You didn’t start your business just to make ends meet. You started your business to generate a profitable income. Generating profits doesn’t just happen on its own though. It takes careful thought, strategy, and planning, as well as plenty of hard work. Part of what that entails is paying attention to factors that could hurt your profitability. Do you know what some of them are?

Underpricing

Getting your pricing right is a crucial key to maintaining optimal profitability in any business. If you price your products and services too high, you’ll lose out on your customer base. 

By the same token, if you underprice your products and services, you’re losing out on profits you would otherwise benefit from. Figuring out how to price your products can be tricky, but the profits you stand to generate by getting it right make all the effort worthwhile.

Waste

Following ISO standards in manufacturing will ensure that your products or services are accepted in many countries, therefore increasing your income. Profits are generated based on the relationship between money coming in and money going out. Underpricing impacts the money coming in. Waste impacts both. Wasting materials and resources means that those can’t be used to bring more money in. It also means that you’re spending money unnecessarily. 

Identify areas of your business that are prone to wastefulness and come up with a strategy to reduce waste. The 5S process helps eliminate waste so your business can run more efficiently. While the 5S process was originally designed to eliminate waste in manufacturing, the concepts can be adapted to businesses in virtually every industry. 

Poorly Managed Labor

Poorly managed labor is solidly on the “money going out” side of the profits equation. Employing other people demands that you spend money on labor costs, but how much you spend is impacted by how effectively you manage your labor costs. If employees don’t spend their time productively or if the amount of work to be done doesn’t justify the number of hours you’re giving out, you’re spending more on labor costs than is necessary. 

Pay attention to how much work there is to do and how your employees use their time so you can make adjustments as needed. Underpricing, waste, and poorly managed labor are just a few factors that can hurt your profitability as a business. There are plenty of others out there. Which factors are most relevant to your business will depend on its strengths and weaknesses, as well as the structure of the business itself. Carefully analyze what goes into your business’s profits so you can identify those factors that get in the way of achieving your potential.

Did you enjoy this article? Here’s more to read: How to Make Your Business More Profitable