What would happen to your business if you could increase profitability by 10%, 20%, or even 30%, without having to work substantially harder?
Would you invest in growing your team?
Improve your financial security?
Perhaps you’d choose to reduce the hours you work, knowing your business was generating better returns for the effort you put in.
For many small business owners, improving profitability is a major ambition. Yet when asked how they intend to achieve it, the answer often centres on just one, very commonly recognised solution, “we need more sales”
More sales might help but what if your greatest opportunity lies somewhere else, or you want to increase profit but are limited by production capacity or another factor?
At UK Growth Coach, we’ve developed our unique Profit Flow model® to help owners of small and medium-sized businesses identify the different factors influencing their profitability and then establish practical strategies for improving them.
The model identifies nine distinct areas of business performance, each of which offers several options for increasing profitability. Understanding how they work together will change the way you think about growing your business forever!
Why increasing profitability isn’t always the answer to improving profit
Imagine two businesses, each generating £1 million in annual turnover.
One achieves a net profit of £50,000. The other achieves £150,000.
They’re generating the same revenue, but one is producing three times as much profit.
Why might that be the case?
It could be that the second business has better pricing, stronger customer retention, or more efficient operations. It may have lower overheads or simply be better at converting the enquiries it already receives. There is likely to be more than one factor at play!
Now think about your own company:
Where is profit being created, and where might it be leaking away?
Increasing your turnover might improve profitability too. However, if additional sales bring disproportionately higher costs, operational pressures, or reduced margins, the financial benefits can quickly mean you are just working more for the same profit.
The critical point is that you need to understand the true drivers of profit in your business and consider which individual drivers offer you the greatest opportunity for improvement.
What are the nine areas that influence small business profitability?
Our Profit Flow® model separates business profitability into nine connected areas.
We use the analogy of pumps, taps, and valves to help owners understand how opportunities flow into and through their businesses, and where improvements can be made to each area.
1. Primary marketing – attracting new lead contacts
How easily can potential customers find your business, and when they do, what will make them interested enough to engage?
Primary marketing focuses on attracting new lead contacts from audiences who haven’t previously engaged with your company.
Relevant strategies include improving findability, increasing credibility and visibility, undertaking direct marketing, and developing alliance partnerships.
A construction company, for example, might improve its Google Business Profile, optimise its website for relevant searches, and build relationships with local architects.
The intention is to generate a more reliable flow of suitable new contacts, reducing dependence on occasional enquiries or unpredictable opportunities.
2. Secondary marketing – developing existing customer relationships
Here’s an interesting question to ask yourself:
How many customers have bought from you previously, but they haven’t heard from your business in the last six months?
Your existing and previous customers already know something about you, and it is likely that they now trust your capabilities and understand the value you provide more than those who have never dealt with you before.
Yet many businesses devote considerably more attention to finding new customers than maintaining relationships with those they’ve already served.
Secondary marketing addresses this opportunity.
Strategies include building customer loyalty, educating and updating customers, reminding them when they might need to buy again, and reactivating past relationships.
A well-managed customer database, supported by relevant communications, can become a valuable source of future business.
3. Tertiary marketing – generating referrals and introductions
Some of your best future customers may already know someone who trusts you.
Tertiary marketing focuses on generating referrals, recommendations, and introductions through customers, advocates, and business partners.
Think about your happiest customers – how many have recommended you during the last year?
How many could do so, but haven’t been encouraged or given an easy opportunity?
Supporting strategies for this area include assessing customer experiences, capturing positive stories, sharing them effectively, and developing structured referral relationships.
The opportunity is to turn customer goodwill into a more consistent source of suitable introductions.
4. Lead progression – converting contacts into genuine prospects
Attracting attention is useful but turning that interest into a genuine sales opportunity is considerably more valuable!
A lead contact might visit your website, download some information, attend an event, or make an initial enquiry, but how effectively does your business encourage that person to progress towards a truly meaningful buying conversation?
This Profit Flow area focuses on improving the proportion of lead contacts who progress into genuine prospects (i.e. someone who seeks a proposal from you in whatever form that takes for your business).
Strategies include better contact-data capture, encouraging relevant information exchange, and developing automated or personal follow-up processes.
Even simple improvements can reduce the number of potentially valuable opportunities that quietly disappear.
5. Prospect conversion – winning more customers
You’ve attracted someone’s interest and they’ve become a genuine prospect.
Now comes the vital question.
How effectively does your business convert that opportunity into an actual customer?
Some businesses are excellent at generating enquiries but surprisingly inconsistent when it comes to winning the resulting work.
In many cases quotations take too long to produce, follow-ups are made inconsistently, and sales conversations focus too heavily on price instead of demonstrating value.
The supporting strategies here include improving your value proposition, sales systems, sales skills, and sales management.
Increasing conversion means generating more customers from the opportunities you’ve already worked hard to create.
6. Average order frequency – helping customers buy more often
How frequently do customers purchase from your company, and can that frequency be increased?
For some businesses, customers buy weekly (e.g. food for the home) whereas for others, purchases occur only annually (e.g. insurance) or when specific needs arise (e.g. a roof repair).
The opportunity is to understand these buying patterns and identify ways to encourage more regular, appropriate purchasing from the wider range of products and services that your business can provide.
Strategies include improving customer experiences, making repeat purchasing easier, and introducing proactive account management.
