Is your business making enough profit?
Your profit margin is a metric that should always be on your radar, and for good reason.
It answers critical questions about your business, like whether or not you’re making money or if you’re pricing your products correctly.
It’s important to note, though, that your profit margin isn’t just something you should measure; it’s a metric that you should look to continuously improve.
As author Doug Hall said, “If your profit margins aren’t rising, chances are your business isn’t thriving.”
So one of the most common questions on the lips of small business owner is, "How do I increase my profitability?"
Here are 5 battle-tested ideas you can deploy right now.
This is the easiest answer for many small business, especially those who have been in business for a while.
Most businesses set their prices when their business was first launched, and since they were so eager to start making sales right away, they set their pricing too low.
Over time, the business likely only made nominal increases to pricing every few years, but rarely did the owner ever sit down and fundamentally rethink his or her pricing model.
Inflation is happening at a rate of 3% (on average) each year. So whilst the price of everything else goes up, you can't be left still charging the same prices as 3 years ago.
If it's been over a year you accessed your prices, it’s time to look at it again.
The COVID pandemic of 2020 made businesses realize that they can actually do without some departments or roles.
Hence, they merged some units and unfortunately, had to fire some staff to make ends meet.
Take a step back and review your business operations.
Every dollar you save by eliminating the cost of things that don't add value to your company or to your customer drops directly to your bottom line.
You can also streamline operations and a great way is to automate specific tasks in your business.
By putting repetitive activities on autopilot, you can reduce the time, manpower, and operating expenses required to run your business.
Every team member is an agent to increase profitability.
Get them involved and focused on profitability. Even if it means compensating them on increases in profit.
Recommend trainings, books and best practices.
When everyone is working optimally, more can be done in less time.
And this saving in time (you guessed it) gets filtered down to your bottom line.
All top business people are great negotiators.
Take the time to plan out your negotiation strategically.
Always go into a negotiation willing to leave empty-handed.
The party with the power in any negotiation is the one who cares least.
So approach negotiations with purpose and know what you want and don't want to happen.
Remember, always be willing to care the least.
And if you care the most, at least try to act like you care the least.
Another way to increase profit margins (and also provide a competitive advantage) is to combine products and/or services into special bundles.
If a customer orders your services, you could offer a discount on other complimentary services they will likely find valuable.
Think about McDonalds. They don't make a great deal of profit on a Big Mac, but they make a ridiculous amount of profit on their fries and drinks.
Even if the product or service you’re offering is one they didn’t originally consider, think outside the box.
I hope you enjoyed this article,
Until next time...
