Many small-business owners become obsessed by their company’s turnover. But what really matters is a company’s profits.
Here are a few tips to help Increase Your Profit Margins This Year
Monitor your profit margins. If you produce a range of products, monitor each line separately. If one range of products has a high sales turnover and high profit margins, this is your star range. Seems obvious but if you have no way of measuring their performance you will not know.
If you have a range that sells well but its margins are lower, find a way to redress the balance. Consider if you can increase the price or look at ways to reduce the manufacturing costs.
When some of your products are selling badly but they have a high profit margin, you need to have a sales push to get them out the door.
And if there is a line that isn’t selling and also has a low profit margin, you should consider ditching that range. They are a drain on the company’s profitability. They may be a logical addition to your product range but if not profitable then they need to be reviewed.
Decide what profit information helps you manage the business and report on that on a regular basis. Typically, look at your Gross Margin percentage and also your Net Profit to give you a good indication of how you are performing.
If you really want to make improvements in 2016, focus your attention on changing the small things rather than on making any big changes.
Take a look at how you could put your business on a better financial footing by applying these five major tips:
1. Reduce Your Costs
You should be constantly monitoring how much you pay for your products, your staff and your building or site costs.
Only by monitoring how much you spend each month can you know where savings could be made. That knowledge will put you firmly in control of your profit margins.
2. Review Your Supply Chain
Are your suppliers still providing you with the best deal? If not, renegotiate terms or find new suppliers who can save you money.
Are they over-charging you? You won’t know if you don’t keep a regular eye on your orders.
3. Make Sure Your Systems and Processes Are Contributing to Optimum Efficiency
Use an accountancy package to allow you to track your income and expenditure easily.
Do you have an efficient client management database so you can track who your best customers are? Once you know this, you can focus on up-selling and reselling to them. Think of ways to keep them loyal. Attrition is expensive to a company. Constantly trying to seek new customers is time-consuming and expensive. Monitor your systems and processes regularly.
4. Review Management and Personnel
Ensure that the right people are doing the right job and that tasks are being delegated by managers.
5. Reduce Waste
This doesn’t just apply to the manufacturing process. Take a look at running costs and staff costs and make savings where possible.
And remember that these are just a few of the things you can do to improve profitability.