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Improving your sales process, setting transparent pricing internally and creating sales literature such as sales proposals can help highlight how price and value are linked.
Confidence among UK SME’s fell sharply in Q4 2024 following the impact of the Autumn statement and high inflation. 2025 has started in a checkered fashion, with Trumps tariffs the latest to impact business confidence. It’s therefore more critical than ever that business owners have an understanding of how to increase their business profits in the ever-evolving business landscape.
As economic conditions continue to fluctuate well into 2025, maintaining a strong profit margin will make or break your business – those that prioritise profitability will put themselves in a better position to invest in new opportunities, remain resilient through recession and attract new valuable employees. At The Advisory Group, we have compiled our top tips for improving profitability in 2025.
Measure customer retention:
Understanding and measuring churn and Net Promoter Score (NPS) levels are critical.
Improve customer retention and NPS levels:
Set clear expectations of what good customer service looks like in your business. Create systems that support this and drive culture.
Statistic: The London School of Economics has produced a study, which claims that an increase in Net Promoter Score correlates directly with growth in Turnover/Revenue AND the likelihood of repeat customers.
Subscription/retainer model:
Critically appraise whether part of the business can move to a retainer/subscription model?
Create awareness and incentives for team members:
Train your team to upsell more profitable revenue streams, increasing average customer value.
Increase pricing:
Ensure price increases are implemented in line with improved customer service and a USP/Niche.
Proposals/Sales process:
Improving your sales process, setting transparent pricing internally and creating sales literature such as sales proposals can help highlight how price and value are linked.
Statistic: Harvard Business Review found that a 1% increase in price leads to an average 11.1% boost in operating profit.
Creating a niche:
Niching down, if applicable can provide more of a specialist approach to a customer base or service – enabling premium pricing.
Example: A business can one niche or a broad niche – for example, at the Advisory Group, we tailor our services and delivery for Business Owners.
Example: Some examples can USP’s can be a fast turnaround time, a performance guarantee or a strong relationship model.
Offering new, higher margin services via existing team, competitor collaboration or via a subcontractor model.
Seek referral Commissions:
Is there an opportunity to pass complimentary work out in exchange for referral commissions? It’s important to ensure you complete due diligence on anyone you refer work to as to not erode your relationship with your customer.
Example: A firm of Financials advisors ceased operating in a loss making area (Mortgages) and refer that work out to specialist Mortgage brokers for a referral fee, in turn improving profitability.
Negotiate with suppliers:
Seek bulk discounts or early payment incentives.
Annual budget/forecasts:
Setting annual budgets for the business and potentially departments will allow you to focus on financial targets, control spending, and make informed decisions that support profitability.
Cut non-essential expenses:
Eliminate unnecessary operational costs to free up cash flow and improve your overall profit margins without affecting core business functions.
Savings Income:
Ensuring you’re maximising any interest on working capital.
Example: An Engineering client holds between £50k and £2m at any point in a month depending on timing of wages, subcontractor payments and other key costs. The business moves any cash not required on a daily basis to a 1.5% instant access account. This instant access account generates around £25k per annum in interest income.
Regular Management Accounts:
Producing regular Profit & Loss and Balance Sheet reporting will enable a business to understand any changes in profitability real time. Ideally, management accounts would provide analysis against expected (forecasted) performance (actual vs budget).
Leading & Lagging indicators:
Setting KPI’s is important for any business – however many SME successfully implement leading and lagging indicators as way of measuring profitability. See our previous blog on Leading & Lagging indicators.
Example: A client of ours, a professional services business carried out services on various long term construction projects. When the business began to understand the actual profitability levels of all projects, they quickly understood that the profitability of projects varied from 10%- 35%. This information allowed them to slowly change their mix of customers and improve profitability without recruiting more employees.
Streamlining processes:
Technology can support automation/semi-automation of certain tasks.
Linking technology to your USP (and avoiding fads):
For a service sector business with a USP of creating strong relationships with customers – technology should increase the consistency of delivery of services and free up more time to enhance customer relationships.
Document critical systems:
The first step is always to document critical systems. Consistency of service delivery can increase efficiency and therefore, profitability.
Create a culture of systematisation:
Engage the team following and improving systems. Following systems can increase quality and reduce management time, thus improving profitability.
Tip: A great tool for documenting and managing key systems for service sector businesses is Sweet Process
Set Objectives:
Ensuring all employees have clear objectives, which link to the performance and therefore profitability of the business. When setting objectives for the business, see our blog on Leading & Lagging indicators.
Incentivise achievement of objectives:
Set bonuses and other performance incentives around key business goals to motivate your team and drive behaviours that contribute directly to increased profitability.
Benchmark Performance:
Access benchmarking information to understand the efficiency of your team is critical. Organisations such as Plimsol can provide excellent benchmarking data, enabling you to compare your performance against competitors.
Example: The ratio of Wages % of Turnover is critical for service sector business. Benchmark data for a firm of Architects found that their wages/turnover ratio was below average at 55% vs Industry average of 40%. They were then able to identify a number of issues to address, which could unlock upwards of £100k of annual profit should even get to an industry average ratio of 40%
Implementing these strategies can make a significant difference to your bottom line. By taking a proactive approach to managing costs, setting clear financial goals, and motivating performance, businesses can build stronger foundations for sustained profitability. Now’s the time to review what’s working – and what’s quietly draining your profits.
Thanks for reading, and if you’re interested in learning more or need assistance, Please get in touch HERE if you would like to discuss anything further.
This publication has been prepared by The Advisory Group UK Limited and is not intended to be a comprehensive statement of law or represent specific advice. No liability is accepted for the opinions it contains. All rights reserved.