Contrary to what many people imagine, the increase in revenue does not always mean more profitability for a company or a service provider. This is because most of the time this increase is accompanied by costs that are proportional to revenue, which causes a “tie”.
In order to increase profitability, it is necessary to increase productivity without increasing costs, and the best way to achieve this is by automating bureaucratic and repetitive tasks.
This is the first of many steps for your company to start controlling costs, improving operational efficiency and starting to gain market share, expanding its customer base. Want more tips on how to increase your company’s profitability? So keep reading this post!
Are profitability and profit synonymous?
We can summarize the concept of profit as the positive balance of a company after discounting all expenses.
Profitability is a ratio between the amount of profit and total sales. Got confused? Don’t worry! Below you will see an example of how profitability is calculated.
How to calculate profitability
We already know that profitability represents the gain on a sale or a developed work. Let’s take a clear example so that you understand this calculation.
If your company has a monthly revenue of BRL 23,000 and a net income of BRL 5,000, then:
- A Profitability = (net profit/total revenue) x 100
- Profitability = (5,000 / 23,000) x 100
- Profitability = 0.22 x 100
- Profitability = 22% per month
You can use this formula for any period of time—monthly, annually, bi-monthly, etc.
How to increase the profitability of the company in a practical way?
When there is a drop in profitability, usually the first reaction of entrepreneurs is to look for points where it is possible to reduce expenses. However, if the strategy is to increase profitability, reducing the structure can be a negative attitude — or at the very least keep the business stagnant.
When we talk about medium and small companies, this cost reduction can mean a drop in the quality or agility of the service provided, which can be fatal with the fierce competition in the IT sector.
As we mentioned in the introduction, process automation is the first step toward increasing productivity, but other measures must be taken that involve all sectors of the company. Check out what they are below.
Organize finances
The first tip couldn’t be another one, could it? A company or a service provider that does not have full knowledge of how their finances are going will hardly be able to put their “house” in order. Therefore, review the service contracts that your company has with third parties — in marketing, advertising, infrastructure, and others that directly affect finances.
A simple reallocation of resources can have a good effect on your profit margin, as long as it doesn’t cause a loss in the quality of service or the productivity of the team. Therefore, the reallocation of expenses must be followed by monitoring the quality and performance indicators.
Focus on what matters
As we saw above, one of the first reactions in difficult times is to look for ways to reduce expenses. This precious time that is spent analyzing in which area the cuts will be used and how it will be done would be better used in market analyses, strategies for expanding the client portfolio, analysis of areas in which it is possible to automate, etc.
Focus on what matters. If you want to increase profitability, the focus should always be to increase productivity without spending more than you have, so start from that premise.
Build loyalty and increase your customer base
Customer loyalty is essential so that you do not lose profitability, as it is the active consumers who maintain the company and provide the opportunity for time to devise growth strategies.
The best way to retain a customer in the IT area is to provide a proactive and automated service that avoids problems instead of “putting out fires”, working in a reactive way. You have to show up before the problem happens and offer more availability and productivity to the customer, ensuring their satisfaction.
In addition, the loyalty of current customers is the first step towards increasing the portfolio, as a satisfied customer will spontaneously disclose their services/products, and word-of-mouth advertising is one of the most efficient, as it is based on trust.
Through the analysis of current customers, as well as their desires and problems, the company will be able to create marketing campaigns to attract new consumers and increase the customer base. This happens through prospecting leads (potential customers), which you can work on so that they become active consumers.
Pay attention to pricing
Many times the problem of profitability is related to the pricing of the product or service. This problem may be linked to a miscalculation of the value of labor time and production costs. Sometimes this problem is related to a price lag due to a lack of readjustments.
Don’t be afraid of losing the customer. Whenever you need to make an adjustment, talk to him and explain the points that will be affected if the changes are not made. Show that a price readjustment will ensure that the job is done well.
Think long term
Don’t be impatient. Sometimes results take longer than planned to arrive, but the important thing is that there is a continuous evolution. Anxiety about results can generate negative reflexes, such as sudden changes in strategies and decision-making without much foundation or reason – which can affect not only increased profitability but cause losses in the short term.
Develop a strategic plan and set a flexible deadline, as this makes all the difference. So that anxiety does not prevail, divide the planning into smaller goals, with individual deadlines, and always follow the growth metrics.
More than knowing how to increase the company’s profitability, it is necessary not to miss market movements. Make sure your service provider is right for the moment, think more proactively and less reactively. Don’t show up when problems have already happened, avoid them!
