Margins rarely erode all at once. Rising costs and inefficient operations chip away at earnings, and the shortfall often goes unnoticed until it shows up in the financials. A disciplined look at how your business earns and spends money usually points to where changes will pay off most.
These six areas are the best places to start:
1. Base goals on opportunity. Last year’s sales results may provide useful context, but they shouldn’t be the sole basis for next year’s targets. Examine current customer demand, market conditions, competitive strength and staffing levels. Make those objectives challenging but achievable. And instead of rewarding sales volume alone, consider incentivizing profitable individual sales to discourage sales staff from closing deals through excessive discounts.
2. Clarify why customers choose you. Ask employees what your business does best, then compare their answers with customer feedback. Identify specific strengths that matter to buyers — for example, lower prices, dependable delivery, specialized expertise or responsive service. Once you’ve identified your strongest advantages, communicate them consistently in employee training, sales conversations and marketing materials.
3. Train nonsales staff to recognize needs. Employees outside the sales department often hear about customer needs before anyone else, so teach them how to share that information. Keep the referral process simple, and consider offering a reward when a lead results in a sale. Employees should understand their role is to be helpful and observant, not to pressure customers or make promises they can’t fulfill.
4. Review underperforming products. Examine the profitability of offerings, accounting for the labor, materials, delivery and support each one requires. If an activity consistently consumes resources without providing sufficient revenue, consider dropping it. But before discontinuing anything, decide whether a price increase, process improvement or different way of providing it might improve profitability.
5. Check for earned but unbilled revenue. Audit contracts, completed work and invoices for any omitted charges, unbilled items, and unauthorized discounts. With clear agreements and accurate invoices, you can reduce costly customer disputes.
6. Look closely at recurring expenses. Subscriptions, vendor agreements and other ongoing costs for unused services, duplicate purchases and unfavorable terms could be undermining profits. Consider alternatives and negotiate where appropriate. But weigh potential savings against a possible impact on quality, reliability and customer service.
Keep in mind that a profitability review is most valuable when it leads to specific conclusions. You should prioritize changes according to their likely financial benefit. And contact your Rudler, PSC advisor. We can help you conduct a profitability review and identify ways to strengthen your business’s bottom line.
RUDLER, PSC CPAs and Business Advisors
This week's Rudler Review is presented by Evan Kandra, CPA.
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