• Robert Patin

7 Simple Steps You Can Take to Increase Profit Margins

Running a successful business requires more than just selling a lot of your product or service. If that product or service is costly to you, a lot of sales may still not make your business profitable. You can determine whether your business is with one number: your gross profit margin.

Below are seven ways your can increase your business’ profit margin beyond increasing sales.

1. Determine your gross profit margin

Before you can increase your profit margins, you need to know what your business’ overall gross profit margin is first. Gross profit margin measures a company’s ratio of profits earned versus costs. Don’t rely on last year’s numbers; prepare new numbers up through last month’s totals.

2. Analyze your profit margins

Once you have determined your gross profit margin, use it to evaluate how your profit margin compares with other companies in your industry.

Then, break down your overall gross profit margin and to determine profit margin numbers for different metrics, e.g. business divisions, products/services and client types. This will give you a sense of what is and isn’t profitable.

3. Review your prices

Do you prices reflect the true cost of your product or service? When you look at your clientele, does the price reflect what they are able or willing to spend?

Upon reflection, you may realize you need or have an opportunity to raise your prices. Yes, you may lose a few customers, but you need to ensure your overhead is covered. This is why an thorough review with accurate numbers will help you determine what makes the most sense for your business.

4. Be cautious with discounts

If you can’t afford to offer discounts on your products/services, you shouldn’t. You might be tempted to assume you’ll sell enough to cover the discount, but that’s a risky gamble if your profit margin is already low.

Speaking of lower prices, don’t use that as your way to differentiate yourself from competitors if you can’t afford it. Consider other (no- or low-cost) advantages you have over your competitors, like your customer service or your location.

5. Take advantage of cash discounts

If your suppliers offer cash discounts or installment payments, take the cash discount. Pay upfront for a discount if you can; this will ultimately lower that profit margin.

6. Invest in loss prevention

If you have a storefront, cameras and loss prevention training for staff are worth the investment to make sure you aren’t losing profits to theft. Regardless of you business type, you also need to take preventive measures to ensure employees aren’t stealing from your company. Invest in creating processes to minimize losses.

7. Scrutinize supplier bills

Double-check any bills and invoices you receive from suppliers to make sure they accurately reflect your pricing agreement and the products/services provided. If you have regular suppliers, you’ll understand what to expect for pricing and whether you’re being overcharged.

An expert financial consultant can help you determine your company’s profit margins and advise on how to increase that number. If you’re looking for a financial consultant to help you improve your company’s finances, contact our team at Patin and Associates.


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