“Revenue is vanity; profit is sanity, but cash is reality”Anon
However, it seems that many CEOs are revenue growth junkies
Annual reports are packed full of ambitious plans to increase sales in order to increase profit.
The old maxim “grow or die” applies with a vengeance. Particularly if you are in the tech space. Or if you are funded by venture capitalists.
Growth it seems is an imperative. And so we rush headlong into a dogged pursuit of an ever-growing top line.
But for most businesses most of the time, revenue growth isn’t an imperative. It’s an option. One way, among many, to increase profit in any given year.
Indeed, for some companies it may make sense to look inwards for additional value or improved efficiencies. As opposed to outwards for increased sales to drive margins.
If your business for whatever reason cannot grow revenues this year or chooses to take a growth pause, you can always improve the bottom line by:
Making more profit by reducing the cost of poor quality
No matter how well run you think your business is, there will always be efficiency improvements to make
This is particularly so at a time of increasing business process automation and decreasing technology costs.
For a manufacturing company an increase in profit might be driven by reduced scrap, rework, warranty interventions or product returns.
This in turn might allow resources devoted to these activities to be freed up in future for value added activities.
Changing how you supply your products or services
Who says that you have to continue offering your products in the same way as you always have?
Perhaps it is time to look again at unnecessary costs that you might be burdening your business with?
It may be that you can either eliminate them or transfer them to your customers.
Again, for a manufacturing company this might mean reducing packaging costs, increasing minimum order sizes, charging for delivery or changing your discount terms.
Making more profit by increasing prices
When was the last time you increased your prices?
If you are not reviewing them regularly, you are not testing the true market value of your products or services.
Perhaps you consider increasing your prices across the board a risky strategy. After all, you may be wary of your competitors not following suit. Or your customers looking to increase their profitability by reducing the price they pay for their supplies.
So If you are not brave enough to increase prices on all your products and services, then put them up selectively,. Beginning with your least profitable customers.
You risk losing a few of them, but the additional margin generated from the price rise will more than compensate for this.
Alternatively, apply the price increase to your products where you have less competition.
A practical example of making more profit without selling more
You might be wondering whether these 3 strategies to increase profit actually work in practice.
You bet they do!
Not so long ago, I worked on the management team for a business that was making a multi-million- pound loss. Revenues were in decline.
Moreover, it was difficult to deliver increased sales without re-engineering the operation from the outside in.
So, the business set about reducing the cost of poor quality, changing how its aftersales services were delivered and increasing prices for all products and services.
Here’s what happened:
Year 1. Reduced loss. No revenue gain.
Year 2. Further loss reduction. Small revenue gain.
Year 3. Breakeven. Large revenue gain.
Year 4 onwards. Very impressive top and bottom line growth
Perhaps, it is worth reminding ourselves every once in a while that you sometimes need to take one step backwards and two sideways before you can move forward.
With a fundamentally profitable business, chasing revenue growth is no longer a vanity. It becomes your sustainable long term reality.
For more information on growing your business, you might like to read articles in our business development blog:
NB: This post, originally published in April 2016, has been updated in March 2020