Making your business more profitable isn’t about dramatically cutting costs or setting sky-high sales quotas.
That’s because these aren’t factors you directly control. You can’t make a customer hire you, or demand that materials cost less.
Instead, you can increase profits by making strategic efforts in the areas of your business you do control.
This guide is all about building your profit strategy. We’ll define the five most important profit factors and give examples of how to influence them.
Plus, scroll down for a free profit forecasting tool to see exactly how much your profits can grow.
How to Increase Profitability: The 5 Variables You Can Control
Increasing any of the following variables will have a direct impact on increasing your business’ profit. You don’t have to tackle them all at once—in fact, we don’t recommend it.
Focus on incremental growth rather than all-or-nothing tactics, and choose just one area to start with before moving on.
If you aren’t sure where to start, use our profit forecasting tool at the bottom of this page to see which variable will have the greatest impact on your business with the least effort.
Most small businesses take months (if not years) to increase profits. By learning about these variables and how to influence them, you’re already on the right path.
1. New lead generation
Lead generation is how you attract new customers to your business. The more leads you have, the more opportunities you have to close new customers.
For service businesses, lead generation usually means increasing your marketing efforts so that more prospects can find you.
Start by counting all of the leads you get over one month. Ideally, you should write down where each lead came from, too (e.g., Facebook, referral, etc.) To increase your profits, try to increase this number every month.
For specific strategies on new lead generation, check out these resources:
- The best lead generation sites for contractors
- Book new leads from Google Search
- 10 ways to optimize your Facebook page
Pro Tip: Instead of tracking new leads by hand, use a CRM (client relationship manager) so you can label new leads and where they came from. Get started with our free CRM here.
2. Lead-to-customer conversion rate
Your lead-to-customer conversion rate is how successful you are at turning a shopper into a buyer.
To calculate your conversion rate, use the formula:
Total customers won / Total leads generated x 100%
For example, if you get 25 leads from a Facebook ad and 5 of them book jobs, you have a 20% lead-to-customer conversion rate. (5 / 25 x 100 = 20%)
Increasing your conversion rate is one of the top ways to improve your profit strategy. So, how do you do it?
- Build a solid sales process. Give your team sales scripts and train them to bid and sell more jobs.
- Add photos and optional line items to your quotes. Just adding photos can increase your quote totals by 2x.
- Get more online reviews. 72% of consumers only take action after reading positive reviews.
- Educate your customers about the value of your services.
“Explaining why you are charging what you’re charging gives you a leg up. It’s not bragging—you’re explaining your value.”
3. Customer retention and re-booking rate
Repeat customers are 50% more likely to try new services and spend 31% more than new customers over time. Investing in repeat business can help make your business even more profitable.
You can calculate your customer retention number by looking at the number of times your existing customers re-book work with you. Here’s the formula:
Total # of invoices in a given time period / Total # of unique customers
Pro Tip: To find number this in Jobber, add “client name” as a column to your invoice report. Then, count the number of unique client names.
If customer retention is a variable you want to improve, learn about these strategies:
4. Average price per transaction
Average price per transaction (also known as the average invoice price, average sales price, or size of transaction) is how much you typically charge for every job.
The average price per transaction formula is:
Dollar value of all invoices in a given period / Total number of invoices
It’s pretty obvious how this variable can increase profits—in most cases, the bigger the job you sell, the more money you take home. (The only exception is if your profit margin is too low, which we’ll talk about in the next section)
To increase your average price per transaction:
5. Profit margin
Your profit margin is the actual profit you take home on every sale. You can increase your profit margin by raising your prices or lowering your operating costs. Here are a few ideas:
- Review your pricing structure and see where you can increase prices.
- Avoid discounting. If you have to do it, use a discount pricing strategy.
- Create business systems. Look for areas of your business that are inefficient and costing you money, then put a process in place to solve it. That can mean creating job checklists or even outsourcing administrative tasks like payroll.
- Automate repetitive tasks. Tasks like route optimization, quote follow-ups, and invoice reminders can be totally automated so you don’t have to pay someone else to do it.
- Cut costs. If you track business expenses (which you should), look at areas that can be cut. Renegotiate contracts with suppliers, or reduce office materials by going paperless.
Not sure how to calculate your margins? Use our free profit margin calculator
How to Increase Profits: Free Profit Forecasting Tool
Now that you understand the five variables that can increase your profits, use this free profit forecasting tool to see exactly how much your business can grow.
To start, enter your current business numbers into the first column on the left, including:
- Your average new leads per month
- Your lead-to-customer conversion rate
- Your repeat business rate
- Your average invoice price
- Your net profit margin
Next, set incremental increase targets for each one. For example, if you increase each variable by just 10%, you’ll see an overall profit increase of 60%.
FREE PROFIT FORECASTING TOOL
Improve Profitability with Strategic, Incremental Growth
Many business owners are feeling massive pressure around growing all of these variables to increase profit. But as mentioned above, that’s not necessary.
The power of a profit strategy is through compounding. Small boosts in leads and conversions affect the other factors until you reach your profit goals.
To make a profit in business, focus on incremental growth rather than all-or-nothing tactics that could blow up and cost you more money than they’re worth.
Remember: most small businesses take months if not years to increase profits. By learning about these variables and how to influence them, you’re already on the right path.
Take on more work without hiring more staff
With Jobber’s job management software, you can get more done each day without having to hire additional staff.Start a free trial
Written in collaboration with Kevin Simpson, Certified Executive Business Coach at ActionEdge.