How to increase profit: Practical ways to boost your bottom line

Published Tuesday 20 January 2026

Table of contents

• What increasing profit means for your business
• Main ways to increase profit
• Profitability factors
• Increasing revenue to increase profits
• Decreasing costs to increase profits
• How to increase gross profit
• How to increase net profit
• Track and measure your profit improvement
• FAQs on increasing profit

Key takeaways

• Implement a balanced approach by combining revenue growth, cost reduction, and margin improvement strategies rather than focusing on just one area, as most successful businesses use all three methods simultaneously.
• Monitor your gross profit margin by accurately estimating all direct costs, controlling scope creep through change orders, and regularly reviewing supplier pricing to ensure your pricing always covers true costs plus profit.
• Track essential profit metrics monthly including gross profit margin, net profit margin, revenue growth, and cost per sale using accounting software to identify which improvement strategies deliver the best results.
• Prioritize high-impact, low-cost actions for quick profit wins such as reviewing and adjusting prices, upselling to existing customers, and cutting non-essential discretionary spending.

What increasing profit means for your business

Increasing profit means expanding the money your business keeps after paying all expenses. This happens through three main approaches: growing revenue, reducing costs, or improving operational efficiency.

Why profit improvement matters:

• Better cash flow: More money available for business operations and growth
• Financial stability: Reduced stress during slow periods or unexpected expenses
• Growth opportunities: Extra funds to invest in expansion, equipment, or staff
• Business value: Higher profits typically increase your business's overall worth

Main ways to increase profit

There are three fundamental ways to increase your business profit:

• Increase revenue: Grow sales through new customers, higher prices, or more frequent purchases
• Reduce costs: Cut expenses without compromising quality or operational efficiency
• Improve margins: Increase the gap between what you charge and what you spend

Most successful businesses combine all three approaches. Start by identifying which area offers the biggest opportunity for your specific situation, then implement targeted strategies in that area first.

Profitability factors

Profitability factors are the key elements that determine how much profit your business generates. These factors include your revenue (money coming in), your costs (money going out), and the gap between the two (your profit margin).

The main profitability factors include:

• Revenue: Increasing sales expands the money pool available for profit
• Costs: Reducing expenses keeps more money in your business
• Gross profit: Money remaining after paying direct costs of goods sold
• Net profit: Money left after paying all business expenses and taxes

Increasing revenue to increase profits

Increasing revenue means growing your sales to expand the money pool available for profit. This strategy works well when your profit margins stay stable or improve.

Revenue growth often creates economies of scale. As sales increase, your cost per unit typically decreases, which can widen your profit margins.

However, growing revenue requires upfront investment. Research shows the main reason small businesses seek finance has shifted from survival to supporting growth, meaning you'll need cash for more supplies, increased marketing, additional tools, and new employees. The key is ensuring these investments pay back over time.

You can drive revenue through five main strategies:

• Increase purchase frequency: Encourage existing customers to buy more often
• Acquire new customers: Expand your customer base through marketing and referrals
• Expand product range: Offer additional products or services to current customers. In fact, small businesses that introduce a product or service that is new to their market are significantly more likely to expect growth.
• Upsell existing customers: Sell higher-value versions of your current offerings
• Raise prices: Increase what you charge for existing products or services

Get more on these five strategies in the guide How to increase revenue.

Decreasing costs to increase profits

Decreasing costs means reducing business expenses to keep more money as profit. This strategy carries less financial risk than growing revenue because it doesn't require upfront investment.

Cost reduction requires careful balance. Cut too aggressively and you might hurt revenue or operational quality. The goal is trimming expenses without compromising speed or quality of your operations.

How to increase gross profit

Increasing gross profit means widening the gap between your revenue and direct costs of goods sold. You can achieve this by growing revenue, reducing direct costs, or both. The key metric to track is your , or the percentage of revenue remaining after paying for what you sell.

Common ways to improve gross profit margins

Nail your estimating, quoting, and pricing

Set your pricing so it always covers your true costs and leaves room for profit. Count all the costs that go into each job or product. It helps to review projects afterward and compare budgeted costs with actual costs so you can improve your estimates over time.

Add a contingency amount to your estimates to cover unexpected costs or estimating mistakes.

Keep an eye on scope creep

Clients often ask for extra work once a project is underway, or you may step in to do tasks they planned to handle. You can sometimes absorb these extra costs if you allowed for contingency in your estimate.

When the extra work is significant, issue a change order. This works like a quick quote for the extra work requested. Issue change orders while the project is in progress so everyone is clear on scope and price.

Review your inventory costs

Shop around suppliers from time to time to make sure you're getting value. Ask about bulk deals, too. You may be able to negotiate with the suppliers you already have.

Monitor third-party service costs

If you rely on another business or private contractor to do part of the work, then stay across their costs. If they bump up their prices before you notice it, you'll be left to eat the difference. It's worth reading purchase invoices and staying vigilant.

Balance payroll and productivity

Paying employees and contractors is a major expense for most small businesses so manage it as tightly as you can.

Keep your people focused on the jobs they're good at by removing trivial or menial tasks that waste their time. Better systems, tools, or software can play a big role here. In 2024, nearly half of high-growth businesses reported that investing in technology made them more profitable, according to research from CPA Australia.

