Many UK small business owners are wondering how to increase profits following the recent rises to the National Minimum Wage, alongside hiked National Insurance contributions, expensive energy bills, high business rates and steep fuel costs.
This raises the question of who should bear the brunt of these additional costs: consumers or the business.
Raising prices in-line with the wage increases is the most obvious solution, but many businesses will be reluctant to do this because it risks alienating clients, who are more conscious than ever of inflation and value-for-money.
Let’s look at some of the ways you can increase profits without raising your prices.
Cutting costs
Before you start thinking about ways to boost your revenue, it’s important to make sure your business is running in as financially efficient as possible. Cutting costs allows your business to claw back as much profit from your revenue as possible, meaning your hard work is better rewarded.
A wider audit of your operations can uncover unnecessary expenses and lead to a more robust foundation for your business as a whole.
Review your suppliers
Setting up a new supply chain can be time-consuming, although if prices are starting to spiral with one or more of your suppliers you should consider exploring other options.
However, make sure that any changes won’t negatively affect the quality of your products or service. A perception that you are ‘doing things on the cheap’ is hard to shake off, and ultimately could lead to a dip in revenue alongside reputational damage.
Consider alternative providers
Arguably a more time-consuming endeavour is reviewing all your providers and researching alternatives. The savings, however, can add up.
Take a business bank account. Monthly account fees can range from £8.50 per month to £25 per month, with additional charges coming in the form of international transfers, ATM withdrawals, and transfers to/from other bank accounts.
Or it might be your card reader. High transaction fees can eat away at your profits, leading one Herefordshire pub owner to offer discounted pints – if customers pay in cash.
You may be wondering if that’s allowed – it is legal to offer a discount to clients who pay in cash, so long as you are not implementing a surcharge (an increase in price) for card payments. Make sure you advertise this clearly and apply the discount at your point of sale. Check out this guide by SumUp for more information.
Below is a list of categories where you can see if you could get better deals:
Keep in mind switching and signing up offers. These can save you a chunk of money for a period of time or reward you with some cash to spend. Always read the terms and conditions and be aware of price changes once the offer period ends.
Review your staffing needs
This is a potentially awkward consideration as you might’ve grown close to several members of your team, especially if you have a small number of staff.
However, with the increase to Minimum Wage and National Insurance costs, staff can end up being a business’s biggest expense.
That said, it’s likely that unless you have been on a recent hiring spree, you probably have employed the minimum number of people needed to fulfil roles across your business, which means letting someone go might not be the most profitable solution. You or other staff members may end up picking up the slack, which can lead to burnout and staff dissatisfaction.
Instead, it may be worth asking staff members if any of them would like to reduce their working hours formally – as long as this would not affect your business’s operational capacity. There are a few things to consider if you’re going to go down this route, which this article outlines: Can I reduce staff hours? – Small Business UK.
For office-based jobs, Friday afternoon is typically the least productive point in the week as everyone starts to wind down for the weekend. For those in hospitality, the week leading up to payday usually sees a significant dip in spending, linked to how 61% of Britons have less than £100 in their bank account before payday, which could be an opportunity to reduce staffing shifts during that point in the month.
Challenge your business rates
It’s up to you to challenge your business rates if you think you are paying more than you should be. The government sets aside £1.5 billion each year for business rate rebates, which begs the question: why is this figure so high?
If you’re unsure how to challenge your business rates, check out our guide here: How to challenge your business rates – Small Business UK
Boost your revenue
Once you’ve audited all your suppliers and providers, hopefully cutting some costs in the process, it’s time to look at how to increase your revenue.
This is a bit more exciting than going through your accounts and researching new providers, although it does require a lot of planning. A half-baked, poorly executed idea can end up wasting your time, energy, and money.
However, having reduced costs, your efforts to increase profits by boosting your revenue stand a better chance of success as your margins will be widened.
Optimise sales pipelines and workflows
Before you look to increase traffic to your business, it’s important to make sure your sales funnel is as efficient as it can be.
If your conversion rate is low, look to improve that first before adding more leads to the funnel. This could be reviewing the sales process, including sales and marketing touchpoints for buyers, or something as simple as changing the layout of your café so that more people can wait in line and order food.
Without taking this step, any efforts to generate more leads and sales will replicate existing limitations – or potentially exacerbate them further, leading to reduced revenue in the long run.
You may need a CRM (Customer Relations Management) to help with sales pipelines and improve conversions. Check out our review of CRM providers suitable for UK small businesses.
Create enticing offers
We’ve all done it at least once: you go in for one thing at the shops and end up coming out with five. But at least they were on offer!
The psychology behind offers and promotions centres around three aspects of human behaviour: we like to save money because it feels good, we like the sense of getting one over the retailer, and we don’t want to miss out (FOMO).
Research has shown that most supermarket offers aren’t, in fact, that great. Savings are minimal and encourage consumers to stock-pile items. The main beneficiary tends to be the seller.
Strategic offers can have the same effect for small businesses, albeit it with more immediate value for the customer.
For example, if you own a café, a sandwich might cost £4.50, and a separate portion of chips £2.00. If you add on the menu ‘Add a side of chips for £1.50’ next to the sandwich, you might entice someone to have some chips when they might not have.
Although you have lost 50p in this instance, given the profit margins on chips are quite high, you should see it as £1.50 (minus costs) gained. See if you can find similar items to add into offers that entice consumers into greater spends.
Implement a loyalty programme
Similar to offers, a loyalty programme allows you to reward clients for repeated custom. While this might mean that you give away a free drink or carpet clean every so often, not only will you improve the likelihood of customer retention, you may even see a client spend more often to reach their loyalty reward.
Make use of your space
Subject to the terms of your lease, you might be able to host events outside of your usual business hours.
These can be a good way to reach new customers or treat existing customers to a different kind of experience, such as a book club if you are a café.
Alternatively, if your office has parking, you may be able to lease out spaces over the weekend. This might be lucrative if you live in a city with major sporting venues nearby and have fans wanting to park their car nearby.
Always check that this is permitted with the terms of your lease and with the local council.
Market yourself effectively
It’s no good creating a great offer, hosting new events, or implementing loyalty programmes if nobody knows about them. However, you can’t just rely on word-of-mouth or someone seeing your funny Instagram reel to generate more traffic. There has to be a strategy in place to ensure you get a decent ROI (Return on Investment), otherwise you could end up wasting a lot of money for very little returns.
How you do this depends on your budget and how much time you can dedicate to marketing.
Unfortunately there is no simple, quick fix solution to getting your business out there in a meaningful way; instead, a multi-pronged approach is usually necessary to generate results.
Here are some suggestions for how you can market yourself effectively and drive traffic to your physical shop or website:
- Email marketing – publish a bi-weekly newsletter.
- Post regularly on social media – this could be the ‘deal of the week’, pictures of food from the menu, or ‘get to know’ content of staff.
- Create digital/physical loyalty cards.
- Engage with the local community – sponsor a local sports club or charity event.
If you would like to read more about how to market your small business, check out the articles below:
- The essential guide to small business marketing
- 8 digital marketing solutions to grow your business – Small Business UK
- A guide to successful email marketing
Final thoughts
Cutting costs before you look to boost your revenue means you can significantly increase profit margins. But make sure you are marketing yourself effectively in order to give yourself the best chance of increasing profits, and that your sales pipeline is optimised.
If you’re looking for free advertising solutions, check out our recent article: Free advertising ideas for small businesses – Small Business UK.
