Article Written By: Simon Ackland | SMI Business Impact CEO| Business Impact E-Zine # 12
Your profit margin is the money left over after accounting for all your costs. When business is moving fast and the economy is running hot it is easy to lose focus on the all important profit margin.
With changed economic conditions and a bit more focus time, dwelling on profit margins and finding ways to make them bigger is a worthy activity, fuels your motivation and generates excitement...get others involved in the process. In this Business Growth E-Zine, we offer you 7 ideas for enhancing profit margins.
One of the simplest methods of increasing profit margins is across the board price hikes. Before you go saying "That ain't going to happen in this market!" give it some though as a principle to work towards and maybe start changing the thinking in your business. Unless you are the lowest cost producer of quality products or services in your sector, someone else will always gazump you in this area...eventually.
One of our colleagues had a client who owned a construction business that went bankrupt. When asked what happened, he said "I was always the lowest bidder." That meant he worked his fingers to the bone, did more projects than his competitors, but still went bust. His mistake was trying to compete on price. Let the other guy play the "I've got the lowest price." game. You play the "I've got the best profit margin." game.
That means not dwelling on price, but raising prices and then providing quality, excellent customer service, while creating the perception that your price is still very competitive. In selling, perception is everything.
Here are 6 more ideas from our pool of 68 Ways To Boost Profit Margins. Use this to stimulate some thinking for your business.
1. Deal In Higher Margin Products Or Services
Calculate profit margins on everything you sell. Even a lesser cost item may have a better profit margin than higher cost items. Cut the drag by avoiding very low margin products and putting your time and energy into that which makes you the most cash.
Quick Tips
* If you don't know your profit margin, your working blind
* Low margin products can bring in customers, but you only make it worthwhile if you have a plan to steer those customers to your real profit producers.
2. Innovate
No one says you have to do things the same way all the time, or the same way other businesses in your industry or profession do them. Look outside your industry and see what's being done in other totally unrelated businesses. You may find ideas that could be adopted or adapted to fit your business.
A good example of this is the drive through banking I've seen in the USA...they got the idea from the fast food industry.
Quick Tips
* When you find a new idea, act on it right away. The longer you wait to "perfect it" the less chance you'll have of implementing it and your competition might beat you to the punch.
* Sell your employees on the benefits of providing this new and unique service
* Inform and educate your customers and prospects of your new innovations and let them know how they will benefit from them.
3. Use A Web Page
A website is also a tool that can be used to increase your profit margins, but jut how to do this can be quite tricky. Since every business has or is thinking about developing a website, no one can afford to ignore this.
It can reduce the cost of client acquisition and conversion, it can make other advertising more efficient and effective, it can automatically build your prospect data base, it can be used for surveys and feedback, it can educate....all without major staff intervention and 24/7.
Quick Tips
* Set up a merchant account onlie and take orders
* Capture more names for your mailing list, you don't have to buy them.
* Integrate with your offline marketing efforts to maximise the value received
* Websites still cost money, they have to be maintained and updated, but relative to other options, they are very cost effective...if done properly and strategically
4. Control Billings & Collections
Allowing customers to get behind in the payment of their bills can create real cash flow problems. Without a constant stream of cashflow into your business, you can't pay your expenses or salaries, and you can't provide the selection of products or level of service your customers want or expect. This is one of the most critic areas of any business, and yet it is often overlooked and one of the easiest to get out of control.
Quick Tips
* Consider requiring payment or part-payment at the time a product or service is rendered or ordered
* Reduce the time between shipping a product or rendering a service and when you send the invoice or bill.
* Include an invoice with the product
* Offer discounts for payment within a certain time period.
5. Create Your Own Label
When you sell other business's products under their label, you don't have as much control over price as you do when you own the label. In most case your supplier is also selling to your competitors which means you have no distinct advantage if you sell under the same brand and label. But when you own the label, you set the price. You can raise the public image of your brand and/or label's quality and get more money for it.
Quick Tips
* You don't necessarily have to create the product yourself - only the label
* Do people pay "just for the name?" All the time! It's the price shopper that wants generic brands, but don't assume that's everyone.
6. Engineer Efficiency
A poorly tuned car wastes a lot of petrol. An inefficient business is certainly losing money it could easily hold onto. Do a top to bottom examination of how efficiently your business or department is running.
You will find that many processes are routine, things you do every day, the basic functions. Take another look at them and see where they can be made to work more efficiently through implementing systemised procedures.
Quick Tips
* Get employee input into how everyone can work smarter, not harder.
* Look at work flow and duplication in different areas.
* Remember the human element. People are not machines, but maybe machines or software can help humans to concentrate on human tasks - especially dealing with customers.
Product Profile - Office Automator
SMI Business Impact have a division that focuses on auto-piloting businesses and a key part of this program is Office Automator. This is a system that not only reduces costs permanently but also reduces staff resource requirements thereby producing not only improvements in efficiency but also substantial cost savings and hence return on investment (ROI). Business process automation allows businesses to:
There are amazing opportunities to improve your business, it just needs some focus and attention to work out what the best opportunities are for you in your particular market. Maybe we can help you?
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To your business success.
Simon Ackland
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