Step 4: Increase your profit margin
Your profit margin is the total revenue that remains after all costs, fees, taxes and other expenses have been deducted. If you can lower your expenses, you can increase your profit margin.
Many businesses focus on increasing sales to improve their profit, which, as long as it doesn’t have any major cost increases, should work.
Some ideas to help you increase sales include:
- Adding new markets and distribution channels to your sales strategy by determining where else you can sell and how you can get in front of potential customers
- Increasing your prices where it makes sense
- Reviewing your digital strategy and making the best use of the internet through online sales or digital marketplaces
- Forming strategic alliances with complementary businesses or joint ventures to tackle work you don’t have the resources to handle on your own
- Maximising the value of your sales by providing a premium product or service
- Adding features to your products or services if the perceived value to customers is greater than the cost to you
- Keeping your products or services up-to-date by extending your product range or working to ensure it stays ahead of your competition
- Focusing your sales efforts on your most profitable customers – those who place large or frequent orders, pay their bills on time, and are low maintenance.
Categorise your customers
Divide your customers into four categories and allocate different effort and resources based on their value. For example customers that have:
- High percentage of sales and high profit margins – nurture these clients and put most of your sales effort into them
- High percentage of sales but low profit margins – consider a price increase and examine how you can cut costs to increase your profit margins
- Low percentage of sales but high profit margins – consider a sales push to try and get them to buy more regularly
- Low percentage of sales and low profit margins – eliminate these where possible.
Decrease your costs
If possible, reduce your costs to increase your profitability. Identify the steps you can take such as:
- Negotiating lower prices with your suppliers
- Reviewing processes and systems to maximize efficiency
- Reducing waste
- Implementing security to reduce the chance of theft
- Putting systems in place to ensure invoices are sent, tracked and paid promptly
- Reviewing fixed business costs to see if there are cheaper providers available
- Checking any on-going subscription services in case they’re no longer being used or you’re paying for more than you need.
Improve efficiencies
There are numerous ways to improve efficiency and reduce costs. Often, technology can play a big part. Review your systems and look for opportunities to improve efficiencies:
Tighten up operations
- Track outstanding debts and tighten up your credit processes
- Use technology to streamline processes and become more efficient
- Manage your workload, so that they’re effectively prioritised and delegated
- Identify employees that you might need to make redundant or change their role to contribute to output
- Identify third party contractors or other companies that could take up duties to increase your capacity at any time.
Improve skills
- Review staff skills and experience, identify areas for improvement
- Check that you have the right mix of employees for your needs
- Identify appropriate training courses and enrol staff
- Run in-house training sessions
- Hire new staff with specialised knowledge if necessary.
Improve performance
- Eliminate unnecessary and time-consuming jobs
- Encourage staff to evaluate their work quality and make improvements
- Check that progress matches your business goals.
Review equipment
- Lease key equipment or machinery needed to increase capacity.
- Investigate technology that removes redundant processes or replaces manual tasks
- Talk to businesses in your industry to find out how they run their systems
- Invest in new equipment that will increase your competitive advantage by getting products to market quicker than your competition.
