How to turn a business profitable? By definition, a business is an entity with organized efforts to make a profit.
Though by looking at the books of many companies today or the strategies they use it may not look like they care much about the traditional definition of being profitable at all.
No matter how you choose to start and grow your business, at some point, virtually every company needs to eventually become profitable.
Or at a bare minimum have a defined path to turning it into a profitable business.
The Ultimate Guide To Pitch Decks
Here is the content that we will cover in this post. Let’s get started.
- 1. When To Make Your Business Profitable
- 2. For Fundraising
- 3. Selling Your Business
- 4. How To Cut Business Costs To Become Profitable
- 5. Office Space
- 6. Communications
- 7. Subscriptions
- 8. Salaries
- 9. End Meetings
- 10. Merge Positions & Roles
- 11. Acquire Other Companies
- 12. Ruthlessly Prioritize
- 13. How To Increase Income & Profitability
- 14. Increase Sales Volume
- 15. Increasing Conversions
- 16. Increasing Lifetime Customer Value
- 17. Increase Prices
- 18. Acquire More Profitable Business Units
- 19. Merge With Larger Companies With More Resources
- 20. Summary
When To Make Your Business Profitable
Some business founders still strike out to create a profitable business from the beginning. While it may not be trendy at some times, it still comes with a lot of benefits.
It may come at the cost of growing fast. It may not be needed to raise money or even go public. Yet, it does give you more control over your own destiny and business.
You can use those profits to make a living from your business and go all-in on it. You can use the profits to reinvest in growing it.
You may not need a profitable business to attract startup investors at your pre-seed to Series A fundraising rounds.
Yet, at some point, and depending on where you are trying to raise funds from, investors will be looking for profitability.
Later stage funding rounds may be easier if you are profitable. If you are raising outside of the United States, and certainly outside of Silicon Valley, many firms are more inclined to invest in profitable businesses.
It can certainly put you in a stronger negotiating position when it comes to fundraising than if your company is only weeks away from going bankrupt.
And having to close the doors because you can’t make payroll.
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Selling Your Business
Many businesses have been bought before they became profitable. Some have been bought with very little revenue in comparison to their size.
There are other reasons companies get bought. Especially startups. It may be for the growth, team, brand, the position they hold in the market, or IP.
Yet, it seems obvious that a profitable business should not only attract more potential acquirers. But will typically (everything else being equal) be more attractive and valuable to buyers.
This is clearly especially true when it comes to financial buyers versus strategic ones.
How profitable your business is, especially within your industry can make a big difference in how it is valued, and how much you are offered for it.
With some of the following tweaks you can get profitable, and improve profitability ahead of these moments, or just to secure your independence.
This can be even more important in fast-changing times, when venture capital markets and M&A activity may not be what it was in previous months and years.
There are two main ways to turn a business profitable. Either cut your business expenses or increase the income and profitability.
Before you continue reading on, check out this quick video I have created. It provides some detailed information on cost-cutting tips for startups. You’re sure to find them helpful.
How To Cut Business Costs To Become Profitable
There may be some areas of your business where cutting spending can kill you, like marketing.
Yet, many businesses can become profitable just by spending more wisely and cutting non-essential expenses. Here are some of them.
Plenty of billion-dollar businesses have been built on all remote teams. It’s hard to think of a scenario in which office space is essential these days.
Even Google and Apple have been figuring out how to do it. There may be some use cases in which labs or manufacturing plants are truly needed.
Though, if there is any way you can do without physical premises, you will find huge savings. Along with that comes flexibility, sustainability, and profitability.
Communications can be a core part of your business. Yet, it can also be a source of a lot of wasted capital and cash flow.
Those that still have physical premises are also often drowning themselves in expense with legacy business phone systems.
Along with that are high ongoing maintenance and often inferior services. Even more modern companies working virtually may not be using the most efficient systems or cost-optimized providers.
Today, most team members can be running from their own laptops and mobile phones. While being connected with more modern solutions that integrate email, SMS, voice, and video calling in the cloud.
The massive shift toward SaaS and subscription everything has had its benefits and conveniences. In some cases, it has helped cash flow and startup costs.
The subscription everything economy has also had its negative impacts as well. Firstly, it has made everything a lot more expensive than if people and businesses were to pay cash for that item.
It also means a huge amount of waste. Both people and companies have stacked up numerous subscription payments.
You may not even remember what half of them are, or realize you are still paying for them. Which is often the purpose of these business models in the first place.
Go through your accounts and be sure to cancel those you no longer need. Or find the most cost-effective alternatives. It’s one of the best methods to turn a business profitable.
Static salaries are a huge burden. Especially on a business that is not yet profitable. They also frequently come with big bonuses, healthcare, retirement plans, and paid vacation time.
