Financial Strategy

Sharpen your axe

Profitability doesn’t happen by chance—it’s built through consistent, incremental improvements. Inspired by Darren Hardy’s The Compound Effect, this blog highlights three key strategies for small businesses to amplify profits

The Compound Effect of Profitability For Small Businesses

Profitability doesn’t grow by chance; it’s cultivated through deliberate, incremental improvements in every area of business operations. In Darren Hardy’s book The Compound Effect, he provides a roadmap for turning small, consistent actions into significant gains. So here’s our top three priorities for compounding profits in your small business.

Sharpening the Axe: Expense Management

Imagine chopping wood with a dull axe. You work harder for less impact.

Sharpen your axe by analysing spend and reducing unnecessary expenses. Cancelling an unused subscription or renegotiating supplier contracts might feel insignificant, but these “petty” savings add up and are not one-off wins, they continue forward.

Each pound saved might not seem impactful at first, but over time, they will create a stronger structure of financial governance, providing opportunity for new strategies.

Optimising Pricing: Small Adjustments, Big Impact

Next, evaluate your pricing strategy. Experiment with slight price increases or bundled offerings. Increasing the price of a product by just 1% might feel trivial, but when multiplied across hundreds of sales, the impact becomes significant.

Think of it as tightening bolts on a bridge. A minor adjustment can transform a structure from wobbly to stable. Pricing tweaks work the same way—small shifts fine-tune your profitability.

Customers in different sectors will tolerate increases in various degrees. Test the price sensitivity of your products/services, with careful measurement. If the quality and buying experience are top-end, you may be surprised at how much more you can charge without your customers looking for alternatives.

Remember, not everyone is looking for cheap and value is subjective.

Retaining Customers: Reinforcing the Foundation

Customer retention is where the compound effect truly shines. Acquiring new customers is often costly, nurturing existing ones should lead to exponential growth.

Loyalty programs, personalised discounts, and exceptional service will strengthen your business’s stability and longevity. Your CRM should be a goldmine of information that will help you to create a proposition your customers want to buy again and again.

Conclusion: Compounding Success

Whether you’re improving sales (top-line) or profitability (bottom line), the principles of the compound effect are universal.

If you haven’t read the book, we recommend it highly. Our founder and principal adviser, Toni Hunter believes that this is the book that has had the most impact on her life and business. (It’s quite a long read, so she suggests the audio-version for consumption whilst travelling, or in her case, whilst waiting for her boys to finish rugby training on cold, dark evenings).

In our view, the question isn’t whether the compound effect works. It’s whether you’re willing to commit to the small actions that drive it. Talk to us about what small tweaks you could make to your business that will pay dividend incrementally for many years to come. But most of all: Start today, and let time turn your efforts into remarkable achievements.

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