What does business success look like to you? For many business owners and CEOs, the financial performance of your company is a key component to success. How do you ensure strong company financials? Increasing sales in one option. But is it the most effective option?
Your sales are like an iceberg. The most visible part – your sales revenue – floats above the water. But a much larger and complex part is resting silently underwater – your profit margin. Profit margins are what keep your business above water at all times. Without achieving the right amount of profit to sustain all your business operations, including your sales efforts, you can end up reaching for the life raft.
Here are seven sure-fire ways to increase your profit margins and improve the financial performance of your business.
Not all products are created equal – including their profitability. If you have a lot of low-margin items stocked in your warehouse, ask yourself how much value they’re delivering. Could you fill that same space with high-profit items? Set up business reporting that shows not just your item revenue, but the actual profit.
Understanding the cost of goods sold (COGS) can help you make informed pricing decisions. COGS determines the expenses you’ll have each time you make a sale and can be subtracted from the revenue to reveal your gross profit. Understanding this metric helps you identify your profitable items and understand the your bottom line. If you don’t have a clear view of all the costs involved to calculate your COGS, it may be time to consider business management software that can provide real-time business data and put crucial financial information at your fingertips.
A lot of businesses are hesitant to increase pricing due to competition. The truth, however, is that people expect prices to rise over time. If you’re providing an excellent customer experience and service that keeps clients coming back, standard price increases are reasonable.
You might think discounting is the quickest way to reduce your profit margin, but not if you do it right. For example, providing a loyalty discount can be an effective tactic to keep more customers coming back. Bulk-buy discounts can also encourage your customers to increase their transaction size. What’s important is knowing how much room there is to move on item profit margins.
If you’ve identified your most profitable items already, consider whether you can buy them in larger quantities. Then, ask your suppliers for quantity discounts.
One of the hidden costs for many businesses is the cost of incorrect or incomplete orders received from suppliers. Stock errors can cost your business time and effort to resolve, and potentially cost you customers when you can’t supply items that should be in stock. Being diligent about the receipting process can make sure issues with receipting are identified straight away and don’t end up eating into profits.
Cutting down on your team’s repetitive, manual tasks can free up significant time. It’s one more way to reduce your operating costs and empower your team to focus on more profitable activities.
These seven tactics are just the tip of the iceberg. The right business management tools can help you monitor, manage, and improve your profit margins. With a better handle on what affects your profitability, you’ll have the right foundation to grow your business even faster.
Stephen Canning, CEO, JCurve Solutions