Leadership Blog

Learn How to Target Profitable Areas in Your Business!

5 Steps to Increase Your Profitability

June 17, 20244 min read

Most business owners work very hard to increase their sales volume. Rather than just focusing on volume, target profitable areas of your business.

Sadly, many business owners do not really know what portions of their business are more profitable. If you want to increase your business profits, target profitable areas. Then, grow volume in the profitable areas.

How can you target profitable areas of your business? Let’s assume you own a service business and your business provides services in 5 different areas. Very likely, one of those service areas has a higher profit margin than the other 4.

With these assumptions, complete the following steps to target your most profitable service.

Decorative LineDiscover your profit margins.

Many business owners do not really know their profit margins. They scramble for business with little understanding about what part of their business produces the greatest amount of revenue. They work to produce more business volume, thinking more volume means more profit. That is not always true. Be wise. Seek greater volume in the most profitable service areas.

So how do you determine profit margins? Simply put, you determine profit margins by subtracting your expenses from your gross revenues. Expenses include man hours, materials, etc. Don’t forget that some jobs pay better than others. All these factors help determine your most profitable services areas.

Discovering your profit margins helps you determine where to put more effort.  It also helps you see where you have more potential to earn more profit.

Strategize how you can increase volume in your most profitable service area.

Once you know what service area produces the most profit, strategize how you can increase your volume in that area.

Remember, if you obligate your business or time in less profitable areas, you limit your ability to increase volume in more profitable services areas. That means you may have a lot of business activity, but those activities will not bring as much profit.

Obviously, it’s not bad to provide a diversity of services. However, if possible, you want to place most of your effort, resources, and time in acquiring jobs that produce the most profit. 

Brainstorm how you can grow your business in the most profitable services areas. Time spent discovering ways to increase your business volume in these jobs will increase your profitability.

Use your time, energy, and resources to grow that service area.

Once you determine your most profitable service area, do everything you can to increase that part of your business. Doing so will produce great dividends.

For example, let’s assume you own an automobile service company. Your company does tune ups, changes oil & filters, replaces brakes, sells & balances tires, and repairs or replaces transmissions.

You discovered that your most profitable service area is replacing or repairing transmissions. Your profit margin in this category is 30%. None of the other services come close in profitability. You have knowledgeable personnel to handle more transmission repair or replacement business.

Obviously, you want to increase the volume of service in this part of your business. Doing so will produce more company profit.

Limit non-profitable service work.

Limiting non-profitable service work allows you to take on more-profitable service work. For example, replacing transmissions pays much more than replacing brakes. 

If you can make more money by doing transmission jobs, tying up your personnel and shop doing brake jobs may not be smart. You have to crunch your numbers, know your variables, and make sure the data supports your decisions.

Knowing your metrics will help you make good decisions. It will also help you target profitable work.

Track your numbers and profits.

It’s all about the numbers. Numbers help you make good decisions. You have a business, and the purpose of your business is to make a profit. So, it only makes sense that you understand your business well enough to know where you make the most profit.

Most owners lump all their services into one total, subtract their total expenses, and discover the general “bottom line.” They do not dive deeply enough into their data to discover and act upon the important details of their business.

Tracking profit based on areas of service enables you to know where you are most profitable. Discovering where you are most profitable focuses where you need to spend your time, energy and resources.

In conclusion, don’t be satisfied just to increase volume. Make sure you know where you should seek to increase volume. Increasing volume in your most profitable service areas will limit the amount of work you do but increase the amount of profit you gain!

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