As you start planning for 2022, your top priority should be increasing profit margins. After all, the past two years proved that business trends can change at the drop of a hat. By employing innovative methods that drive profitability, you can navigate the new year more easily.
The earnings season of 2021 began optimistically. However, as the year comes to a close, the impacts of the pandemic still linger. Increasing profitability is the best way to remain steady in a sea of uncertainty. With a little planning, foresight, and ingenuity, you can set your business up for financial success in the new year.
Looking for ways to maximize your company’s profits can be both exciting and cumbersome. Coming up with new methodologies for driving profitability can open some creative pathways, but the past couple years’ economic uncertainty throws a wrench into things. Planning for 2022 requires looking beyond traditional ways of steadying your cash flow. You might have already leased a smaller office space to accommodate fewer in-house employees, or you might have renegotiated contracts with vendors and suppliers. But to see a substantial increase in profits, you need to think differently.
The best way to increase your company’s profits in 2022 is to turn inward and invest time and energy in the people who support or carry out day-to-day operations. Here’s how:
- Set proper expectations when hiring new team members.
A study by Gallup shows that about half of employees in the U.S. don’t fully understand their job requirements or know what’s expected of them in the workplace. This number is staggering. Another Gallup study reveals that when your employees don’t really grasp what their job duties are, they’re less engaged and invested in their work, which translates to a decrease in profitability. When you hire someone new, be very clear about what their job responsibilities are and what you expect of them. This clear communication from the onset not only establishes communication guidelines going forward and boosts engagement, but it also helps your new hire meet company goals.“The way you communicate with sales team members during onboarding can affect the results they produce later,” says Ryan Shapiro, national director of sales at Sapper Consulting. “If new hires aren’t sure what’s expected of them, they won’t meet company goals. This can result in disappointment and frustration on both sides.”
- Focus on retaining customers versus finding new ones.
When it comes to marketing your products and defining your customer base, take the less-is-more approach. The fewer groups you’re trying to cater to, the more focused and effective your efforts will become.Your first step is identifying your best customers. According to Vilfredo Pareto’s 80/20 principle, the top 20% of your customer base is responsible for 80% of your profits. Identifying who the top 20% are and centering your customer service and marketing approaches around them is the best way to retain customers and see an increase in profits.
Regardless of what industry you’re in, looking to attract new customers as opposed to retaining the ones you already have will cost you more money in the long run. According to “Marketing Metrics,” businesses are more likely to sell to existing customers (60% to 70% chance) than new prospects (5% to 20%). You’ll spend less getting old customers to become repeat buyers. And when you shift your focus to retention from acquisition, your loyal customers will feel more valuable and will want to continue doing business with you. Like Brian Balfour, founder and CEO of Reforge, says, “If your retention is poor, then nothing else matters.”
- Outsource to freelancers or contract workers.
One of the greatest assets to businesses in the digital age is the ability to outsource. Outsourcing allows your business to work with some of the best experts regardless of their geographical location. This helps you reduce business costs and increase profits. Outsourcing is another great way for your in-house teams to maximize their profitability. When they’re no longer bogged down by tedious or mundane tasks, they can focus on the strategies that propel your business forward. Outsourcing provides substantial business growth opportunities for both corporations and small businesses. For instance, Genius Juice experienced threefold growth in its first year of business due to CEO Alex Bayer outsourcing some business processes.“Overall, I think we’ve built a smart model combining different organizational strategies,” says Bayer. “We have outsourced some parts of our firm. Essentially, what capital we save from outsourcing, we drive into sales growth, marketing, and supporting the product in our stores. That’s been our structure and strategy so far. It has really worked well to help us conserve capital and drive growth as a company.”
Increasing profitability in an unstable market is challenging. But with a little imagination, it doesn’t have to be. By refocusing your company’s efforts on setting teams up for success, improving customer retention, and outsourcing work, you’ll be able to increase profits and prepare for whatever 2022 has in store.
Written by Rhett Power.
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