How to increase profit in business | boost margins

Published Thursday 26 February 2026

Table of contents

• Profitability factors
• Increasing revenue to increase profits
• Decreasing costs to increase profits
• How to increase gross profit
• How to increase net profit
• Track your profit and get support
• FAQs on increasing profit

Key takeaways

• Improve your pricing accuracy by counting all costs including materials, labour, overheads, and your time when calculating job costs, then add contingency buffers and regularly review completed projects to spot estimating errors.
• Monitor and control scope creep by issuing change orders for extra work during projects rather than absorbing costs, which protects your margins from unexpected additions that clients request mid-project.
• Review your supplier costs annually by comparing quotes from alternatives, negotiating bulk deals for volume discounts, and updating your own pricing when supplier costs rise to maintain healthy margins.
• Track your marketing return on investment by calculating customer acquisition costs for each channel and shifting budget toward strategies that deliver the lowest cost per customer while eliminating wasteful spending.

Profitability factors

Profit is what remains from sales revenue after paying your costs. The main factors that drive how profitable you are:

• Revenue: the total money coming in from sales, which increases the pool available for profit
• Costs: the money flowing out of your business, which reduces your profit when it rises
• Gross profit: the money left after paying your cost of goods sold, meaning the direct costs of providing your goods or services
• Net profit: the money left after paying all business costs, including taxes

Understanding these factors helps you identify where to focus your efforts to improve profit.

Increasing revenue to increase profits

One of the main ways to boost profit is by bringing in more money from sales.

Increasing revenue raises the total pool of money from which you can draw profit. When your margins stay steady, higher sales translate directly to higher profits. Economies of scale may even widen your margins as volume grows.

The trade-off: Growing revenue typically requires upfront spending on supplies, marketing, tools, and staff. You'll need cash for these investments and a plan to ensure they pay back over time.

You can drive revenue in five main ways:

• Increase purchase frequency: encourage existing customers to buy more often
• Acquire new customers: expand your customer base through marketing and referrals
• Expand your offerings: add new products or services to your range
• Upsell: offer premium options or add-ons to increase average transaction value
• Raise prices: adjust pricing to better reflect your value

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

Decreasing costs to increase profits

Another effective way to boost profit is by keeping more of the money you earn.

Reducing costs keeps more money in your business without requiring you to sell more. This approach carries less upfront financial risk than revenue-focused strategies.

The risk: Cut too deep and you may hurt your ability to deliver quality or serve customers quickly. The goal is trimming expenses without compromising operations.

How to increase gross profit

Gross profit is what remains after subtracting the direct costs of delivering your goods or services from your revenue. You can increase it by raising revenue, lowering these direct costs, or both.

Watch your gross profit margin, which shows gross profit as a percentage of revenue. A higher margin means you keep more from each sale.

Common ways to improve gross profit margins

Nail your estimating, quoting, and pricing

Accurate pricing is the foundation of profit. If you don't cover your true costs, no amount of sales will make you profitable.

• Count all costs: include materials, labour, overheads, and your time when calculating job costs
• Review completed projects: compare budgeted costs against actual costs to spot estimating errors
• Add contingencies: build in a percentage buffer to cover unexpected costs or mistakes
• Adjust over time: use what you learn from past jobs to improve future quotes

Keep an eye on scope creep

Clients often request extra work mid-project, or you end up doing tasks they were supposed to handle. These additions eat into your margin if you don't address them.

Your contingency may absorb small extras. For larger additions, issue a change order, which is an on-the-spot quote for the extra work. Issue it while the project is in flight, not at the end. Surprising clients with a bigger final bill rarely ends well.

Review your inventory costs

Your suppliers directly affect your margins. Regularly check that you're getting competitive value:

• Compare suppliers: get quotes from alternatives annually to benchmark your current rates
• Negotiate bulk deals: ask about volume discounts if your order sizes have grown
• Review existing terms: your current suppliers may match competitor pricing to keep your business

Monitor third-party service costs

If you rely on contractors or other businesses to deliver part of your work, their costs directly affect your margins, and price increases you don't notice get absorbed by your profit. For example, some service costs, such as health insurance premiums, have increased around 19 percent in a single year.

• Review purchase invoices regularly for rate changes
• Build price review clauses into contractor agreements
• Update your quotes when supplier costs rise

Balance payroll and productivity

Payroll is typically one of your largest expenses. Getting more value from every hour worked directly improves your margins.

• Remove low-value tasks: free up skilled staff to focus on work that generates revenue
• Invest in systems and tools: automation reduces time spent on repetitive tasks
• Plan workflows carefully: avoid relying on overtime, casual staff, or last-minute contractors, which all carry premium costs
• Watch for burnout: overworked staff make mistakes and may leave, costing you money to replace them

Design the most efficient workflow you can

Many business processes develop organically without deliberate design, which allows inefficiencies to creep in. Reviewing your workflows can reveal quick wins for your margins. Learn more in our guide to improving efficiency.

Look for these common problems:

• Waiting time: staff idle while waiting for materials, approvals, or information
• Out-of-sequence work: jobs done in the wrong order, creating rework
• Double handling: the same task performed twice by different people
• Wasted resources: materials, time, or effort that don't contribute to the finished product

Properly account for shipping

Managing freight costs protects your margins, especially if you've recently started selling online. Courier fees may not have been part of your original pricing formula.

• Calculate your true per-order delivery cost including packaging
• Build shipping into your pricing or set minimum order thresholds for free delivery
• Review courier rates regularly as your volume changes

See how to increase net profit for more logistics tips.

