating a more profitable business.

How To Increase Profit In Your Business – Conclusion

We set out to show how to make your business more profitable – and we have also now seen that it only relies on three factors – sales, margin and overhead.

We have also seen why the concept is both simple to understand and universally applicable to all businesses. Every business will have some level of sales, direct costs and expenses – consequently, it has the three variables that we can influence to see how to make a company profitable.

We can also now see and understand why the concept is therefore geography neutral (it doesn’t matter where the business is based (including ‘at home’!), it is size neutral and it doesn’t matter whether it is service or product based.

  • I’d love to know which #profitlever you will be tackling first and why – please tell me below in the comments where you think you can make the most impact in the shortest period of time.

I’ll be cheering you on!

  • Click here to sign up to make sure you receive future posts about how to make your business more profitable.

Future topics will include:

  • Why business owners overcomplicate increasing profit
  • The mindset that you need to adopt in order to become a truly great ‘Profit Maker’
  • Why your accountant may not be the best business advisor for your business
  • Top money and accounting mistakes that entrepreneurs and business owners make
Here’s to focusing on efficient profitability!


Jason A WithersHi there Profit Seeker, I’m Jason!

I help online entrepreneurs and owner managed brick & mortar companies to build profitable businesses through the application of easy to understand business strategies.

I show you how to apply and implement the strategies, take the ‘fear’ out of the numbers and help you to become more confident about the financial aspects of your business that you really need to know about.

That means less stress for you so that you can focus on making the impact that you want to make with your clients and customers, safe in the knowledge that you know how to make your business more profitable for ever more.

You can run a very profitable business with ease and simplicity. I’m here to help you make it happen and keep you accountable to your goals, providing commercial and financial support and advice to help you on your way.

Learn more about the great work we can do together here:

Or you can book a call here:

Cash For Christmas

Cash For Christmas

Everyone loves cash. And most folks love Christmas.

Unfortunately for businesses that offer credit, cash tends to be tighter at Christmas. People tend to hide behind it – a bit like August, it tends to be a ‘different type’ of month due to the sheer number of people who take holiday in these periods. ‘Shutdowns’ are common in both months as a result. Businesses that remain open, are often working on a smaller staffing level than normal. So the problem isn’t so much about your business planning and how you control holidays, but the need to control your client’s holiday management procedures. Essentially that’s out of your hands.

So what can you do about it?

Make sure you’re well positioned first – make sure that holiday charts are updated well ahead of time (they should be updated throughout the year anyway of course) so that you know where you may be vulnerable in key positions – in the context of this post, your credit control team. You don’t want them taking holiday at a crucial point in the year where they will need to be working harder than normal to ensure that the cash keeps flowing in. Their challenges will be magnified – alongside the normal slew of reasons why ‘the cheque isn’t in the post’, they will be hit with people being on holiday – not only in your client’s finance team but also whoever needs to be authorising that invoice for payment in the first place. Add to that a tendency to reduce the number of payment runs done in December, and the opportunities to get paid reduce even further.

It is also common for companies to deploy some very specific tactics in December – from “We don’t pay anyone in December…” (as is the case with one of my client’s clients), to “…we’re not sure at the moment because we’re sorting out our Year End…” In the UK for example, it is common that many companies will have a March 31st Year End date to coincide with the tax year end – the knock-on effect of that will be a Corporation Tax payment due for many companies at the end of December…in smaller companies, it is common for this to have not been considered and planned for ahead of time – the consequence is that available funds are diverted to this, rather than paying regular suppliers.

The cash ‘problem’ in December has a sting in the tail – beware the ‘rollover’ problem in January and February caused by not being able to bill as much as you’d have wanted to in December even if you have managed to complete work or projects, due to you not being able to get work signed off by your client due to their absence – holiday, Christmas lunches etc provide ample opportunity for them to book their diaries with the ‘fun’ things, rather than the ‘work’ things – they just have a different agenda to you. Invoices not issued in December will therefore reduce your ability to collect the cash in January and February. The full impact of this will doubtless depend on the credit terms offered to your clients.

As with many things in business, communication often holds the key. Make sure that you, your managers, account execs etc stay in regular touch with your clients and find out what December looks like for them ahead of time – are they going to be on holiday, does their office shutdown etc This also applies to your credit control function – they need to apply this theory to their contacts and uncover the same sort of information – how many payment runs will be done In December, does their office shut down, what’s the last day that invoices can be logged onto their system or authorised for payment. They need to report back on this too internally – you don’t want the nasty surprise of not taking the specific action that could have been taken to ensure that you could have received a payment in December.

2 simple things you can do to improve your cash position all year round (not only at Christmas):

1 – Be consistent and persistent

One of the key shortcomings in cash collection in companies that don’t have a dedicated team to chase money is a lack of consistency in tackling credit control. It is a job that people tend to shy away from – ‘asking for money’ – it goes to the bottom of the pile until it has to be done due to an impending shortfall in cash required for eg salaries, tax payments etc. Consistency is the key – regular contact with your client makes it harder for them to avoid making payment, put simply. If you only ever do it when you need it, there will always be a surprise lurking – someone being ill or on holiday, or just missing a payment run etc. Be persistent as well – take notes, know who made the commitment to pay and on what day, know who is taking the next action in the process – take action if you need to in response eg sending copy invoices, supplying copies of the information/proof of work done etc. Keep going until you get that payment date confirmed, and then follow up on that again before the due date to make sure payment is to be made as anticipated.

