Small Business Profitability in the Service Industry

As a service industry small business owner, who strives to win in profitability, there are some things you must consider when trying to succeed at being profitable. In this post I discuss the negative aspects you run into as a small business owner who works in the service industry, and how you can learn to turn these disadvantages into prosperity.

Hiring The Right Staff

You may ask yourself, “how does hiring the right staff make me more profitable?”. When you hire someone to represent your business, you want to ensure they are personable, kind, diligent… and the list goes on, but the real answer is how the staff applies this to their daily tasks. Let’s say you own a mom and pop pizza shop and you have the very best staff in town. As soon as someone walks in your pizza parlor they are greeted with a kind smile and a “welcome in”, the tables and floors are clean and spotless, the bathrooms are fully stocked with supplies, nobody is posed on their phones leaning on the counters, or worse right over the pizza making station. These are a few things that can drive a customer back to your restaurant, which can boost your sales making you more profitable in your small town. There is something about a sense of professionalism that your staff holds to encourage consumers to continue to show their support for your small business.

Keeping Overhead Low

Overhead costs will add up if you do not carefully plan out your day, week, or month of expenses. Most common overhead expense’s in the service industry includes payroll/administrative costs, mortgage/rental costs, technology costs, insurance premiums, and marketing/advertising costs. These can be placed in one of two categories: fixed overhead costs or variable overhead costs.

Fixed Overhead

Although you can easily manage your fixed overhead by budgeting the same amount each month, there are some factors you need to consider. How often these costs occur (monthly, quarterly, annually), do they change at renewal time, and have I projected for potential increases? For example, when you sign a lease agreement, you typically sign the agreement for a set time frame (usually on an annual basis, but it can vary); therefore, you know that amount is what you should plan monthly for your lease expense. But what happens when the lease is up for renewal and the owner decides to increase the rent by 10%? Making sure you have room in your budget for unexpected increases is important.

Variable Overhead

The best way to manage your variable overhead costs is deciding what works best for your business and helps make you more profitable. If you are spending too much for advertisement through Google when most of your business is made through paid advertising on social media platforms, then you should consider if the cost outweighs the reward. In other words, you may need to consider cutting the additional cost through Google altogether or use that money to invest further into the social media platforms. Another variable to consider is your labor cost. As a service industry business owner, you want your labor to be between 15% and 30% compared to your sales for the day. Keeping an eye on your labor throughout the day can significantly make a difference on how much you are spending on employee related costs. 

Whether you decrease the hours your staff works, find a new insurance plan, or reduce your advertising/marketing expenditure; having a foothold on your overhead costs will better align you for future profitability in your business.

Products & Services Pricing

Have you ever walked into an establishment and said, “Whoa, these prices are steep!”. Chances are, you have definitely had this thought, but what kept you coming back for more? When you curate an atmosphere with friendly faces, cleanliness, and provide amazing high quality products, then your customers will continuously come back to support your business, no matter the cost. The prices you create for your customers should be fair; however, selling yourself short can cause a major issue with becoming profitable. This is why research on industry standards or trends is important. In the past few years, the flavor lavender in coffee and drinks were trending. Everyone had to have an iced matcha latte with lavender cold foam. If you were a coffee shop, you would have had an honest, but profitable-worthy price on these trendy “limited time” drinks. The quality of the products you choose, and the consistency by which you make the final product matters when you are driving customers into your establishment. You should never sell yourself short or compromise on the products you serve if you are looking to become more profitable in your business.

If you are small business in the service industry, don’t sleep on these three major components to becoming more profitable. The best part about being in business for yourself is the “trial and error”, where you can see what does and doesn’t work for your business. Remember, at the end of the day, you are looking to make profits not losses.