4 Strategies to Grow Your Profit Margins

One of the main reasons why many businesses struggle is because they don’t have their profit margin in check.

So What is a Profit Margin?

 It is simply the amount you make after deducting the costs of your business. Profit margins are very important and should be the first thing you look at when calculating your company’s profitability.

You can either be purposely increasing your profit margin or you can have it decrease. When you have it increase, that means you will be making more money out of less work. But if it decreases, then that means you are losing money every time you make a sale.

Either way, profit margin plays an important role in determining how profitable your business is going to be.

How to Boost Your Profit Margins

1.     Put in money to make money

High profit margins are the result of smart spending and calculated risks, and it is important to understand where your profits can come from in order to properly invest that money.

Though expanding your business is a smart financial move, it is not always easy. Oftentimes, small businesses need to decide between spending money on new inventory or hiring more staff. Ultimately, the choices you make determine whether your investment improves or hurts your profit margin.

2.     Tap into the power of savings

Being frugal is smart business practice because it can help you save cash that can be used elsewhere in your business. The key is figuring out where those savings are most effective.

If you’re struggling with inventory turnover, for example, then making sure you’re ordering only what you need will go a long way toward increasing profits. It’s also important to think about how you might use your savings in ways that will beef up your margins.

3.     Consider a remote workforce

Numerous companies have utilized remote workforces to great success, but this is not an option for every organization. By identifying the right solutions for your business’s needs, you can reduce overhead costs and increase efficiency without sacrificing quality or performance.

A remote workforce can save a company thousands of dollars per year by eliminating expenses related to office space, equipment, furniture and utilities. These cost savings can be channelled into other aspects of your business. Remember reducing overhead means increasing profits.

4.     Restructure your workflows

Workflow refers to the sequence and methods by which you create your product, service or offering. Workflow determines how long it takes to get a product to market as well as how much it costs.

If it takes three people four weeks to manufacture a product, you may have increased your profit margin by 1 percent. However, if it takes two people two weeks to manufacture the same product, your profit margin increases by 8 percent!

Lastly,

Build a loyal customer base. Loyal customers are more likely to buy from you again and refer their friends and colleagues. This lowers your marketing costs. A loyal customer will also be willing to pay more for a premium product than someone who is unfamiliar with what you do/who you are.

Author Bio

Michael Hollis is a Detroit native who has helped hundreds of business owners with their Cash Advance solutions. He’s experimented with various occupations: computer programming, dog-training, accounting… But his favourite is the one he’s now doing — providing business funding for hard-working business owners across the country.