Sometimes they even come with company-paid devices, spending accounts, and stock options or equity. Not that these are bad things. You may believe they are the right thing to do.
Still, shifting to a performance-based pay model can dramatically help operating costs. That means paying for results or a given output, not just clocking in.
You may still have to have virtual board meetings. All hands off sites gatherings can be great investments in your culture and company performance.
Yet, 99% of meetings (virtual or in-person) are usually unnecessary. When they are not necessary, that means they are a luxury.
Usually a very expensive one. Especially if you are not yet profitable. If you are going to splurge, is this where you want to do it?
Merge Positions & Roles
Even young companies can quickly overhire. Often overlapping talent and roles. Even if this doesn’t add to direct costs, it means increased management and a drain on productivity.
One classic example of this is PR, content creation, marketing strategy, and management, which can often be led by a single person more efficiently than several.
Acquire Other Companies
Acquiring other companies can be a way to leap to profitability. For example; acquiring suppliers or partners in logistics to lower costs.
Or to remove layers in getting closer to the customer. Perhaps even to eliminate competition and potential price wars.
It doesn’t matter how many zeroes you added to your business bank account in your last round if you are not prioritizing spending with a strong focus.
Each decision should come back to the question of if that dollar will help you become profitable, or not. Or where are the best returns in budgeting.
Learn these tips that will help you turn a business profitable.
Keep in mind that in fundraising, storytelling is everything. In this regard for a winning pitch deck to help you here, take a look at the template created by Silicon Valley legend, Peter Thiel (see it here) that I recently covered. Thiel was the first angel investor in Facebook with a $500K check that turned into more than $1 billion in cash.
Remember to unlock the pitch deck template that is being used by founders around the world to raise millions below.
How To Increase Income & Profitability
The other half of the profitability equation is bringing money and net profit in. Some of the ways to improve this half are below.
Increase Sales Volume
Perhaps all you need to get profitable is to sell more units. This may be achieved through more marketing.
It could be through distribution and sales partners. Or it may be through increasing sales per customer.
Another way to do this is even revenues per customer by up selling, add-ons, bundling, and offering more products and services.
Low conversion rates, and subsequently high customer acquisition costs impact your unit economics. This can be the key to becoming profitable. Or at least improving profit margins.
Increasing Lifetime Customer Value
Profitability can also come from increasing the value of each customer, and the value they have over the lifespan of their relationship with your business.
One way to do that is to extend the lifetime of that relationship. Think boosting customer retention rates for recurring revenue products, or enhancing your follow-up for returning customers.
Customer loyalty programs and referral programs can also help boost their value. As can being more selective in the customers you accept.
Make sure you know which of your customers are the most profitable, versus those which are a drain on your resources.
Price hikes usually aren’t the best go-to solution. Many companies go there after a big round, or when they go public.
There can often be significant negative blowback from that. Especially when it falls on the shoulders of your most loyal customers.
In other cases, it can be a smart move if you have been undervaluing your product or service, and there is little price competition in your space.
If you can add more value then, you can help your customers level up faster, or create new pricing packages to enable you to give more to those who are ready.
It’s one of the best strategies to turn a business profitable.
Acquire More Profitable Business Units
Can you buy other businesses and merge them into yours? If you are not on the frontlines, going B2C may help you increase your margins.
Or again, acquiring more parts of the supply and logistics chain could help achieve profitability.
These companies can also add additional revenues from their other clients and enhance your overall profits.
In other cases, it may be acquiring what that company has which makes you profitable. Such as their technology, team, or brand position.
Merge With Larger Companies With More Resources
Perhaps an M&A transaction with a larger company is what you really need to make the leap. It may be the best way to enable your business to accomplish its mission.
They may have larger talented teams which are operating more cost-efficiently already. They may have more resources, which cost them less than they would cost you.
They may have the raw product you are selling. Or the customers.
Think about Google buying your company, and then being able to have them recommend your product or bundle it with theirs tomorrow morning.
What could access to those billions of customers mean for you? In some cases, it is just that credibility they can offer.
Or they can produce or sell your product cheaper than you alone, or they may just have the capital to push you to a large enough scale to be profitable.
There are many answers to how to turn a business profitable. From cost-cutting measures to boosting the top line, efficiency, or finding more resources, there are probably several ways on this list that you can begin implementing tomorrow.
Profitability isn’t always trendy for startup companies. Though, by definition, being profitable is what business is about.
It can have many advantages as you grow through each stage too. Perhaps even more so when fundraising or considering selling your business.
Being profitable is also a way to stay independent and retain control over the parts of your business that mean the most to you.
You may find interesting as well our free library of business templates. There you will find every single template you will need when building and scaling your business completely for free. See it here.