How to increase profits in your small business

Published Friday 5 June 2026

Table of contents

• What is profit and why does it matter?
• Profitability factors
• 5 ways to increase revenue
• How to decrease costs without hurting growth
• How to increase gross profit margins
• How to increase net profit margins
• Use automation and technology to boost profits
• Track your progress with the right financial metrics
• How to make your business more profitable
• Grow your profits with better financial visibility
• FAQs on increasing profits

Key takeaways

• Profit is what remains after subtracting costs from revenue, and you can increase it by growing sales, cutting expenses or improving margins on both sides.
• Small, targeted changes to pricing, supplier costs and workflow efficiency often deliver faster profit gains than chasing new revenue alone.
• Tracking financial metrics like gross profit margin, net profit margin and customer acquisition cost helps you spot problems early and make better decisions.
• Automating repetitive tasks such as invoicing, bank reconciliation and payroll frees up time you can redirect toward revenue-generating work.

What is profit and why does it matter?

Profit is the money left over after you subtract all your costs from your total revenue. It is the clearest measure of whether your business is financially healthy.

Profit matters because it funds day-to-day operations, fuels growth and helps repay debts. For many small business owners, it is also the primary source of personal income.

There are 2 main types of profit to keep in mind. Gross profit is revenue minus the direct costs of providing your goods or services. Net profit is what remains after paying all business expenses, including taxes.

Profitability factors

Before you can improve profits, it helps to understand what drives them. Profitability comes down to your revenue, your costs and the gap between the 2.

• Revenue: increasing sales grows the pool of money from which you can draw a profit.
• Costs: reducing expenses keeps more money in the business and widens your margins.
• Gross profit: the money left after paying the direct costs tied to providing your goods and services, also known as the cost of goods sold.
• Net profit: the money left after paying all business costs, including indirect expenses and taxes.

5 ways to increase revenue

Many businesses focus on growing revenue first when they want to increase profits. As long as your margins hold steady, higher sales typically mean higher profits. For a deeper look, read our guide on how to increase revenue. Here are 5 practical ways to drive more revenue.

1. Encourage repeat purchases from existing customers

Selling to people who already know and trust your business is often cheaper than finding new buyers. Loyalty programmes, personalised offers and excellent after-sales service can all encourage repeat purchases.

Stay in regular contact with your existing customers through email or social media. A simple follow-up after a sale can prompt another order without any advertising spend.

2. Find new customers

Expanding your customer base brings in fresh revenue. Start by identifying where your ideal customers spend their time, then focus your marketing there.

Track roughly what it costs to win each new customer. That figure helps you compare channels and focus your budget on the strategies that deliver the best return.

3. Expand your product or service range

Adding complementary products or services gives existing customers more reasons to buy from you. It can also attract entirely new audiences.

Before you invest, test demand on a small scale. A limited run or pilot offer lets you gauge interest without committing large amounts of stock or time.

4. Upsell to increase average order value

Upselling means encouraging customers to choose a higher-value option or add extras to their purchase. Even a modest increase in average order value can significantly lift revenue over time.

Bundle related items together or offer premium versions at a clear price step. Make the upgrade easy to understand so customers see the added value straight away.

5. Raise your prices strategically

If your costs have risen or the market has shifted, a price increase may be overdue. Many small business owners undercharge because they fear losing customers, yet a well-communicated price rise is often accepted more readily than expected.

Review your pricing at least once a year. Compare your rates against competitors and make sure your prices reflect the quality and value you deliver.

How to decrease costs without hurting growth

Cutting costs is a popular way to boost profits because it reduces financial risk. The challenge is trimming expenses without slowing down your operations or hurting quality.

Start by reviewing every regular expense and asking whether it still earns its place. For a deeper dive, see our guide to business cost saving ideas. Here are some areas worth examining.

• Renegotiate supplier contracts or shop around for better deals on materials you buy regularly.
• Automate repetitive admin tasks like invoicing and data entry to reduce labour costs.
• Cut discretionary spending that no longer delivers a clear return, such as trade shows or subscriptions you rarely use.
• Consolidate software tools where possible so you pay for fewer overlapping services.
• Review energy usage and look for simple savings in lighting, heating and equipment standby habits.

