8 Strategic Moves to Increase Profit

Financial strategists are adept at leveraging minor adjustments to yield substantial outcomes. This skill can be very valuable when considering how a small increase in a company's profit margin can have a significant impact on net earnings. To put this into perspective, begin with the industry average for profit per employee of approximately $33,000 (based on multiple industry surveys). A 10% profit increase will result in an additional $3,300 in net earnings per employee. For companies with at least 30 employees, this 10% profit boost translates to a substantial six-figure increase in net earnings. For larger firms, the benefits can be even more significant, as depicted in the graph below.

This should incentivize any size firm to find simple ways to generate small increases in company-wide profit margins. It also reveals the magnitude of the potential returns for making relatively small investments in innovative software, training or outside consultants that can achieve even a slight improvement in profit.

It doesn't require major changes to achieve measurable results. Numerous techniques have been effectively employed by engineering and architecture firms consistently ranking in the industry's top 20th percentile for performance. Here, we have gathered eight straightforward strategies that are easy to implement and can yield surprisingly significant results. To illustrate the potential benefits, we also offer a basic example of the financial impact resulting from these proposed adjustments. Finally, we summarize all eight strategies in a comparison table at the end of this post.

INCREASE YOUR INTERVIEW SUCCESS RATE

Winning more projects with the same level of marketing staff can effectively increase revenue without adding overhead. In addition to building growth this also directly translates to improved profitability. We have a previous post on winning more interviews that can offer some ideas.

Example: Increasing your win rate from 25% to 40% can improve profitability by 5%.

LOWER YOUR TURNOVER RATE

Reducing employee turnover not only fosters a more stable workforce but also significantly lowers the costs associated with finding, interviewing, onboarding, and training new employees. These cost savings can be added directly to the bottom line. Reducing turnover rate also promotes greater productivity by reducing disruptions in production teams. This value is harder to measure but can be much more significant than just the cost savings. While reducing turnover is a shared objective across all firms, the key lies in identifying a target and quantifying its value. This approach will establish a budget for more effective investments in programs that foster stability and subsequently reduce turnover, ultimately unlocking greater productivity.

Example: Reducing a 20% turnover rate to 15% can increase profitability by 5%.

LOOK FOR TAX CREDIT OPPORTUNITIES

Not sure if your company qualifies for Research & Development or energy efficiency (179D) tax credits? Most firms do qualify and take full advantage of this tax incentive designed to promote innovative ways to perform business operations and reduce energy use. Your tax accountant may not specialize in applying this part of the tax code, but there are specialized tax advisors who can help you determine if you qualify and guide you through the process.

Example: R&D Tax credits can increase profitability by 10%

HOST AN EMPLOYEE LUNCH

Investing in a team lunch may seem counterintuitive to increase profit dollars but the results can be surprising. For example, by supplying lunch on Fridays when many employees often leave the office at lunchtime, you can increase productivity by eliminating the production time wasted in traffic or crowded restaurants. Investing in an employee lunch for a team-building social gathering returns the benefit of keeping employees avoiding wasted travel time. Just an additional 15 minutes for 20 employees results in a productivity boost of 5 man-hours, a team building social activity and a morale boost for a display of appreciation.

Example: Increasing production time 15 minutes per week can increase profit 4%

RAISE YOUR PRICES

It is no secret that higher prices will result in greater profits, but the impact from just a small increase may not be so obvious. A simple 2% increase in pricing (above cost escalation) can result in a 10% increase in total profit for the firm, which can be a significant value. Discovering ways to effectively increase pricing can have a dramatic impact on your profit margins.

Example: a 2% increase in prices can increase profit 10%

ROUNDING-UP FEES

If you are hesitant to raise prices, then perhaps just rounding up your fee calculations may be a consideration. It may initially sound like "rounding up fees" a few dollars would have a negligible impact on profit, but that is not the case. Each additional dollar of fee will go directly to earnings and the relatively small impact in your price is very unlikely to impact the client decision process. There is not much difference between $31,673 and $32,000 other than the 1% of additional fee that becomes profit.

Example: Rounding up fees an average of 1% can increase profit 5%

USE ROI DECISION METRICS

Do you see overhead as an expense or an investment? Have you ever invested in a software package, a training program or even opened a new office and "hoped" it would be a good investment? Most firms do this to some degree every day. When you set up your 2024 budgets, make sure each dollar spent on overhead provides a value in return. Identify that value and track it each quarter to avoid unproductive investments. Knowing when to "pull-the-pug" on non-productive investments can also save thousands. In general this approach can prevent costly mistakes and enhance profitability. If you are not familiar with running ROI calculations, we can help you with a free 1-hour ROI explanation discussion.

Example: Optimizing overhead investments by 10% can increase profit 10%

REDUCE DISTRACTIONS COMPANY-WIDE

This is another instance of a small change amplified to a large sector. Devising ways to help all employees deal with daily distractions can have a huge impact on profit. Providing education to employees on personal management skills will offer value to your teams and help everyone be more productive. Simply offering a one-hour lunch seminar has a minimal cost with a tremendous upside.

Example: Improving employee productivity 9 minutes a day can increase profit by 10%

These are just eight ways to boost profits by making minor adjustments that can deliver significant company-wide results. Most of these strategies are straightforward to implement and can produce immediate, low-risk outcomes. Furthermore, these results are sustainable year after year. There are many more opportunities to explore, so keep searching for ways to make incremental changes that can enhance productivity or minimize resource consumption on a broader scale.