Incremental Improvements

As a business owner, you juggle multiple tasks: managing a team, handling clients, bringing in new leads and making sure projects run smoothly. Among these, one critical responsibility is often neglected: ensuring profitability. We think about, worry about and hope for profit but often don’t do anything to actually improve net profit.

 In a previous article, “The Dramatic Effects of Small Changes,” I introduced what I call the 1% Rule. In this article, we’ll review the rule and show how businesses have used it to make small changes with big effects. 

The power of a 1% increase

The 1% rule states that if the average business increases its gross profit margin by 1%, it will increase its net profit by 14.5%.

Here’s why it works: Small businesses on average keep only 7% of their sales as net profit. Increasing the gross profit margin by 1% — for example, from 35% to 36% — raises net profit from 7% to 8% of sales. In dollars, that’s an increase from $70,000 net profit on $1 million in sales to $80,000 net profit. 

A $70,000 profit is profit, but you may not be satisfied with it. It’s not enough to justify the risks and efforts involved in generating $1 million dollars in sales.

 If your business is averaging a 7% profit margin and you’re not satisfied, you might be wondering: What can I do that doesn’t require a huge investment in time or money but gives meaningful results?

The good news is that you don’t need to overhaul your entire operation to see meaningful improvements. In fact, small changes can lead to big results.”

Martin Holland, Anneal Business Coaching

 The good news is that you don’t need to overhaul your entire operation to see meaningful improvements. In fact, small changes can lead to big results.

It’s easier to achieve than you think. Below are four simple actions that real small businesses have taken to increase their profitability.

Simple ways to increase your gross profit margins

Raise your prices by 1%. Increasing your prices by just 1% is straightforward and painless. It boosts your net profit without requiring more sales.

Pass along credit card charges. Credit card fees eat into your profits. By slightly increasing your invoices to cover these costs, you protect your net profit.

Install vending machines for employees. This idea came from a friend. He was tired of his four-man crews (times six trucks) each spending an hour a day at the convenience store on their way to and from jobsites. The change not only helped his labor cost per job but also enabled each of his crews to do at least one more job per month.

Have a contractor fuel your equipment and vehicles at night, at your shop. This is the same principle and has the same effect as vending machines in the shop. The trucks and equipment are ready to go without needing to stop by the convenience store. Don’t write off the idea until you’ve checked. Fueling contractors are surprisingly affordable.

Making it happen

Change can be exhausting, especially when you’re managing the day-to-day operations of your business. However, the ideas outlined above are simple, actionable and worthwhile. Here’s how you can get started:

Assess your current operations: Take a look at your current profit margins. You cannot manage what you do not measure.

Choose your strategy: Select one of the above-mentioned strategies — or find your own. Choose anything that helps you do more with less and aligns with your business needs and goals.

Implement gradually: Introduce these changes one at a time. Pay attention to the results and monitor their impact on your gross profit margins. Make any necessary adjustments.

Monitor your progress: Use real-time accounting to track your progress and ensure the changes are positively affecting your profitability.

Expand as needed: There are always more opportunities to become more efficient. Keep at it and continue seeking ways to improve.

By implementing these strategies, you can transform your business’s profitability without the need for extensive overhauls. Start small, stay consistent and watch as minor adjustments lead to significant financial gains.

Final thoughts

Increasing your net profit should not be a daunting task, especially after you’ve seen how small changes can have a big impact. By focusing on raising your gross profit margin by just 1% — and then again — you set your company on a path to continual improvement and a substantial increase in your net profit. The effort may be modest, but the rewards can be mighty.

Leveraging Software for Profitability Improvements

by Shawna Mesher

As a business owner, focusing on profitability can often feel overwhelming alongside daily tasks. Fortunately, technology can streamline processes and amplify results, allowing you to implement the 1% Rule. Here are several ways software solutions can help:

ACH payments to reduce credit card fees

One of the simplest ways to enhance profit margins is by minimizing transaction fees. Software that enables ACH payments can reduce costs associated with credit card processing. By encouraging clients to pay via ACH, you can lower transaction fees and preserve more of your revenue. Integrating ACH capabilities into your invoicing system simplifies payment collection while boosting your gross profit margin.

Dynamic pricing across revenue centers

In today’s fast-paced market, adjusting pricing in real-time across all revenue centers is crucial, and you can do it with LOU software. This will keep your team on track throughout the sales process by ensuring they’re selling at the correct price with the margins you set.

Optimizing technician drive time

Don’t let drive time, shop time and overtime negatively impact your bottom line. Time is money, especially for service-oriented businesses, and software like LOU optimizes scheduling and routing for technicians, leading to significant savings. By using these tools within your everyday software you can decrease drive time, enabling technicians to complete more jobs. This not only enhances productivity but also allows you to increase your revenue without additional labor costs.

Choosing an all-in-one cloud business software can simplify the process of increasing profitability. By focusing on strategies like ACH payments, dynamic pricing and optimizing technician schedules, you can achieve that vital 1% increase in gross profit margin. Embrace technology, stay consistent with your efforts and watch as these small adjustments translate into significant financial gains.

Interested in a custom demo for your business? Email lou@evosus.com or call 360-735-9510.