Merchant service fees

Transaction fees for online payments typically run 2% to 4% of each sale. On tight margins, this can significantly reduce your profit.

• Factor transaction fees into your pricing formula
• Compare payment providers to find competitive rates
• Consider offering discounts for bank transfers on large orders

How to increase net profit

Net profit is what remains after paying all your business costs, not just the direct costs of delivering your products or services. This includes rent, utilities, marketing, administration, and other overheads.

When you improve gross profit, the gains flow through to net profit. But to maximise your net profit margin, you'll also need to manage these indirect costs, sometimes called "sales, general and administration" expenses.

Common ways to improve net profit margins

Measure and manage your sales and marketing

Marketing spend should generate measurable returns. Without tracking, you can't tell which strategies work and which waste money.

• Calculate what it costs to acquire customers: divide marketing spend by new customers gained to benchmark each channel
• Prioritise high-return tactics: shift budget toward strategies that deliver the lowest cost per customer
• Scrutinise big-budget campaigns: large spends need clear return on investment targets
• Activate free channels: referrals and word of mouth cost nothing but need deliberate effort to encourage

Reassess travel, entertainment, and discretionary spending

Habitual spending often escapes scrutiny. Review discretionary costs annually and ask whether each delivers measurable value.

• Evaluate tradeshows and events: calculate the leads or sales generated versus the total cost of attendance
• Review subscriptions and memberships: cancel anything you're not actively using
• Reduce travel: consider whether video calls can replace some trips
• Assess entertainment: ensure client entertainment translates to retained or new business

Restructure your lending

Interest payments directly reduce your net profit. While rising rates can erode margins, recent trends have shown that lower lending rates can support how profitable you are by easing debt-servicing costs, making it a good time to review your current financing.

An accountant or bookkeeper can review your lending and may suggest:

• Consolidating multiple loans into a single lower-interest facility
• Refinancing existing debt at better rates
• Extending terms to reduce monthly payments and improve cash flow

Find a financial advisor in Xero's advisor directory.

Be resourceful with rent and utilities

Premises costs can jump significantly when you move from home-based operations to dedicated space. To ensure a home-based setup is cost-effective, it's important to claim all eligible deductions. For example, Inland Revenue sets a square metre rate for claiming home office expenses, which is $55.60 for the 2024–2025 tax year.

Consider alternatives:

• Share office space: pay only for the space and time you need
• Work remotely: reduce office footprint by supporting staff to work from home
• Use pop-up shops: test retail locations without long-term lease commitments
• Improve energy efficiency: review utility usage and invest in efficiency where it pays back quickly

Strive for supply chain efficiencies

Freight and warehousing costs grow as your supply chain expands or inventory increases. Understanding these costs lets you price accurately and find savings.

• Source locally: shorter distances mean lower freight costs and faster delivery
• Tighten inventory management: holding less stock reduces warehousing costs and ties up less cash
• Consolidate shipments: fewer, larger orders often cost less per unit than frequent small ones
• Factor logistics into pricing: ensure your prices reflect the true cost of getting products to customers

Pick your professional services wisely

Professional fees for legal, accounting, and recruitment services add up. While these services are essential, the right provider can deliver better value.

Look for providers who:

• Specialise in your size or industry: they understand your needs and avoid over-servicing
• Use compatible software: seamless data sharing saves time and reduces errors
• Offer fixed-fee pricing: predictable costs help with budgeting compared to hourly billing
• Communicate clearly: you shouldn't need to pay for time spent deciphering advice

Get into tax planning

How you structure payments, schedule spending, and manage your accounts affects your tax bill. Tax planning happens at the start of the financial year, not the end. Good planning pays off: Centrix reports that around 70 percent of recent liquidations have been initiated by Inland Revenue, making proactive tax management essential.

An accountant can help you:

• Time major purchases to maximise deductions
• Structure payments to manage taxable income
• Claim all eligible expenses and depreciation
• Plan for GST and provisional tax obligations

Find an accountant in Xero's advisor directory.

Track your profit and get support

Improving profit comes down to two levers: increasing revenue and reducing costs. The tactics in this guide give you practical ways to work on both.

Visibility matters. You need to see your margins clearly to know where to focus. Xero accounting software pulls your numbers together so you can track gross and net profit, spot opportunities, and make confident decisions.

Get one month free to see how simple it can be to manage your profit.

An accountant or bookkeeper can also help you set profit targets and build a plan to reach them. Find one in Xero's advisor directory.

FAQs on increasing profit

Here are answers to common questions about how to make your business more profitable.

What's the fastest way to increase profit?

Raising prices is typically the fastest way to increase profit because it flows straight to your bottom line without requiring more sales or cost cuts. Review your pricing against competitors and the value you deliver.

Should I focus on revenue growth or cutting costs first?

Start with whichever offers the quickest wins for your situation. Cost cutting often delivers faster results with less risk, while revenue growth builds long-term capacity but requires upfront investment.

How much can I realistically increase profit?

Most businesses can improve profit margins by 5% to 15% by adjusting prices, controlling costs, and working more efficiently. The specific opportunity depends on your current margins and industry benchmarks.

Will raising prices hurt my customer relationships?

Not if you communicate the value you provide. Customers who value quality and service will accept reasonable price increases. Those who leave for cheaper alternatives may not have been profitable customers anyway.

How does accounting software help me increase profit?

Accounting software lets you see your margins, expenses, and cash flow in real time so you can spot problems early and make informed decisions. Automated reports save time and help you track progress toward profit goals.