How to Increase Net Profit

Would you like your business to earn more? Of course you do!

When you learn how to increase net profit, your business will have more money after expenses and become more stable.

What is net profit?

Net profit is the money your business earns after subtracting business expenses. You measure net profit over a certain period of time, such as a month or quarter.

The greater your net profit, the more profitable your business is. So, you should want to increase your net profits.

Net profit calculation

You can use a simple formula to calculate net profit. The net profit formula is:

Net profit = gross profit – expenses

Types of business expenses include items such as rent, utilities, employee wages, and interest on loans.

Gross profit is revenue minus the cost of goods sold.

How to increase net profit

The net profit formula shows how you can increase net profits. You must either increase gross profits or decrease expenses.

Here are five practical ways to increase net profits.

ways to increase net profits: reduce utilities, reduce insurance premiums, reduce labor costs, reduce operation costs, increase sales revenue

Reduce utilities

It might seem difficult to reduce utilities, but there are ways to do it.

Try reducing your utility use. You might find ways to limit power, gas, or water consumption. Try turning down heating and cooling outside of business hours.

You might be able to downgrade your utility subscriptions. For example, you might downgrade your phone, internet, and refuse plans. Make sure your utilities cover enough to keep your business functional, but not too much that you’re wasting money.

Ask about better payment rates. Sometimes you can get better rates if you get a business plan or commit to a contract.

Reduce insurance premiums

You might be able to save money on your insurance premiums.

Look at your insurance plans and look for coverage you don’t need. For example, you might be paying to cover equipment that you don’t have. Call your insurance agency to see if you can eliminate unnecessary coverage to reduce rates.

Try to find insurance discounts and shop around. Some insurance carriers will give you better quotes and discounts. If you’ve had no or few claims, you might be able to find lower rates.

Reduce labor costs

You might be able to reduce business expenses by reducing your labor costs.

You can reduce the hours employees work, particularly overtime. Overtime can be expensive because it is time and a half the employee’s regular rate of pay. Schedule employees so you don’t have unnecessary employees at work or employees working extra.

When possible, consolidate employee tasks. See if employees can take on more tasks before you hire more workers.

When possible, use workers on a contract basis. These workers only work for you a short time. Just make sure you don’t misclassify employees as contractors, as this can lead to fines, penalties, and back pay.

Reduce operation costs

Look for ways to limit operational costs, such as office supplies and repair service calls.

Try buying common items in bulk to receive reduced pricing. Buying wholesale for business owners can significantly reduce your monthly expenses. Also, see if your vendors will give you discounts for paying bills early.

Find cheaper ways to do administrative tasks. For example, you might be able to use cheap payroll software for small business to run payroll.

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Increase sales revenue

You aren’t limited to only reducing expenses to increase your net profit. You can also increase how much revenue your business brings in.

Find ways to sell more of your products or services. Research ways to better advertise to your target customers.

You might also try decreasing your prices or running sales to attract more customers. A reduced price might put your items at a better price point for more people, encouraging more long-term revenue. Sales encourage impulse buys and pull in people who want to try your product or service before paying full price.

Even though you might reduce your prices or spend more on advertising, you can still increase your net profit. As long as you sell more, you might be able to cover the loss and still increase revenue.

Start improving your business’s financial health. Use Patriot’s small business accounting software to track your profits and expenses. Get your free trial today!

This article is updated from its original publication date of March 20, 2018.

This is not intended as legal advice; for more information, please click here.

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