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10 tips to increase your profit margins

· Costs,Cloud Accounting,Bookkeeping,Small business

Many business owners think you need to increase sales substantially to make more money.

There’s another way to make more money, which is to increase your profit margins. Same customers, the same level of physical sales, same systems, no more staff or extra overhead costs, existing premises and capacity—isn’t that a thought?

Here are 10 tips:

1. Figure out your gross profit margin

Make sure you know your up-to-date, overall gross profit margin. It’s no good using estimated inventory figures. This won't be an issue while a business is small, but as it grows and scales, it might present challenges.

Prepare some interim accounts for the last month-end from your accounting software. Xero is ideal.

Get some benchmarking figures from your accountant and set goals to increase your margin.

2. Analyse your profit margins

Your overall gross profit margin could be deceiving.

Find out the gross profit margin on each of your products and services, and analyse your gross margins over different business divisions, product categories, suppliers or customer categories according to your business.

3. Increase your prices

Yes, I know it can be difficult. But often we business owners are more worried than our customers about price, and, let’s face it, our overheads are going up all the time. Be fair in your dealings.

4. Review all your prices

Do you charge all customers the same price? If so, why?

You’ll invariably find that some are less price sensitive than others, especially if they’re not paying for the bills themselves, e.g. government or larger organisations.
This is something we have seen on many occasions, be aware of price sensitivity.

5. No discounting

Discounting can be the death of many businesses that don’t realise how badly this destroys your margins.

We wrote a blog about this previously, discounting to win business is the absolute last thing you should consider!

6. Don’t compete on price

Differentiate yourself in other ways, whether by giving superior value, going the extra mile or reducing all the other (non-monetary) costs of doing business with you—effort, time, anxiety and emotional costs. Quite simply, it is a race to the bottom.

7. Take cash discounts from suppliers

It’s normally a much better deal than trying to delay payment, even if you’re borrowing.

8. Prevent theft at all costs

Whether stolen by staff or customers, losing cash is very costly.

Do you have anti-shoplifting or theft prevention systems in place, even for staff? Do you balance your tills? Who does your banking?

9. Watch supplier bills

Check all supplier bills personally. After a while, you’ll get a feel for things which aren’t right. Don’t be surprised to find that you’ve been overcharged for goods or services you haven’t received or been billed at the wrong prices.

10. Use inventory/ stock control systems

You’ll find you have less working capital tied in inventory, suffer less theft and stock obsolescence, know when you’re running out of products that are selling well, and know exactly how much each of your products cost you without wading through old purchase invoices. It’s easy, and it works well.

Increasing your margins is all about making the most of what you sell right now.

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