How to build a profitable business : 4 easy steps

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03 Dec , 2022

You probably have a good idea of how to start your own business and what it will cost you. You probably have a good idea of what market you want to serve, which products or services you intend to sell, and also where those customers are likely to be found. 

Perhaps you’ve even written a business plan and identified potential partners. But there’s something else you need before you dive in : an actionable plan for building a profitable company. 

Starting any business involves taking risks, but if you’re not equipped with the right knowledge about creating profitable businesses, those risks are significantly increased. 

Even if you are prepared for the challenges ahead, however, building a profitable company from scratch is no small feat.

What is a profitable company ?

When it comes to building businesses, profitability is the name of the game. 

This means generating more revenue than your business costs to operate - in other words, breaking even. 

What’s more, the business’s profits likely come from repeat customers, which means you’re creating sustainable revenue streams that can be reinvested in the business. Tracking your business’s finances and understanding what drives profitability will help you to set goals for your company’s growth. 

It’ll also enable you to track your company’s performance over time, identifying areas that need improvement. 

Note, though, that profitability isn’t just about your company’s bottom line. It also has an impact on your employees, stakeholders, and the environment.

By the numbers : know your margins

The starting point for any new business is to determine your cost of sales and the price you intend to charge for your products or services. 

The resulting difference between the two is your gross margin, or what’s commonly called “the gross profit”. 

This term refers to the portion of your revenue that’s left over after including the cost of materials and any overhead expenses (like rent for your office space or the salary of your employees). 

Gross profit is important because it lets you know how much profit you’ll have available to reinvest in your business. 

Equally as important, it also allows you to identify how much customers will need to pay for your products or services.

Build a strong customer base

Once you’ve established an accurate price for your products or services, the next step is to land customers. In many cases, this will involve finding new clients or ideal customers and convincing them to try your products or services. If you have a great product or service at a price that customers are happy to pay, you’ll likely see short-term success. 

However, if you want your company to remain in business for the long term, you need your customers to come back for more. 

This means offering excellent customer service, whether you’re in person or through online channels. Excellent customer service lets your customers know that you want them to succeed with your products or services, and it also gives them reasons to come back for more. 

Maintaining customer relationships and keeping customer satisfaction levels high is important, as it will enable you to maximize repeat sales.

Establish your brand

A brand is a customer’s mental picture of your company, whether that’s based on your product or service offerings, your staff, or your company’s mission statement. 

To truly succeed in business, you need to build a strong brand, especially on social media. This is because customers often make decisions about which products or services to purchase based on their existing knowledge and perceptions of certain brands. 

That’s why, in many cases, customers will choose to go with a brand they know and trust, even if a competitor’s product or service is cheaper or has more features. 

You can establish your brand through marketing and promotional efforts, as well as through the materials you use to promote your products or services.

Plan for growth

You might start your business and see immediate success, but it’s unlikely that you’ll be able to keep up with demand for very long. 

After all, running a one-person operation likely won’t allow you to scale up in a way that matches growing demand. If you want your business to expand and reach new customers, you’ll need to have a plan for doing so. 

This includes hiring additional employees to handle customer service, marketing, and other areas of responsibility, as well as thinking about your business model and investing in technology to help manage your business. 

Using your gross profit to invest in growth is a good idea if you have the capital available. However, you also need to be realistic about your company’s ability to generate enough revenue to support those investments.

Our final words

Starting a business is no easy feat. It requires a lot of work and a lot of risk, but it also offers lots of rewards. 

Before you dive in, make sure you have an actionable plan for building a profitable company. This means understanding what makes a profitable business, by the numbers, and using that knowledge to set goals for your company’s growth.