How to Make a Profit in Small Business

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Small businesses may have fewer resources than large organizations, but they play a significant role in the national economy. According to the Small Business Administration, the country's 23 million small businesses account for 54 percent of domestic sales, providing 55 percent of the country's jobs since the 1970s. Knowing your business can add to this success is one thing; making it happen is another. Like any company, you must earn a profit to survive

Keep Your Overhead Low

A percentage of any money you make in your business has to go toward covering your overhead costs, such as rent, bills and salaries. The lower you keep these costs, the more profit you can make. Don't be tempted to rent a large office and hire lots of staff to start with. Running your business from home or renting serviced or virtual office space until you're ready to move onto bigger things helps keep costs low. Remember, it is much easier to scale things up in the future than it is to scale them down.

Invest to Deliver

Although economizing is important, don't skimp on all spending. Your business must deliver effectively, and you can't do that if you don't have enough resources. You need enough staff to bring in new business and fulfill orders, and they need the right resources to do their jobs. Sometimes, spending more can help your business establish a more effective foothold. For example, investing in a professional website could make your business look bigger than it is. This could boost customer confidence and sales, which could have a positive impact on your profits.

Add Value to Pricing

Understand your product or service costs before you set prices. Take time to research what your competitors charge for similar offerings. You may be tempted to undercut prices to win business. You may make a profit this way, but your returns may not be as good as they could be. You might turn a better profit by pricing at or above competitive market rates. To make this work, you need to prove to customers that you offer something that adds value, such as better service or exclusive deals.

Invest in Good People and Practices

The people you hire and the way they deal with customers can have a positive impact on your profits. Effective workers bring in new business and deliver on it. If you keep your customers happy, they are more likely to make repeat orders. While you still need new customers, repeat business costs less and could improve your profits. Happy customers also may recommend your company to others, giving you zero-cost business leads.

Harness Marketing Opportunities

Advertising and marketing increase costs and eat into profits. Campaigns may build your brand and attract customers, but they shouldn't be your only focus. Investigate other ways to market your business that cost less. Join your local Chamber of Commerce or other business groups to build a network for your company. Support community groups, churches and charities. Social media helps you build relationships with prospects and customers, so maintain an active Facebook page and a Twitter account for your business.

Expand at the Right Time

Knowing when to expand can be difficult for small business owners. If you move too quickly, you run the risk of decreasing profits by increasing overhead costs. Move too slowly and you may miss out on profit-making opportunities because you don't have the capacity to service potential customers. Look for flexible solutions that allow you to adapt over time. For example, if you win a big project and need to hire more staff, you could recruit temporary or contract workers to minimize your short-term costs. This also enables you to scale back at the end of the contract if you need to, or to convert temporary workers to permanent hires if you have a sustained staffing need.