THIS POST INCLUDES:
1. Calculating your profit
2. Increase sales
3. Decrease expenses
5. Develop a profit strategy
6. Free Download Expenses Worksheet
CALCULATING YOUR PROFIT
It’s important to define some terms in this post. The topic of this article is about increasing PROFIT. Profit is a different metric than SALES or INCOME. Sales and income (interchangeable terms) are referred to as what your customer/client gives to you for purchasing your product or service. If you are selling therapy sessions then your sales/income refers to what your client gives to you at the end of their session.
The next part of the equation for calculating your profit is your expenses. Your expenses are all of the costs associated with running your business. For example, rent, advertising, internet, wages etc. Now that we’ve defined sales and expenses, your profit is what you have after deducting your expenses from your income. While sales and profit refer to the money you receive into your business, the main difference is the profit amount has been reduced by the costs of running your business.
Now that we have these terms explained, the rest of this article specifically refers to increasing your profit. As we understand the calculation of profit involves both sales and expenses, this means to increase profit we need to adjust either the sales or expenses in the equation to improve the profit amount.
Below are a few ways you can increase your sales:
- Diversify your income – introduce new types of products or services. If you currently sell art therapy sessions, you may want to expand to offer group sessions, workshops, train the trainer sessions, ebooks, physical products, or art supplies etc.
- Find new customers – finding new customers can involve exploring new networks for referrals. You should understand how your current customers found your business and further explore those pathways.
- Find new markets – if you currently work only with individual clients, you may want to provide group work, corporate work, or community work etc.
- Increase your prices – are you pricing your service at a reasonable rate? Some private practitioners start their business undercharging in the hope they can gain customers by offering cheap rates. This model isn’t always the most effective. If you’re not comfortable raising all of your rates, you could raise your rates for out of normal hours work or consider premium rates for specialized services eg. corporate.
- Eliminate unprofitable products or services – remove any products or services that are not profitable. For example, if you currently offer Thursday night sessions, however, you have to pay higher rates of childcare or costs to keep your office open, then this time is not profitable. You might consider removing the offer and instead using that time to develop other profitable products or services.
- Improve your client experience – this includes details such as offering flexible payment options, car parking, flexible hours. All of these things may not add directly to increasing income, however, if you provide a great client experience, this may result in favourable word of mouth referrals to bring you more clients.
- Collaborate – consider collaborating with other art therapists or allied health professionals to offer workshops. This may result in sharing income, sharing expenses, and more importantly, sharing the workload involved in offering workshops.
Below are a few ways you can decrease your expenses:
- Review all expenses – review all of your expenses and set a goal to achieve a 5-10% reduction. Some examples:
- Review merchant fees on credit card processing
- Review insurance requirements for office equipment and consider raising your excess to reduce premiums
- Review any salary related costs eg. Insurance, superannuation, health care etc
- Review any monthly subscription costs and decide whether an annual payment will save you money or whether to cancel or suspend the services for a specific period. You can subscribe again when your profit improves.
- Review ongoing admin costs such as rent, internet, communications, cleaning, office supplies etc.
Make a commitment to call all of your suppliers to negotiate costs or ask for early payment discounts. What is the worst that can happen – you may be told no. However, the upside is you may actually receive a reduction!
- Redesign workflows – review the process of how you book a client and administer all client affairs. Is there an easier way to do a task and therefore save your time or staff costs? Remember any time saved can then be redirected to tasks that will produce additional income.
- Eliminate tasks – This could involve making the decision to conduct all business correspondence electronically instead of printing and therefore saving on paper and printing costs.
DEVELOP A PROFIT STRATEGY
Trying to make an impact on your business profit can seem an overwhelming task when there are so many components to running a business. Some practitioners thrive on client work, however, find the administrative tasks of operating a private practice to be stressful or tedious.
If you have a business manager or office manager to enact some of the above changes then you may prefer setting a goal for them to work on some of the tasks above. However, if you are a sole practitioner with no staff assistance, then you are the most effective point of change for your business to improve profit levels.
As your time and energy is limited, it is best to set out a plan to work through your income and expenses strategically to try and attain the most significant impact in a short period of time.
If you have a printed set of financial statements work through each item on your profit and loss statement and write a number against each line item that you feel impacts your profit levels the most. The number you allocate should be based on both the financial impact as well as the ability to change the item. An item might have a significant financial impact, however, you may not be able to immediately make changes and therefore that line item will remain a low priority.
A simplified example is shown below with the priority number written in front of the item name (1 being highest priority) :
7 – CLIENT SESSIONS – this item was prioritized as low as the therapist felt they had already reached their maximum load of clients and their rates were already reasonable. Even though this item is rated as a low priority to make changes, the business owner should still review if any smaller changes can be made such as ensuring no accounts have amounts owing.
1 – GROUP WORK – this item was prioritized high as the art therapist felt this was an income stream they could explore for further development. The therapist set an initial goal to add one group work session per month and build upon this strategy depending on the impact to profit in 6 months.
6 – INTERNET – the therapist ranked this item low in priority as they recently conducted a review and had already changed their plan to reduce the costs.
2 – RENT – the therapist felt this cost was the most significant expense. Ideas to reduce rent were to rent out any unused space to other professionals. Review commercial rents in the surrounding area as a comparison and use this to negotiate the next lease.
3 – INSURANCE – even though the cost of insurance wasn’t high for the therapist they rated this item as a high priority as they felt it would be one of the easiest expenses to reduce by paying an annual premium (discounted rate), increasing their excess/deductible and decreasing their coverage.
4 – SOFTWARE SUBSCRIPTIONS – this item was ranked in the middle as the therapist knew they could easily reduce expenses by paying annual subscriptions and canceling some subscriptions. Even though you cancel a subscription, you can subscribe again once your profit improves.
5 – ADVERTISING – the therapist ranked this item low in priority as they felt comfortable with the current advertising spending. A review can still be conducted to determine if any improvements can be made.
Once you have set the priority of each item, set a goal over a week or a month and work on one item at a time to see if you can make any improvements to your profit.
As a business owner, the above process of reviewing your income and expenses should be done on a regular basis.
At a minimum, an annual review is suggested, however, quarterly or semi-annual reviews provide you with an opportunity to make changes sooner.
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