#2: Increasing profitability

So, you’ve proved that your business model works, and you have broken through the first barrier – achieving breakeven!

Now the focus turns to achieving sustainable profitable growth, whether your ultimate aspiration is a trade sale or merely an orderly winding-down when you have decided that it is time to move on. Creating a strong business gives you a degree of security and offers you choices.

The Ansoff matrix (below) is a very helpful way of helping you to gather your thoughts on how you could go about increasing revenue and profitability, as it enables you to consider both the short and medium term options.

The bottom left hand box (Existing Products to Existing Markets) is all about improving performance in the short-term with your current business model. To make this happen you can work on one or all of the following 3 strategies:

a) Cut costs
b) Increase prices
c) Sell more

Obviously if you can achieve improvements in all three of these areas, however marginal, if can already make a marked impact on your performance.

In terms of costs, it is worthwhile doing a cost audit say every three months. There is nearly always somewhere where you are leaking some cash, so can you plug the hole , without cutting in to “bone and muscle” and unnecessarily handicapping your business.

Turning to increasing prices, do not necessarily assume that there is an automatic link between price and cost. This obviously is linked to how price –conscious the market is, but it is surprising how often you can use your differentiation on quality of product or service to command a slightly higher price.

Finally, there is selling more. This is probably the hardest strategy of the three to implement. A review of your marketing mix (both offline and online) might be a good starting point- is your message “spot-on”, and is it reaching your desired audience? In reality what you have to come up with is something about what you do that can help you take business away from the competitors in your current marketplace.

When you have exhausted possibilities in this area, you need to look at the medium-term options, which are represented in the three other boxes in the Ansoff matrix:

1. Top left – Existing Products to New Markets
2. Bottom right – New Products to Existing Markets
3. Top right – New Products to New Markets

These all carry a degree of risk (and cost), with the top right box being the high-risk option, as you have doubled the “unknown” factor. It makes sense to research and analyse the other two options first, and I would suggest that you then prioritise one of the two, so you can concentrate your firepower and avoid becoming too diluted.

It is for you and you only to decide whether you want to stay in your comfort zone (in pontoon terms “stick”) or move forward to more of a value business (“twist”).

Assuming you are deciding to move forward as opposed to adopting a holding pattern, then whichever direction you choose to take, make sure that your preparations enable you to expand with “eyes wide open” as opposed to “eyes wide shut”!