The fundamental rule of doing business in a capitalist economy is that if you do not earn, you cannot survive. It sounds harsh but the truth is always like that. In a small business, this law receives even more radical forms. The competition is high and resources for further development are often planned to be taken from the income received.
Many entrepreneurs are asking the question “Why are my income indicators higher than those of competitors, but less profit?”. These experiences are quite reasonable because it is the size of the profit that allows you to determine the profitability of the enterprise.
A common mistake that small business owners make in this case is to work only on increasing sales but in fact, profit growth is achieved in two ways that inevitably go together. There are an increase in revenue (sales) and a reduction in costs. Let’s look at three strategies to achieve this.
- Direct Cost Reduction Direct costs are the costs that are directly indicated in the statements of profit. They are “tangible” and the entrepreneur is able to relatively accurately assess their size. Direct costs include the salary for employees, rent, expenses for the purchase of equipment, raw materials, or goods.
The first way to reduce direct costs is to reduce the cost of the goods you sell. To do this, it is worth negotiating with your suppliers. Long-term cooperation with you is no less beneficial for them than for you. Therefore, if your suppliers want to keep it, they will go for a moderate price reduction so that your profit helps you continue to work. Read More: Get Joys