The goal is to be strategic. Protect spending that directly supports revenue and customer satisfaction while removing waste.

How to increase gross profit margins

Gross profit margin measures the gap between your revenue and the direct costs of delivering your products or services. Widening that gap means more money stays in the business before you even touch indirect expenses. Here are common ways to improve your gross profit margins.

Nail your estimating, quoting and pricing

You will never generate a healthy profit without properly covering your costs. Count the true cost of every job, including materials, labour and overheads.

Review completed projects afterward and compare budgeted costs against actual costs. That habit helps you spot mistakes and sharpen your estimates over time. Add a contingency percentage to each quote to cover unexpected expenses.

Keep an eye on scope creep

Clients often ask for extra work once a project is underway. You may absorb some of those costs if you built a contingency into your quote.

When extras go beyond that buffer, issue a change order while the project is still in progress. A change order is a mini-quote for the additional work. Do not wait until the end and surprise the client with a larger bill.

Review your inventory costs

Shop around suppliers from time to time to make sure you are getting good value. Ask about bulk deals and explore whether alternative materials could reduce costs without affecting quality.

If you already have strong supplier relationships, use them as a starting point for negotiation rather than switching outright.

Monitor third-party service costs

If you rely on another business or contractor to do part of the work, stay across their pricing. A price increase you do not notice will eat directly into your margin.

Read purchase invoices carefully and set a reminder to review third-party rates at least twice a year.

Balance payroll and productivity

Paying employees and contractors is a major expense for most small businesses. Keep your team focused on the work they do best by removing low-value tasks that waste their time.

Better systems and software can help here. Where possible, schedule work to avoid relying on casual staff, overtime or last-minute contractors, as these all add extra cost.

Design efficient workflows

Take a close look at how work gets done in your business. Many processes develop over time without much planning, and inefficiencies creep in.

Walk through your key workflows and look for unnecessary steps, double handling and wasted resources. Even small improvements in efficiency can add up to meaningful cost savings over a year.

Account for shipping costs

Freight can be a trap for businesses that have moved into online sales. Courier costs may not have been part of your original pricing formula.

Work out the true cost of delivering products and adjust your pricing accordingly. Consider offering tiered shipping options so customers can choose the level of service they want.

Factor in merchant service fees

Transaction fees for accepting online payments can run between 2% and 4% of each sale. That takes a noticeable slice out of your margin.

As with shipping, make sure you account for these fees in your pricing. Compare payment providers periodically to ensure you are getting a competitive rate.

How to increase net profit margins

Net profit margin reflects what is left after paying all business costs, not just the direct ones. Anything you do to improve gross profit will help here too. But to go further, focus on your indirect costs: rent, utilities, marketing, professional fees and other overhead costs. Here are practical ways to widen your net profit margin.

Measure and manage sales and marketing spend

Sales and marketing is a significant expense for many small businesses. Make sure your strategies are delivering actual sales, not just activity.

Calculate roughly what it costs to acquire each new customer and use that as a benchmark. Focus your budget on the highest-returning channels and make sure free channels like word of mouth and referrals are active too.

Reassess discretionary spending

Attending the same trade show every year just because you always have can be a money trap. Step back from your habits and evaluate discretionary spending through the lens of return on investment (ROI).

There may be legacy costs that no longer deliver value. Cancel or renegotiate anything that does not clearly contribute to revenue or customer satisfaction.

Restructure your lending

Interest payments eat into profits, especially when rates climb or if you have been using short-term finance to cover cash shortages. Ask an accountant or bookkeeper to review your debt structure.

They can often consolidate loans into lower-interest arrangements. You can search for a financial adviser in Xero's adviser directory.

Be resourceful with rent and utilities

Rent and utilities can catch out businesses expanding from home-based beginnings. A dedicated space is significantly more expensive than working from a garage or kitchen table.

Look into lower-cost alternatives such as shared office spaces, pop-up shops or remote working arrangements. Make sure you are using your space efficiently and saving energy wherever you can.

Strive for supply chain efficiencies

Freight and warehousing costs grow quickly if you have a distributed supply chain or carry large amounts of inventory. Local suppliers may reduce logistics costs, and tighter inventory management can help too.