And where you can, try to manage workflows so that you're not constantly calling up casual staff, contractors, or asking people to work overtime – as these all come with extra costs (and burnout risks, too).

Design the most efficient workflow you can

Take a look at how work gets done in your business. Many of the practices and procedures in your workshop, office, or store may have developed over time without much planning. When this happens, inefficiencies often emerge.

People may end up waiting on tasks, jobs get done out of sequence, or work gets done twice. Walk through your processes and look for unnecessary steps, double handling, wasted time, and wasted resources.

Properly account for shipping

Freight can be a challenge for businesses that have started selling online. Courier costs may not have been part of your initial pricing formula so you'll need to work out the true costs of delivering products and make adjustments.

See how to increase net profit for more logistics tips.

Merchant service fees

Otherwise known as transaction fees, the costs of accepting online payments can climb up to between 2% and 4% of the value of a sale. That can take a significant slice out of your margin so, as with things like delivery, make sure you account for it in your pricing formula.

How to increase net profit

Increasing net profit means expanding the money left after paying all business expenses, not just direct costs. While gross profit improvements help net profit, you'll also need to manage indirect costs like administration, marketing, and overhead expenses.

These indirect costs include everything not directly tied to producing your goods or services. Common examples are rent, utilities, insurance, and general administrative expenses.

Common ways to improve net profit margins

Measure and manage your sales and marketing

Sales and marketing are major expenses for many small businesses, so check that your strategies lead to real sales. Estimate what it costs to win each new customer and use that as a benchmark to find your highest-return strategies.

Be especially careful with big-budget marketing. Focus on return on investment, and keep low-cost channels such as word of mouth active.

Reassess travel, entertainment and discretionary spending

Going to the same tradeshow each year out of habit can tie up money that might work harder elsewhere. Step back from your habits and look at your discretionary spending through the lens of return on investment (ROI). There may be some legacy spending that could go.

Restructure your lending

Interest payments reduce your profits, especially when rates rise or when you rely on short-term finance to cover cash shortages. Ask an accountant or bookkeeper to look at your lending. They can often restructure your debt by consolidating loans into lower-interest deals. You can look for a financial advisor in Xero's advisor directory.

Be resourceful with rent and utilities

Rent and utilities can surprise businesses that are moving on from home-based beginnings. Renting a dedicated space is often much dearer than running a workshop out of your garage or a consultancy from your kitchen table. You may need to adjust your pricing or find savings elsewhere.

Make sure you use space and energy in the smartest ways you can. Consider lower-cost options such as shared office spaces, pop-up shops, food trucks, or remote working.

Strive for supply chain efficiencies

Freight and warehousing can become a factor if you have a distributed supply chain or if you keep a big inventory. Consider your alternatives. Local suppliers may solve some problems and tighter inventory management could help, too. But most importantly, understand what logistics costs you and factor it into your pricing where you can.

Pick your professional services wisely

Fees for services such as legal advice, accounting, and recruitment can add up. These services are often essential, but it is still worth shopping around for the right provider.

Look for consultants who focus on businesses of your size or in your industry. They tend to offer more tailored, cost-effective services and often use software designed for businesses like yours. Some may offer flat fees instead of hourly billing, which can help with budgeting.

Get into tax planning

The way you structure payments, time your spending, and record your accounts can all affect your tax bill. An accountant can help you manage your finances in a tax-efficient way, so involve them in your planning. They need to set things up at the beginning of the financial year, not the end. Find an accountant in Xero's advisor directory.

Track and measure your profit improvement

Measuring profit improvement means monitoring key metrics to assess whether your strategies are working. Track these essential numbers monthly:

• Gross profit margin: Revenue minus direct costs, expressed as a percentage
• Net profit margin: Total profit after all expenses, expressed as a percentage
• Revenue growth: Month-over-month or year-over-year sales increases
• Cost per sale: Total expenses divided by number of sales

Use accounting software to automate these calculations and generate regular reports. This data helps you identify which profit improvement strategies deliver the best results and where to focus your efforts next.

Making your business more profitable reduces financial stress and creates opportunities for growth investment. The key is measuring your current performance and implementing targeted improvements. This systematic approach helps you build a profit strategy that delivers lasting results.

Start by tracking your profit margins regularly. Quality accounting software pulls together the numbers you need quickly, making it easier to spot improvement opportunities. Consider trying Xero for free to streamline your profit tracking and financial reporting.

FAQs on increasing profit

Here are some common questions small business owners have about increasing their profit.

What is the best strategy to increase profits?

There isn't one single 'best' strategy, as it depends on your business. A good starting point is to use your financial data to see where the biggest opportunities are. For some, it might be raising prices slightly. For others, it could be cutting a significant expense. A balanced approach that combines small changes across revenue and costs is often very effective.

How can a small business increase profit quickly?

For quick wins, focus on high-impact, low-cost actions. Reviewing and adjusting your prices, upselling to your existing customers, and cutting non-essential discretionary spending are all great ways to see a fast improvement in your profitability.

What's the difference between increasing revenue and increasing profit?

Increasing revenue means bringing more money into the business through sales. Increasing profit means having more money left over after all your expenses are paid. It's possible to increase revenue while your profit stays the same or even goes down, especially if your costs increase at the same rate as your sales.