4 Ways to Boost Profit

Making sales but still not seeing strong profits? You’re not alone. In this video, Steve reveals the four key levers that drive profitability—and breaks down which one moves the needle the most.

You’ll learn how to go beyond just chasing revenue by focusing on the factors that actually improve your bottom line. Whether you're running a startup or scaling fast, these insights can help you build a more profitable and sustainable business.

TRANSCRIPT:

Are you struggling with profitability in your business? In other words, every time you look at your financial statements, you want to cry or throw up because the numbers are so bad. If so, don't worry, you're in the right place. Because in this video, I'm going to explain the four levers of profitability and reveal which of the levers is the most impactful.

So you're going to want to stick around till the very end. My name is Steve Coughran. I'm the founder of Coltivar.

I've spent my entire career turning around and growing businesses, generating over a billion dollars in value in the process. And on this channel, I help business leaders and owners, just like you, to understand what cash flow is, see if you can go get more of it and make your business more valuable in the process. Let's go ahead and jump in.

If we go to the handy dandy income statement, and we look at the very top line, we have revenue. Revenue is synonymous with sales. It represents the income that's generated from selling your products and services.

All right, I'm going to give you the entire breakdown here, and then we're going to get into the levers. Next, we have cost of goods sold, also known as COGS for short. It represents all the costs associated with fulfilling your product or service, such as material costs, direct labor costs.

If you use contractors, that would be in there too. All the indirect and direct costs associated with delivering a final product or service into the hands of your customers goes here. Boom.

Underneath here, we have gross profit. This is not net profit.

This is not profit at the end of the day. This is just profit before overhead. And this is really important to understand, because it will tell us whether or not we're doing the right amount of volume at the right price and with the correct cost efficiencies in order to make money in business.

And who doesn't want to make money in business? I'm sure you do, right? Okay. Underneath this, we have OPEX, which is just short for operating expenses. It represents three main categories.

Sales and marketing expenses, general and administrative expenses, and research and development. It's all the costs associated with running the business. Don't get that confused with COGS.

Remember, these are all the costs associated with fulfilling the product or service. OPEX represents all the costs with running the company. All right.

Then down here, we have EBITDA, which stands for earnings before interest, taxes, depreciation, and amortization. It's just a nerdy way of saying profit. Let's draw a nerd here.

This is a nerd. This is me. This is what I'm going to look like here soon when I wear glasses, because I've spent thousands and thousands of hours in front of a computer on Excel, building like all these nerdy financial models.

This is probably going to be me one day, and I have like super thick eyebrows, and they're low, so it makes me look angry sometimes, but I'm really not that angry. Okay. Anyways, this is the nerd.

This is a nerdy way of saying profit. All right. Let's just say this is your company, and you're struggling with the numbers.

Let's just imagine you have a thousand in revenue. Hopefully, you have more than a thousand, but let's just keep the numbers round and big. Cost of goods sold, 700.

If we take 1,000 minus 700, we arrive at 300 in gross profit. Remember, gross profit is not net profit, so we have to keep going. We account for OpEx.

Let's just say that's 400, and that leaves us with change of colors. Boom. Negative 100, because I took 300 minus 400.

This is negative 100, and this is definitely sad face. 100. All right.

That is not good. You're losing money. If this is your business, and a lot of companies struggle with profitability issues, don't worry.

If you're in this position, no shame, no harm, no foul. Just don't stay here. Okay.

What do we do about it? There are four main levers you could pull in order to increase EBITDA, to increase your profit. Lever number one is volume. What this means is you go out there, and you sell more.

Maybe your sales and marketing machine is broken. Maybe your customer acquisition costs are higher than the lifetime gross profit that you generate from every customer. If this is the case, guess what? You do more volume, or you're just going to lose more and more money because your margin isn't there, and that's problematic.

We'll get to that here in just a minute. Number two, we have volume, and then we have cost of goods sold. You could come in here, and you can reduce cost of goods sold, and that would increase your margin and flow down to more EBITDA.

Number three, you can improve your op X. Same kind of thing. You can reduce your op X to be more profitable. Number four, you have pricing.

Okay. Out of these four, which of the following is most impactful on a company's bottom line? I'm going to give you a second to decide here. All right.

If you just said pricing, and if you said pricing out loud, and nobody else is around, you are such a nerd, just like me. Congratulations, because I get so excited about this stuff, because this changes the lives of business leaders and business owners. I can tell you, I've worked with so many companies, and I can tell you when business is bad, life is bad, especially if you're running a family-owned business.

A husband and wife, they're running a company, and the business is not profitable. They're going at it. They're like, you need to sell more.

