There is not a single person who got into business and said no to profit. Who doesn’t want profits?
A healthy profit is a necessity in order to withstand the test of time. The business domain is facing issues that are far more numerous, complex, global, and fast-changing than ever before. And to be able to make profits according to your expectations at a time like this turns into an outright battle.
Every business owner wants to know the best way to increase profit margins and boost the company’s bottom line. The truth is plain and simple. There is no single best way to increase profit margins. There are multiple factors and variables that come into play in boosting your business profit margins. The key is to be able to manipulate these variables to improve their potential for profit.
Grasp Your Gross Profit Margin
Before you begin your mission of boosting your profit margin, you must be up-to-date with your gross profit margin. Analyse your business’s gross profit margin and operating margin on a regular basis. Compare them to the best companies in your industry (or related industries) as this can help you identify opportunities for improvement.
Be acquainted with the gross profit margin for each of the products/services you offer in your business. By doing this you can recognise both low margin and loss-making items, profitable products and activities.
Depending on the nature of your business, evaluate your gross margins through various business divisions, suppliers, customers, or product categories. Get your benchmark numbers from your accountant, and compare your digits to the industry average. Your gross profit margin could be deceiving.
Push The Price
This can be difficult as there are plenty of roadblocks, mostly emotional, to implement this simple strategy. But remember that small increases will not drive people away if they love the things you offer.
Most businesses sit on the fence when it comes to increasing prices because of the belief that everyone shops on price. Figuratively speaking, less than 20 percent of people shop on the basis of the price of a product/service. This implies that the majority of consumers make buying decisions based on value.
With this strategy applied, there are very rare cases of complaints or lost customers. The worst case scenario is that you may lose the odd customers. But this should not be a setback because generally when a customer is lost, they were a B- or C-class client anyway. So just sit back, relax and watch what happens as you increase the price but also at the same time make it more valuable. Also, make sure you have an awesome customer service before you take this step.
A price hike by 5% to 10% can be considered quite safe, and can face no market resistance. You will find that in most cases it is a profitable move if you calculate the lifetime value of the customers you keep at the newer prices.
Learn to classify your customers. One way to enhance profitability and better serve customers is to offer good, better, and best versions of your product or service. This allows customers to choose how much to pay for a product according to what best suits their requirements. Some customers are willing to pay more than others for any product.
Regularly review your client list. Focus all your efforts on your top 50. Find out who has the most growth potential and who makes you get the most profit. Design a written plan for each of those clients and work it like a rented mule!
For those who aren’t helping you make money or don’t have any growth potential, cut them loose. They are your biggest time crushes, complainers, and late payers.
Ebb Those Expenses
Let it strike you that margins are fluid. Business owners often fail to notice that margins are fluid. Many businesses while focusing heavily on increasing profits tend to forget that expenses are also fluid. Decreasing your overall direct cost will have a significant impact on your gross margin.
Sometimes, decreasing your expenditures may be the most effective way to improve your profit margins. This can imply improving process efficiency, leveraging emerging technologies, or negotiating better rates when possible.
Eliminate the cost of things that don’t add value to your company or to your customers. Every penny saved by doing so drops directly to your profit pack.
It will cost you to ignore the forgotten metric that matters – decreasing expenditures. Identify waste and eliminate it. Look for opportunities to simplify and standardise your process.
Let The Networking Do Some Work
Seek out for official networking functions as an opportunity to expand your business contact list. This is an effective strategy if you can create quality work relationships. This undercover weapon known as ‘business networking’ will determine how successful you are in acquiring new contacts and clients.
It should always be quality contact over quantity. Networking strategy can widely replace cold calling, advertising and other less productive marketing efforts. Business networking is all about building quality contacts with links that have potential of bringing profit to your business. But before you rush ahead to do some networking, here are some essentials that can help you in building a stronger bond with your potential contacts.
- Select the right networking group/event. Prioritise the group where your target market participates.
- First impressions can’t be made twice. Make yourself clear and concise. Be confident.
- Get them engaged. Ask questions.
- Do a follow up. This is the key to turning a networking event into profit.
- Avoid being too personal. Know where to draw the line.
- Offer to those who receive. Waltz away from cold shoulders.
- Don’t munch down your manners in any situation. Maintain professionalism.
Let Technology Talk
The consumer retail experience has undergone a paradigm shift in recent years. Prospective buyers have increasingly replaced showroom/store visiting with online reviews and history reports. In fact, consumers spend this time conducting online research beforehand that they only need to visit a store once before confidently securing a purchase.
The internet enables you to dramatically improve how you run your business. Some benefits of relying on the internet include a hike in market share and reduction in customer-service problems, while enhancing efficient cost reduction. Technology will also leverage you to get more competitive pricing as you will no longer be limited to local merchants.
Cater your business website towards enhancing the online shopping experience. Interact with prospective customers on your social media sites, answer their queries and address concerns before they become a negative review.
Obtaining a positive online reputation will go a long way with boosting your profitability. Keeping yourself in line with technological developments will give you an upperhand any day and ensure that your business is taking advantage of the latest innovations to enhance productivity.
You can also rely on the internet to get a sneak peak of what other competitors are up to. Knowing what your competitors are doing can narrow your search down for solutions that are specific to your industry.
Gaining expected profits in this highly competitive environment is no less than a battle. Companies need to capture the full value of their product lines throughout their entire life cycle and through multiple distribution channels. The mentioned strategies if applied without any obstacle can create a fertile ground for profitability.
The task of gaining more profit requires commitment of seeking ways to increase your sales revenue as well as decreasing your costs as you set a paradigm for your business to see where you can save money.
The artistry of focusing on the strategies mentioned here is that a lot of the concepts are straightforward to implement and can enhance profitability almost immediately. They can increase your profit in your business and help contribute to your future financial success!
Anna Barton is often called as “A Finance Whizz” by her colleagues because of her awe-inspiring financial advice. She works as a finance specialist at Northants Accounting. She is also a passionate creator, who has an expertise in the business finance niche.