Profit Growth: How to Set, Track and Achieve your Goals
Every company sets financial goals, but are they basing them on the right metrics? We’ve seen too many businesses struggle with these issues. It’s not a coincidence. Few companies understand which strategies drive profit growth (or how to improve them).
Let’s look at how you can improve your bottom line.
Experiment With Pricing
The easiest way to improve profit growth is simply raising prices. Easier said than done, right?
Price jumps can be tricky to manage when customers expect set costs. You’ll need to experiment with different ways to package and price your services. Your primary focus should be on segmenting your customers; charging more to those who receive the most value from your products.
Compounding Small Improvements
To boost profit growth one should know how small changes add up over time.
- Your profit margin is 5 percent.
- You improve your margin by 1 percentage point.
- You decrease your operating expense by 1 percentage point.
You just boosted your net profit margin from 5 percent to 7 percent. That is a 40 percent improvement. This can be huge for businesses that have tight margins and opportunities to improve.
Identify Leading Activity Indicators
When setting financial goals, people often focus on superficial metrics. They should instead focus on things that increase profit.
Examples include counting new contracts sold or how many customers you retain. Instead, look at smaller goals that offer insight into what needs doing every week. These are your leading activity indicators (LAI).
Examples of these metrics include:
- Write five articles per week.
- Connect with 15 new people on LinkedIn.
- Hold three client account meetings.
These goals are small and achievable on a weekly basis. And because of this, they’ll help you attain your long-term financial goals.
Increase Lifetime Value (LTV) of Customers
To increase profits, find ways to earn more per client:
- What is your relationship like with your customers?
- How much do they buy from you?
- How long do they continue buying from you?
This is called a customer’s lifetime value (LTV). One way to improve this metric is to use email marketing targeting your most loyal customers. Offer them an exclusive incentive to purchase a premium offering. Every boost you make to a customer’s LTV improves the return on investment of your sales and marketing costs while making your business more predictable.
While you’re at it, look for less costly ways of getting customers. Referrals tend to cost less, so look for ways to boost those sales. At the same time, try spending less on more expensive marketing.
You can’t grow your profits without knowing your financials. Create an annual financial forecast with monthly revenue figures. Update this forecast every month, and update your projections based on your new data. Then compare these figures to your annual goals.
Long-Term Goals for Boosting Profit
It’s easy to track the metrics that matter once you know what’s important. Ask the right questions when financial planning. Review pricing plans, sales channels, and how accurate your forecasting is. Small changes can mean big gains in the long run. Don’t be afraid to take advantage of them!