One of the most common issues business owners have is not knowing how to increase profits. Understanding the few key factors that drive your business´s profitability is the first step to directing your business where you want it to go.

We call these key factors ‘profit drivers’. Basically, a profit driver is a business factor that impacts your bottom line.

The first step to positively impacting the performance of your business is to identify your business’s profit drivers. There are two types:

The first one is Financial. Financial profit drivers are directly associated with dollar figures, and include:

• Price
• Fixed costs
• Variable costs
• Sales volume
• Cost of debt

Data for the calculation of financial profit drivers are almost always reflected in your financial statements and reports.

The second type of profit driver is Non-financial. Even though they’re not expressed in dollar terms, they still impact your bottom line. These include:

• Productivity
• Client satisfaction
• Quality of the product or service
• Training of employees
• Employee satisfaction (morale)
• Business culture and values
• Product innovation
• Process innovation
• Market share
• Employee safety

Obviously, difference businesses have difference profit drivers. Depending on the characteristics of your own particular business, certain profit drivers will have more influence on your business´s profits than others.

For example:

• For a fitness club, it might be the number of fitness sessions or workout plans sold
• For a hairdressing salon, client satisfaction will always impact on the number of repeat customers

After identifying your most important profit drivers, you’ll know what areas to start working on in your business and targets to set.