You need to get operations in check. You need to create better bids, whatever it may be, but they're fighting over the business. If you just fix the business, a lot of that goes away.

You still got to love them, right? But hey, I'm not a counselor. That's where I stop, but if you could fix business, and you can improve a business, it improves the lives of everybody around. That's why I love this stuff.

All right. Which of the levers, you have stalling, so you had time to decide, which of these levers is the most impactful? We talked about pricing, and so this is numero uno. That's a white boy's way of saying number one, right here.

Pricing is where it's at. All right. So we'll just put, this is A, like an A plus.

Okay. Which lever is the second most impactful? Where do you think my pen's going to stop? Most people think volume, but in fact, lever number two is right here. We'll put B, kind of like grade school.

So we have A, A plus, B is the next best option, and this involves going out there, upskilling your workforce, buying better equipment, so you can be more efficient, adopting technology, so you can streamline processes and just eliminate waste. But if you can improve your cost of goods sold right here, that's going to be the next best lever on profits. Lever number three, where do you think I'm going to stop? Right here.

Nope. Psych. Got you.

It's actually right here. Lever number three is volume. This is a C. If you go out there after fixing your pricing and your cost of goods sold, and you pour the gasoline on the business to drive more volume, you will improve profit.

But it's the third most influential lever typically, right? This is just generally. If you want to find out what these levers are in your specific company, there's a way to do that. That's what I do when I go into a company.

First off is I understand what the levers are and the percentage impact of each of these. I'm just speaking generally here though. Now, I'm going to give you some numbers here for each of these in just a minute.

So stick around. Okay. Which of these four is the last most influential? Okay.

Obviously, I just gave you that. That's just a trick question. See if you're paying attention.

Right. So this is D. But it doesn't mean like it's D, like school. Maybe that's a bad way to say it.

Maybe this is like a C, right? A C minus, a C plus. But in business, I can tell you there are so many consultants out there. And I can say this because I've been called a consultant before.

I've done consulting, but they'll come in and they just, they come in with a hatchet and they're like, all right, we're going to do more sales and we're going to reduce our costs. We're going to cut our overhead. And they pull these levers.

I'm like, what the heck? These are like C levers. And the reason why is because sometimes it's hard to go get higher prices because you have to increase the perceived value. I'll do a full another video on that alone because this is a really important topic.

But just know that it's not impossible. It just takes a little bit of work. You have to have the right strategy.

You have to improve the customer experience. You have to invest in your brand, all the things you can do. You can do it really well.

And if value exceeds price, customers will buy and you will have more profit. But those are the four levers, right? Let me give you some numbers just so you could contextualize this. These are just general numbers.

And I did this across multiple industries of companies of all different sizes. So it's very broad and very generic. But at least you understand the impact on profit.

It's kind of like a bonus here. Just say a 1% change in any of these four down here will result in what type of profit. So pricing is about 12%.

It's like 12.5%, something like that. But it's about a 12% improvement on the bottom line for every 1% price increase. But guess what? Here's the caveat.

For every 1% you discount your products, it also has the opposite effect. Meaning you'll decrease profit by 12% for every 1% discount you give. So long story short, don't do discounts if you could avoid it.

OpEx is about 3%, right? Like three and a half-ish percent. I'm just rounding here. This is like 7% to 8% cost to get sold.

And volume is about four-ish percent. So you can see here, obviously, pricing is number one. Improving this will have a pretty big impact.

Volume and OpEx are closely tied with one another. It doesn't mean that you don't do them. If you could do all these together, guess what? Your leverage is going to be that much greater as it pertains to your EBITDA.

All right, that's what I have for you today. These four levers in your business. If you struggle with this stuff, like, hey, like I said, no shame.

I've been there before. I started my first company at 16. I had no clue how to read financial statements.

Here I was running a multi-million dollar business, and all I understood was revenue and profit. Everything else in between, yeah, I had no clue. And I definitely did not have an understanding of these levers.

But here's the magic of it all. I'm a big strategy and finance guy. I talk about this all the time in my content, and you'll see more of this as you tune in more.

But there are strategies that you can pursue under each of these levers to improve your EBITDA. And you can take a really long time by beating around the bush and going in circles, or you just cut right to the chase. And that's what we help companies do at Coltivar.

We help them to cut right to the chase. We act with precision. You can do the same exact thing in your business if you understand the numbers, and then incorporate strategy together to drive greater firm value.

All right, that's what I have for you today. In the comments box below, if you want me to cover more topics, if there are things that you're interested in, leave me a little note so I understand what to plan for and what to kick out to you so you can be even more successful in business. You got this.

All right, until next time, take care of yourself. Cheers.