Understand what logistics actually costs your business and factor it into your pricing. Small adjustments to order frequency or delivery routes can deliver real savings.

Pick your professional services wisely

Fees for legal, accounting, recruitment and other professional services add up over time. These are often essential, but it is worth shopping around for the right provider.

Look for consultants who specialise in businesses of your size or industry. They tend to offer tailored, cost-effective services. Some may offer flat-fee pricing instead of hourly billing, which helps with budgeting.

Get into tax planning

How you structure payments, schedule spending and manage your books can all affect your tax bill. An accountant can help you set things up in the most tax-efficient way possible.

Tax planning works best when it starts at the beginning of the financial year, not the end. Find an accountant in Xero's adviser directory to get started.

Use automation and technology to boost profits

Technology can reduce costs and free up your time at the same time. Automating repetitive tasks removes manual work that eats into your day without generating revenue.

Common tasks worth automating include invoicing, bank reconciliation and payroll. Cloud accounting software handles these in the background, reducing errors and giving you real-time visibility into your finances.

When you spend less time on admin, you have more time for the work that actually grows your business: serving customers, developing products and building relationships. Even small efficiency gains compound over time.

Xero customers who use online invoice payments get paid up to twice as fast, which also helps improve cash flow and keep profits on track.

Track your progress with the right financial metrics

You cannot improve what you do not measure. Tracking a handful of key financial metrics helps you spot problems early and make informed decisions about where to focus.

Here are the metrics worth watching closely.

• Gross profit margin: shows how much you keep from each sale after direct costs. A declining margin signals rising production costs or pricing issues.
• Net profit margin: shows what percentage of revenue remains as profit after all expenses. This is the bottom-line indicator of your overall financial health.
• Customer acquisition cost: tells you how much you spend to win each new customer. Comparing this against customer lifetime value helps you decide where to invest your marketing budget.
• Cash flow forecasting: predicts when money will come in and go out. Accurate forecasts help you avoid cash shortages that force expensive short-term borrowing.

Review these numbers regularly, ideally monthly. Accounting software can pull these figures together automatically, so you do not have to calculate them by hand.

How to make your business more profitable

Increasing profit is a skill you build over time. When your business is more profitable, you have less financial stress and more confidence to invest in growth.

Set clear profitability goals and monitor your progress toward them. Getting advice from experienced mentors, accountants or industry peers can also help you find improvements that last.

The most sustainable profit gains come from combining several small changes: tightening pricing, cutting waste, automating admin and tracking your numbers. Together, these add up to a meaningful difference in your bottom line.

Grow your profits with better financial visibility

Seeing your finances clearly makes it easier to find profit opportunities and act on them quickly. With the right tools, you can track margins, monitor cash flow and spot trends without spending hours on spreadsheets. Try Xero free for 30 days and see how better financial visibility can help your business grow. Get one month free.

FAQs on increasing profits

Here are some frequently asked questions about increasing profits.

What is the difference between gross profit and net profit?

Gross profit is your revenue minus the direct costs of producing or delivering your goods and services. Net profit is what remains after subtracting all business expenses, including rent, marketing, salaries and taxes. Net profit gives you the fullest picture of your overall profitability.

How can a small business increase profit margins?

Focus on both sides of the equation: grow revenue and reduce costs. Review your pricing to make sure it covers all costs plus a healthy margin. Cut discretionary spending that does not deliver clear value, and automate repetitive admin tasks to save time and money.

What is a good profit margin for a small business?

It varies widely by industry. As a general guide, a net profit margin of 10% is considered healthy for most small businesses. Some industries, such as professional services, tend to have higher margins, while retail and food businesses often operate on thinner ones.

How do you calculate net profit margin?

Divide your net profit by your total revenue, then multiply by 100 to get a percentage. For example, if your business earns $200,000 in revenue and your net profit is $20,000, your net profit margin is 10%.

How does automation help increase profits?

Automation reduces the time and cost of repetitive tasks like invoicing, bank reconciliation and payroll. It also cuts down on manual errors that can be expensive to fix. The time you save can be redirected toward revenue-generating activities like sales, customer service and product development.