For example, a commercial maintenance company could introduce scheduled customer reviews, helping clients identify servicing requirements before problems arise.
Customers receive better support, while the supplier develops more predictable purchasing relationships.
7. Average order value – increasing the value of purchases
What if you could increase your average order value by 10%, without needing any additional customers?
The potential impact on revenue, and ultimately profitability, could be substantial.
Increasing average order value involves improving the commercial value of each purchase.
Supporting strategies include reviewing pricing, communicating value more effectively, optimising the sales mix, and increasing customer purchasing volumes.
As an example, an IT support company might identify customers who would benefit from additional cybersecurity, backup, or monitoring services.
The customer receives a more comprehensive solution, while the business increases the value of the relationship.
8. Gross profit margin – keeping more from every sale
Generating revenue is one thing, but keeping a healthy proportion of it after direct costs is another entirely!
Gross profit margin measures the percentage of revenue remaining after the direct costs of delivering your products or services have been deducted.
A business achieving £1 million turnover at a 30% gross margin generates £300,000 gross profit.
Improve that margin to 35%, without changing turnover, and gross profit increases to £350,000.
That’s an additional £50,000 before considering any changes to overheads.
Relevant strategies include optimising the cost of goods sold, improving team and system efficiency, and making better use of technology.
Supplier negotiations, reduced waste, improved scheduling, and better resource utilisation can all contribute.
9. Fixed costs – managing overheads intelligently
When did you last undertake a thorough review of your business overheads?
Not simply glance at the accounts but a genuine challenge to whether each significant expense still represents good value?
Fixed costs include ongoing overheads such as premises, administration, insurance, and subscriptions.
However, reducing expenditure without considering its purpose can create unintended problems.
Some costs are essential investments in future growth, capability, and efficiency.
The two principal strategic approaches are overhead review and refinement, and investment for the future.
The objective here is to eliminate unnecessary costs while ensuring valuable investments continue to support business performance.
How do you turn profitability opportunities into practical improvements?
Knowing the nine areas is useful but recognising how to act on them is where the real impact happens.
Our Profit Flow approach encourages business owners to work through four connected levels:
The overarching business goals link to the specific Profit Flow® objectives(s) where they are the refined into supporting strategic thrusts, and then enabled through appropriate, effective tactics
- Your business goal establishes the bigger ambition.
- The Profit Flow objective identifies the area requiring improvement.
- Strategic thrusts provide the approaches you could take
- And tactics define the practical actions needed to make progress.
Here are a couple of examples:
1: Increasing the number of new customer enquiries
Imagine a local building company wants to generate 20% more qualified enquiries over the next year from new clients.
Its selected Profit Flow objective is therefore “Primary marketing”.
After reviewing its options, the owner chooses “Findability” as the priority strategic thrust.
They review the tactical options and chooses to improve the company’s Google Business Profile, create dedicated website pages for its principal services, and publish helpful content answering common customer questions.
Each activity is then allocated a responsible person, budget, timescale, and performance measure.
Rather than simply deciding to “do more marketing”, the business now has a practical plan.
2: Improving gross profit margin
Consider a manufacturing company generating £800,000 in annual revenue, with a gross profit margin of 35%.
Its owner wants to improve that margin to 40%.
The selected Profit Flow objective is therefore “Gross profit margin”, with “Optimise COGS (cost of goods sold)” identified as an appropriate strategic thrust.
The tactics include reviewing prices with existing suppliers, exploring alternative material sources, and renegotiating purchasing arrangements.
If the company achieves its target margin without changing turnover, annual gross profit will increase from £280,000 to £320,000.
That’s £40,000 additional gross profit, potentially contributing directly to the bottom line if overheads remain unchanged.
The 4 steps process is simple:
- Choose the objective
- Establish the strategy
- Select the tactics, and
- Measure the results.
Which Profit Flow areas should your business prioritise?
With nine areas to consider, where should you begin?
The answer depends on your current circumstances.
A company with plenty of enquiries but poor conversion might achieve more by improving its sales process than increasing its marketing budget.
Another business with strong sales and customer retention, but disappointing financial returns, may benefit more from improving gross margins or reviewing overheads.
Trying to improve everything simultaneously can spread your attention and resources too thinly.
At UK Growth Coach, we encourage owners to assess their opportunities using three considerations: the likely Impact, their Confidence that the proposed solution will work, and the Ease with which it can be implemented.
We call this the ICE prioritisation method.
It provides a practical way to compare possible improvements and identify which deserve attention first.
Once priorities are established, the next step is to create an action plan with clear ownership, timescales, resources, and measures of success.
This is important, because identifying opportunities is only valuable when something changes!
How could Profit Flow help improve your business?
Every business has opportunities to improve profitability – some are obvious, whilst others remain hidden within everyday activities, established habits, and business decisions that haven’t been questioned for years.
The challenge is recognising which opportunities matter most, understanding how to address them, and maintaining the discipline to follow through.
Our unique Profit Flow model helps owners of established SMEs do exactly that.
Through our business coaching and mentoring services, we help you assess the nine profitability areas, identify opportunities for improvement, and develop practical plans to achieve greater commercial success.
If you’d like to understand where your business could become more profitable, contact UK Growth Coach to arrange a conversation about your business and the opportunities available to you.
You may be surprised by how much potential is already sitting within the company you’ve built!
