How To Generate Better Profit Margins And Grow


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better profit marginsIf you’re in business you need to be profit focused to generate better profit margins, which contrary to belief is not just some selfish motivation to make money at all costs.

The reason you need to be profit focused is because business is tough, and there is no point fighting to stay in business day in and day out and put up with all the stresses and difficulties when you’ve got nothing to show for it.

Better profit margins are your life blood as it pays the wages which everybody needs to live, and if you’re serious about developing and growing your business you should be reinvesting profits to enable you to deliver better products and services to customers and continue increasing your business growth.

There are a number of ways that you can increase profits that don’t just mean increasing prices so here are 4 ways to increase your profitability.

Be selective about who you service and ditch unprofitable, time consuming customers and generate better profit margins.

If you’ve read my earlier posts you’ll know that I’m big on having data which enables you to make key decisions. No measurement, no management.

A lot of businesses may not realise this, but if you analyse the amount of income each customer generated you’d probably find that a large proportion comes from just a small number of customers. Its called the 80/20 rule.

Once you know who these customers are you can make decisions about which customers you should be spending more time with and which customers you should effectively fire.

Segmentation of your database also allows you to target more effectively which communication and offers you send to those customers who are on your most profitable list.

For the customers you don’t want, you can either increase your prices to make it more bearable, or set a minimum order quantities. If they decide to accept it then they’ve re-categorised themselves, otherwise they will move away or you can ask them to move to a competitor, leaving you more time to put your marketing and sales to work and find better customers.

Get rid of sales and marketing waste to generate better profit margins as its just costing you money and doesn’t generate a return.

Do you know which of your sales and marketing activities generate the most return ?

I’ve asked that question to many businesses and I’m never surprised by the result, which usually contradicts the companies long term beliefs. Determining what is, and what is not working must be based on evidence, not belief alone, or you run the risk of making some pretty expensive and even business destroying decisions long term.

If you don’t already have real empirical evidence you should start by finding out exactly how your customers are finding you and record it into your CRM system.

Over time you will start to see trends which will tell you where your most profitable customers are coming from and where you need to spend more time and money.

Add tracking codes to your advertising and marketing so that you can actually determine which ones are generating a response and then later when you generate business you’ll also know what financial return they generate.

Avoid price slashing as it puts exponentially more pressure on your sales and marketing and won’t generate better profit margins.

We’ve all been faced with the price bugaboo, but its usually misleading. When times get tougher its actually more expensive to run your business, so slashing prices just makes things even worse. Instead you should seriously consider increasing your prices.

If however your just a commodity business and you haven’t differentiated yourself or demonstrates your value in anyway then its going to be very difficult for you to do that.

Small changes in your profit margins will have a significant impact on the sales you’ll need to maintain or even increase profitability if you decide to decrease prices instead.

Lets say your profit margin was 35% and you decided to reduce your prices by 15%. As a result you would need to increase your sales by around 40%, which is a hefty increase.

If you increase your prices you could afford to lose around 20% of your custom and still remain profitable and with less customer you can reduce staffing and stock levels and maintain the same customer service levels overall saving you additional expenses, which could potentially make you better profit margins.

Adjustments in prices, like all sales and marketing activities should be tested to measure their impact before committing to them wholesale.

You generate better profit margins when you systematise and automate your businesses to improve efficiency and reduce costs.

If you spend much of your time working IN your business and not ON your business then I’d bet that if you wanted to take an extended holiday or spend more time focusing on generating more customers you’d find it extremely difficult to do.

You need your staff capable and able to step up and fill in your shoes when you’re not around.

Are they trained to handle aspects of the business in your absence ? If not then you need to document your procedures, train your staff and automate where you can.

Technology such as the web can help you automate and do more for less. Other systems for stock control, sales management, marketing, accounting can all be done more effectively by carefully selecting the right technology.

Combine all these approaches together and you’ll be generating better profit margins for the same or even less effort.

Republished with author's permission from original post.


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