Maximize Profit By Using Profit Levers

A business’ ability to make a profit is based on generating revenue while keeping costs at a minimum. Sounds simple, but often a business relies to heavily on sales maximization instead of profit maximization.

This is where is it important to know your profit levers. Profit levers are the elements that can be manipulated to impact your profitability.

In business, there are three main profit levers:

1. Price

2. Costs

3. Volume

Knowing these levers and how to utilize them can simplify the process of increasing profit. It can create clarity around profit maximization strategy as well as learning to grow more than one aspect at a time.

Price

This is where most businesses start. When hit with a slump, most businesses wonder if they can increase their prices in order to create more profit.

If you can justify a price increase for some, or all, of your products and services, then this really is the first thing to try. Do your research and increase prices accordingly. If you are priced below industry standard, then it is definitely time for a change.

Unfortunately, this is also where a lot of businesses stop. There are two other levers to think about in order to maximise profit.

Costs

The difference in sales (or revenue) maximization and profit maximization all comes down to the associated costs. In order to maximize profits, you must also decrease costs.

This could be direct costs for production and supply of the product, but would also include staff, subcontracted costs, marketing and overheads. Just ensure that if you are decreasing costs, you are not sacrificing quality. Reducing your costs is not going to help your bottom line if your loyal customers don’t return due to being dissatisfied with the product or service.

Volume

Increasing volume is a key lever in increasing profit. There are two ways to increase volume in your profit maximization strategies – Increasing the amount a customer buys in one transaction and/or increasing the amount of transactions.

Can you find a way to increase the volume on each sale? Things like upsells, bundling services and price options can increase the volume on each sale. Increasing the average transaction value for your products and services will help toward increasing your profit margin.

The other side of the volume lever is increasing the volume in transactions. Getting customers to return and bringing in new customers are both essential in increasing the volume of sales.

How to utilize these levers to maximize profit

In order to maximize profit, your business must sell at the right price, with minimal cost while increasing sales volume. By utilizing these levers, you will see an increase in your overall profits.

The 5 main ways to increase your profit using these levers are to:

1. Increase the price per product or service per customer

2. Decrease the cost of each product or service per customer (combined with item 1, raising the profit of each individual

product or service)

3. Increase the number of products or services a customer buys in each transaction

4. Increase your customer base.

5. Improve retention rates for existing customers.

Take a look at your business and ask yourself how you are performing in each of these areas. Then find ways of improving in each of these areas and implement the change.

If you want to utilize these levers to increase your profit, but are having trouble figuring out which lever to pull and hen, then enlist help. As an outsider, a coach can spot opportunities in your business that can make profitable changes to your business.