Mastering the 7 Financial Levers

Marginal gains have the potential to create exponential results. This principle, also known as the Power of 1%, revolves around the idea that small, incremental changes can compound to drive massive improvements. Imagine a pilot adjusting the course of an aircraft by just one degree. Over a short distance, the change is barely noticeable, but over a long-haul flight, that small adjustment can lead to landing in a completely different country. 

 

Similarly, in business, minor financial adjustments made consistently can result in substantial profitability and cash flow gains over time. Consider the approach taken by British Cycling under Sir Dave Brailsford—by focusing on 1% improvements in aerodynamics, training, and nutrition, they went from being almost irrelevant to dominating the global stage. 

For SME business owners, applying the Power of 1% across multiple financial levers means small cost savings, slight pricing adjustments, or minor efficiency improvements can add up to major financial transformation. The key is recognizing that success isn't necessarily about one big move—it’s about the accumulation of many small, smart decisions working together over time. 

 

For SMEs, this same concept applies. If you make small adjustments across multiple financial levers, the cumulative impact on cash flow and profitability can be profound. You don’t need to overhaul your entire business; you just need to tweak the right levers. 

 

 

 

 

 

Raising prices is often met with hesitation. Business owners fear that customers will turn away, but in reality, price sensitivity is often lower than perceived. The key is to increase value perception alongside pricing. 

Strategies to Implement: 

 

• Introduce tiered pricing or value-based pricing models. 

 

• Bundle products and services to increase perceived worth. 

 

• Clearly communicate why a price increase is happening—customers accept price hikes when they see enhanced benefits. 

 

• Test incremental price increases on a subset of customers to assess impact before a full rollout. 

 

📈 A simple price increase can yield significant gains. For example, a business selling a product for £10 with a cost of £7 enjoys a £3 margin. By increasing the price to £11, the margin jumps by 33%. Even if some customers drop off, profitability can still improve. 

But how many customers can you afford to lose while still maintaining the same level of profit? If you were selling 1,000 units at a £3 margin, you'd be making £3,000 in total profit. By increasing your price to £11, if you lose up to 25% of customers and now sell only 750 units at a £4 margin, you still earn £3,000 in profit—without the additional strain of serving those 250 lost customers. This means fewer logistics, lower customer service costs, and potentially higher overall efficiency. 

Now, consider the scenario where you maintain your customer base. Your total profit would rise to £4,000, giving you additional cash flow to reinvest into your business—whether in marketing, staff, or improving service delivery. Would you rather have more clients with higher operational demands or fewer, higher-value customers with greater profitability and less strain? The strategic choice depends on your business goals, but either way, pricing adjustments can be a key driver for sustainable success. 

 

 

🔄 Many businesses focus heavily on acquiring new customers, overlooking the goldmine that exists in repeat customers. Increasing customer lifetime value is often more cost-effective than winning new clients. 

How to Drive More Sales from Existing Customers: 

 

• Cross-sell and upsell to existing customers with relevant offerings. 

 

• Improve retention by delivering an enhanced customer experience. 

 

• Introduce loyalty programs or subscription models. 

 

A small increase in purchase frequency can have an outsized effect on revenue. Imagine a coffee shop where customers visit weekly instead of bi-weekly. That simple shift doubles revenue per customer. Now, apply this concept across different industries: a gym encouraging members to visit just one extra time per week can see membership value rise dramatically, or an e-commerce store leveraging subscription models to convert occasional buyers into repeat customers can significantly enhance cash flow. These small shifts create a ripple effect—driving higher revenue, improving customer loyalty, and reducing reliance on acquiring new customers to maintain growth. 

 

 

Lowering production or purchasing costs without sacrificing quality increases gross profit margins without requiring additional sales. 

Strategies to Reduce COGS: 

 

• Negotiate better supplier rates. 

 

• Identify alternative materials that maintain quality at a lower cost. 

 

• Reduce waste in the production process. 

 

Even a 10% reduction in COGS can lead to a significant bottom-line boost. A business currently spending £7 per unit that trims it down to £6.50 sees a 17% profit margin increase. 

Think of it like a runner shaving seconds off their lap time. A seemingly small adjustment—better shoes, improved breathing techniques, or a slight tweak in stride—adds up to a noticeable difference over the course of a race. Likewise, a small percentage reduction in costs across materials, supplier pricing, or operational efficiencies accumulates into substantial gains. 

Now, imagine applying a similar reduction across multiple areas of the business. A 10% decrease in supplier costs, combined with minor savings in production waste and overheads, compounds into greater profitability. Lowering costs means you can reinvest in growth, strengthen your cash reserves, or increase your competitive edge by offering better value to customers. 

By continuously optimizing cost structures in a disciplined way, SME owners can create a leaner, more resilient business that remains agile in shifting market conditions while boosting long-term profitability. 

 

 

Many businesses accumulate expenses over time that they don’t even realise they’re paying for. Reviewing overheads is an essential exercise to free up cash. 

Steps to Reduce Overheads: 

 

• Audit expenses quarterly—cancel unused software, renegotiate leases, and optimise staffing. 

 

• Automate repetitive tasks to reduce labour costs. 

 

• Switch to energy-efficient solutions to cut utility bills. 

 

Small changes, like using energy-saving light bulbs, can lower electricity costs by 5-10% every year. Now think about what would happen if you found little ways to save money in different parts of your business. It could add up to a big difference over time! But how do you ensure that your entire team, not just you or the finance department, is engaged in cost-saving efforts? 

Start by fostering a culture of financial awareness and accountability. Regularly review overhead expenses with your team, making it a collective effort to identify unnecessary costs. Create an open forum where employees can suggest cost-saving initiatives—whether it’s optimizing office supplies, reducing energy usage, or renegotiating vendor contracts. 

Introduce a quarterly 'Overhead Challenge' where departments set efficiency targets and track their savings over 90 days. Tie these savings to performance incentives or reinvest them into team resources. By involving your entire workforce in overhead management, you create a proactive, cost-conscious culture that ensures long-term financial sustainability. 

 

 

Slow-paying customers choke cash flow. Getting paid faster improves liquidity and reduces reliance on external financing. 

Actions to Get Paid Quicker: 

 

• Offer early payment incentives (e.g., 2% discount for payments within 10 days). 

 

• Automate invoicing and follow-ups. 

 

• Enforce strict payment terms and charge late fees where necessary. 

 

Reducing the average payment cycle from 60 days to 45 days can inject vital working capital into the business without increasing sales. 

 

 

Delaying supplier payments strategically allows businesses to hold onto cash longer without jeopardising relationships. 

How to Optimize Payables: 

 

• Negotiate extended payment terms (e.g., from 30 days to 45 days). 

 

• Take full advantage of supplier credit terms. 

 

• Avoid early payments unless incentivised with a discount. 

 

Extending payment terms can improve liquidity significantly. When coupled with faster receivables, businesses create a cash buffer that allows for greater financial flexibility. 

 

 

Excess inventory ties up cash. Businesses must balance stock levels to optimise working capital. 

Smart Inventory Management Strategies: 

 

• Implement Just-in-Time (JIT) Inventory practices. 

 

• Use data analytics to predict demand more accurately. 

 

• Regularly clear out slow-moving stock via discounts or repurposing. 

 

For service businesses, the equivalent of inventory is staff time. Improving billable utilisation from 70% to 75%increases revenue without hiring additional staff.