If only it was that easy! You sell something for more than you paid for it, pretty much the theory behind all businesses.
Margin is the difference between sale price and cost of the goods being sold. In accounting terms this is called ‘Gross Margin’. Take off all your overheads, those things that just have to be paid and what you have left is ‘Net Margin’, or as we call it, you ‘Profit Margin’.
How Can I Increase Profit Margin?
Let’s give you a few ideas, all simple stuff but it is always surprising just how much you forget.
Give these a try;
- Increase prices
- Concentrate on quality
- Work from home
- Renegotiate utilities and/ or rent
- Sell obsolete equipment
- Outsource rather than employ
- Pay staff on commission
- Purchase only the things you really need
- Sell off old stock for lower price
- Take charge of all purchases
- Automate as much as possible
- Reduce your range of products/ services
- Reduce staff
- Never pay overtime
- Don’t discount
- Use regular accounts to monitor profits
Not That Easy To Increase Profit Margin
It is definitely not that easy to increase profit margin, but the actions above will make a difference. It is not about the action itself, it is about considering how that action could work in your business. Next time you are thinking of changing things in your business then use the above to think how you could improve profit margin at the same time.
Take away business. They put sauce on their sandwiches. Rather than squeeze sauce on the sandwich 4 times they reduced this to 3 times. The customer saw no deterioration in quality, in fact they never even noticed.
Doesn’t sound like much does it?
Well, consider that they paid £6k per annum on sauces. They reduced consumption by 25%, which saved them £1,500 every year. Or as the director put it, ‘it’s not £1500 quid, it’s 2 weeks in Florida’.
Next time you are changing something in your business then give consideration to some of the ideas above as a better profit margin is more money in your pocket.
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By Dave Farmer