How to Find & Focus on Key Financial Drivers in Your Business
To grow your business, it is important to identify key profit drivers to focus on. These are factors that have an impact on your company’s bottom line, and they can be both financial and non-financial. Let’s take a look at some common business drivers to help you find the most important ones for your company.
One of the easiest financial drivers to control is costs, and variable costs are a good place to start if you are looking to increase profitability. Variable costs are the expenses related to the production of goods or services for clients. Despite the name, you should be able to find a constant amount that is required to produce a single unit for a client and if you can reduce this rate you can increase profitability.
Fixed costs refer to expenses that are incurred no matter how much work is done. Things like rent and utility payments fall under this category, as do the costs that are necessary to purchase new tools or machinery. While these costs are more difficult to adjust, if you can find a money saving solution for them you can help the company save money.
As mentioned, some key profit drivers are non-financial. Quality is an excellent example of this. Increasing the quality of your product has many different impacts on your bottom line. It can help you charge more, attract a higher tier of clientele, or increase your sales volume. If you find your profit driver analysis shows weakness in these areas, you may need to look at the quality of the service you are providing to make an impact.
This is the most popular growth driver looked at by businesses. It is easy to see why – if you increase your volume of sales then you increase the amount of money coming in, right? While this is, of course, true, you need to take a full view of your financial situation. More sales may mean more expenditures. But if the sales just aren’t there, then this is an important place to start examining your key profit drivers.
While many business owners are nervous about changing their pricing structure, no profit driver has a greater impact on your bottom line than pricing. When you are looking at your profit drivers, it is important to take a good look at your pricing. Is the cost you are incurring for your customer covering all of the expenses of producing the product?
In competitive industries it can be even more challenging to consider raising pricing, but here’s the question you should ask yourself: how many customers could you afford to lose for a higher priced, better quality product?
To maximize the success of your business, take the time to perform a profit driver analysis. It will help you determine whether or not you are focusing your energies on the correct part of your company and give you the opportunity to increase your profitability across the board.
Get more tips on improving your firm’s profitability with our free guide below.