2 – Invoice accurately and quickly

Sounds obvious, but amazing how many companies don’t do this. Both delay the process of getting paid. Inaccurate invoices will need to be re-issued, which adds time into the process, but the real issue is the time between sending the invoice and then finding out that it has been queried – amplified if consistent credit control isn’t undertaken. When the work is done – invoice it – especially if you aren’t beholden to payment terms based on a month end. The principle is simple – if you complete billable jobs every day, make sure they get invoiced as fast as possible – because that then means that you are due for payment every day, i.e. you don’t have to wait for the next ‘month end’ before you can start collecting payment.


Prosecco and Jam Doughnuts

Prosecco and Jam Doughnuts

Profit, Prosecco and Jam Doughnuts, and a Plan

Do you prefer using the carrot or the stick? What about if you are the only one in your business – how can you sensibly apply a ‘carrot and stick’ approach to yourself? Either way, you’ve got to set some performance benchmarks for yourself – either as a solo entrepreneur or as a brick and mortar business owner. But how do you hold yourself accountable to those goals? How do you set about rewarding yourself? Do you just ‘carry on’ oblivious to the sense of achievement?

I have found that external input tends to increase accountability to oneself – the fact is, it is just harder to say ‘I didn’t have time’, or ‘xyz excuse’ stopped me from doing this.

I love seeing the sense of achievement in my clients. For those that have truly invested themselves and their teams (if they have one) into growing their business in a sustainable and efficient way, I believe that they should be rewarded. By me.

The First Quarter

We’d initially set the simplest of benchmarks – outperform against the previous year. Historic data was ‘thin’, but we could track some simple metrics – sales, gross profit and net profit. After all, these were essentially the three headline figures that we needed to monitor as the business grew.

So here’s the comparison of performance for the first quarter:

2015-16 (Q1) 2016-17 (Q1) + / – + / – %
Sales 42.1 57.6 + 15.5 + 37%
Gross Profit 23.0 38.1 + 15.1 + 66%
Gross Margin 54.6% 66.1%
Net Profit 5.6 20.4 + 14.8 + 264%
Net Margin 13.3% 35.4%

Now, this is a relatively small company (turnover was around £180k ($250k) in 2015-16) but it demonstrates what is possible when you have a plan and are determined to improve your business. We worked through the sales, margin, overhead model and applied it. What is more remarkable however is the huge increase in efficiency – the increase in revenue is almost exactly the same as the increase in gross profit and net profit – that effectively means that almost every extra dollar of the sale went straight to the bottom line.

Focusing on the only 3 things that will ever improve your profitability was the driver for this. Specific tactical actions and processes created the result.

So Prosecco and jam doughnuts were the rewards for the business owners. It may not seem like much (especially when you find out it was only half a bottle of Prosecco!), but it symbolises the need for celebration for achieving goals and outperforming against benchmarks that were set. The reward came with an explanation and a promise – that it was only half a bottle because performance had only been measured over one quarter – it wasn’t consistent outperformance yet. The promise was that the prosecco would be upgraded in time if the whole year created a consistent proof.

So here’s what happened for the full year:

2015-16 (Q1-4) 2016-17 (Q1-4) + / – + / – %
Sales 181.0 251.9 + 70.9 + 39%
Gross Profit 77.7 142.3 + 64.6 + 83%
Gross Margin 42.9% 56.5%
Net Profit 14.2 57.9 + 43.7 + 307%
Net Margin 7.8% 23.0%

When you see results like this…why would anyone not want to celebrate. Besides it sets everyone up in a positive frame of mind for the meeting ahead, and whatever is next.

For a business that produces (manufactures) an end product and incurs third-party costs in order to make that product, that is a fabulous example of concentrating on making sure that the increase in revenue is profitable revenue – again, almost all of the additional revenue has dropped through to the gross profit level. The increase in net profit, however, hadn’t kept pace with this statistic because of two things which occurred in the second half of the year – the introduction of a general manager role (who also had a sales and business development background – great for the set up for growth in the following year), and an extra member of staff on the production side of the business, plus some additional salary awarded to the business owners at the year end in recognition of their most profitable year ever (and tax deductible for the business!)

The Prosecco was upgraded to Champagne for the business owners, and all of the staff received Prosecco as well…along with more jam doughnuts.

All too often we don’t celebrate. And we should. It’s a bit like saying ‘thank you’ to your staff or team (internal or external) – we should do it more often than we do.

Only 3 Things….

Only 3 Things….

Too much hustle, not enough focus

It is a common question – “How do I make more profit?” All too often it is answered by thinking that the answer is to ‘do more’. Clearly, if you aren’t doing anything, then the answer will definitely start with that!

