When managing any type of company, it is important to be aware of how much money is being made and how much is being spent. Calculating your operating income is a popular method used for providing just that. It is a way to measure your profitability. The higher the operating income, the more profitable a company is. Which begs the question, how profitable is your business?
All business operations, expenses, and sales influence the overall operating income a company earns, giving a factual number to the amount of money that generates. To find your operating income, calculate your earnings before deductions and taxes then subtract your sales revenue by your cost of sales and operating expenses. Formula: Sales revenue - (Cost of sales + Operating expenses). Once you have computed your operating income, focus on which aspects of your company could use improvements to benefit your financial results.
To help you understand the components that contribute to operating income and help you increase your company's earnings, we have come up with four easy tips to make your business more profitable:1. Review all of the expenses that relate to your cost of goods sold.
Look to identify more efficient manufacturing methods in order to reduce the costs associated with your manufacturing operations. Ways to cut these costs are to research other suppliers with cheaper rates or inquire about other potential contract options with your current supplier. For example, if you have been buying refrigeration parts from the same supplier for years and you’ve formed a great business-relationship, consider renegotiating pricing or express interest in a cheaper but still efficient option that they advertise.
2. Increase Your Sales Revenue
By augmenting your sales, your operating income will naturally rise. Try offering special sales or promotions to spark interest in both new and existing customers and show that you are offering a competitive price. (Click here to learn more about how to discount prices without losing profit)
3. Reducing Labor and Operations Costs
Look at all of your labor costs to identify areas where you can reduce rates. Begin to keep records of service call payments, office supplies, printing, and administrative fees. Then, review all transactions in detail to identify areas where you can reduce costs. Even the small costs add up quickly! For example, cut back on office printing to save money on ink and paper. It is also useful to consider assigning more than one field tech to an assignment. This method could help increase productivity and get more jobs done within a single day. Also, having double brain power can lead to more efficient results and management could potentially avoid paying employees overtime hours.
4. Regulate The Companies Energy Consumption
There are many minor but cost-effective upgrades like energy saving light bulbs that can save you a lot when looking at annual costs. Other ways to reduce energy are updating seals around doors and windows or installing thermal windows.
The harsh reality of the business world is that 20% of small businesses fail in their first year and 30% do in their second year. Don’t allow your company to be another statistical add-on to the failure rate. By applying one or all of these components to your business, you are going to improve your operating cost and raise your profitability to ensure your company’s success!
For more insightful tips on how to better your business and service, click here!