5 Easy Ways to Increase your Profit Margins
A common question that regularly arises in almost all businesses is ‘How do we increase our profit margins?’ – I’m guessing that is the reason that you are reading this blog right now.
As you probably know, there is not one definitive answer that fits all businesses, as the answer depends on many factors; the size of the firm, the competitive nature of the market it operates in, how it operates, the decision makers attitude to change and much more.
However, there are core fundamentals that often flow the same throughout many companies that just need tweaking or adapting to fit the business in question. So, in no particular order, here are 5 ways your business can look at increasing its profit margins:
Now this may seem obvious, or impossible in fact, but if you can do this effectively, you will see vast improvements. If you can, selectively raise the price of your most popular products to increase that gap between your costs and revenue. You will have to be careful when using this strategy as by increasing your prices too much may see demand, and therefore sales, reduce significantly.
Reduce the discounts.
You might find yourself selling products at a discounted rate now and again – either through offers or because we are poised too - (if you don’t, you are lucky) and often that is what is needed to get that last deal to hit the monthly target or to make our numbers look better. However, this can become a regular occurrence in most businesses if you don’t have a plan so remember every time you do it, you are diminishing yourself of profit to pay your off your costs.
etworking effectively with other businesses and seeing how they can add value or change to your business is key. Now whether this is directly or indirectly, they may be able to help you lower your costs, increase your added value or raise your prices – all leading to better profit margins. After all, it’s about who you know, not what you know.
Train and Motivate.
Having a more effective, productive and motivated workforce should always outweigh the cost of trying to achieve such levels of staff quality. The more productive your workers are, the lower the cost per unit and thus greater your profit margins. If you don’t know how to motivate your staff, ask them – see what they require.
Assess and evaluate your profit margins.
By crunching the numbers and seeing why the costs are so high, or why the revenue has fallen over the past 5 years can bring the causing factor(s) to light and by identifying the problem, you can orchestrate the appropriate change to even remove or reduce the impact this has on your margins.
Not all these points may be relevant to you and your business but at least one of them should point you in the right direction and help you increase your profit margins. The key is to never be afraid to find ways to increase your profitability and to not be shy of change.