But ‘doing more’ must be the answer, because that’s how to scale a business, right? Doing more may well result in a ‘bigger’ business – bigger turnover (sales), bigger staff, bigger premises (for the brick and mortar businesses), bigger budgets, bigger marketing spend…and so the list goes on…and on…

The only thing is, ‘doing more’ may also add ‘bigger losses’ to the list as well. When ‘doing more’ goes unchecked, or even worse when there are no existing metrics in place to track any of this information through on a quarterly (at least) or monthly (preferably) basis, how can you possibly know that when you ‘do more’ it will result in ‘bigger profits’. And let’s face it, no-one wants to work harder for no extra benefit…

So if ‘doing more’ isn’t the answer, then what is? PS – it may be the case that ‘doing more’ is the right thing, but we need to make sure that we do more of the efficient and effective things when it comes to profit generation.

We need a plan – we need focus. The question “How do I make more profit?” is too big a question in itself to answer sensibly – there are *millions* of ways in which we could make more profit – the secret lies in simplicity and being able to focus on strategy and consequent tactics in such a way that we can break down the question into some bite-sized chunks. Quite apart from anything else, as a business owner/entrepreneur, it’s not like you don’t have anything else to be working on day to day in your business, is it?

So here’s a simple 3 part plan for you – take action, and you will see positive results:


It is not just about selling more – you need to understand who you are selling what to first. You need to understand your breakdown of clients.

Think about it like this: if all you see on a financial report is:

‘Sales = x’, that doesn’t really help you that much.

Imagine however it looked like this:

‘Sales (domestic) = y’, and

‘Sales (international) = z’

And when added together, these now made up the line: ‘Total Sales = x’

You now have a lot more information about your sales – the relative proportions of your domestic and international clients by their sales levels. Think about what you could now do if you understood that your domestic sales were 1%, 10%, 25%, 50%, 75%, 90% etc of the total – how would that start to guide your thinking? Is it easier or harder / more or less expensive to reach domestic customers? Are you vulnerable in your domestic market for some reason that means you need to focus on international growth perhaps? Is it easy to get your products registered in international territories? Is there a long lead time attached to that? Do international customers place larger orders, but maybe less frequently?

Your ability to think more clearly about the ways in which you may choose to expend energy in the pursuit of profit (‘do more’) is now far more apparent.


Let’s start with understanding what margin actually is:

Sales – Cost of Goods Sold (Direct Costs) = Gross Profit ($)

Gross Profit / Sales = Gross Margin (%)

So, it is basically what is left once we take away the cost of making the goods that we actually sold (for a product based business). For a service-based business, it is the cost of the labour that actually ‘did the work’.

Simply put, therefore, we need to understand how much gross profit we make (margin) for each of the products that we make (or serve with). Similar to the example with sales, understanding which products/services yield the greatest amount of gross profit will, therefore, help us determine which products/services we want to invest our time in producing and selling – where is the most gross profit to be made? We can then check as we grow what happens to our gross margin overall.


Whilst sales and margin are typically things that we feel we need to increase, overheads (expenses) are things that need to be reduced. As businesses grow, they tend to ‘bloat’ from an overhead point of view – because there is ostensibly more ‘money’ available, we tend to think that we have more to spend, but all too often, the spending is not focused and effective. Consequently, costs rise and turnover (along with gross profit) doesn’t necessarily rise as well.

Imagine spending additional money on a certain type of marketing expense when you don’t actually know whether or not that type of marketing produces a return (or specifically can’t be matched to an upturn in sales).

The second issue with overheads is that people tend to look for the ‘extras’, rather than the items where the money is really being spent – consequently, people can spend a huge amount of effort and time trying to cut down a stationery bill, when that may only be a relatively small part of the overall expenditure, whilst simultaneously ignoring their administrative staff cost, or the fuel bill which may be far more material costs to the business – if these are being overspent on because of poor management, then dealing with these issues will help the bottom line far more than changing stationery supplier. You have to be aware of the relativity of each type of expense against the others, and its overall impact on the business first.

So – review your overheads, and for simplicity, break them down into categories – I often find that I will start to review a business based on the following broad categories:

Admin Salaries and associated employment costs

Property Costs and associated expenses (eg rent, rates, utilities)

Premises Costs (repairs & renewals, cleaning etc)


Professional, Consulting, HR, Financial & Legal

Bank Charges and Finance Costs

Motor Expenses (including Vehicle Insurance, Fuel, Vehicle Tax, Parking, Mileage etc)

Travel & Subsistence


General Office Expenses (stationery, telephone, postage, computer supplies etc)

Marketing (split online / offline)


You will find this a much easier task if you break the expenses down into ‘similar’ things – that way you get to consider a section ‘as a whole’ for its impact (good, necessary or bad) as well.


Less hustle, more focus has to be the way forward (unless you enjoy doing lots of work for little potential benefit). It is the way to create a profit intentionally in your business.

PS – Sales, Margin and Overhead are the only 3 things that you have to manipulate and improve your profitability with – so focus specifically on them to generate the best result – don’t waste your time trying to answer that ‘big’ question!