Improving your profit margins
Profit margins are critical for profitability. You can have a fast-growing business, but without acceptable profit margins all your growth efforts will be in vain.
It is extremely important that you not only know your overall margins, but that you also know them by product or service type.
Why is this so important? Because you want to be sure you are promoting and selling your highest margin products and services whenever you can. These are the game changers for your business.
These products and services are the ones that provide the resources to cover your costs and give you the means to reinvest in your business.
There are two main ways you can improve the profit margins of your business – reduce your expenses or raise your prices.
Most cringe at the thought of raising prices, especially in today’s fragile market, but if you have done the hard work of creating a unique selling proposition and have truly differentiated yourself from your competition, then raising your prices may be a viable option.
It is mainly fear of the unknown that keeps business owners from taking the bold step to increase their margins through a price increase, but studies have shown that your loyal customers are not doing business with you because of price alone.
Most will understand and appreciate your rationale and will remain strong, loyal customers if you have treated them well and found ways to deliver more than they expected of you.
Cutting costs is often much easier, but not necessarily the right move to make when you are trying to grow your company. Streamlining wasteful business processes is always good, but expense cutting often comes in the form of eliminating services, reducing staff and undermining your ability to deliver.
Be careful not to negatively impact your operational efficiency and delivery speed when reducing your expenses. The last thing you want to do is undermine your uniqueness because of your efforts to cut costs.
With that caution in mind, there are always ways to gain efficiency and reduce the effective costs of your business. Toyota and other large manufacturing companies, particularly those based in Japan, are masters at keeping costs down through waste reduction, efficiency gains, reduced work-in-process inventories and eliminating unnecessary movement of people and supplies.
If they can do it, so can you.
When was the last time you critically evaluated your business operations with an eye towards gaining efficiencies and reducing unnecessary steps in your processes?
This is a powerful way to reduce your costs while, at the same time, improving your productivity and customer satisfaction. If you are not familiar with the tools and techniques for doing this, let me know and I will gladly direct you to them.
The challenge is to first know your margins, then be purposeful about improving them on a regular basis.
The trend for your margins should always be favourable. Work hard on this last segment of the Business Chassis and you will position yourself for phenomenal growth and incredible profits.
A great outcome for the effort involved!
Elsa Groenewald is a Franchisee of ActionCOACH. She is a certified business coach who has successfully assisted business owners to significantly grow their profits and their entrepreneurial skills. For information regarding business coaching or any business-related challenges, you can contact Elsa on 082 321 7704. You are invited to send your business related questions or any topics you would like to see covered in the monthly articles to elsagroenewald@actioncoach.com.
