So, let’s pop the question: how to increase profit margins?
When your sales performance begins to slide down and it’s the only way you know to making profit, maybe you think it’s time to move on to another business. But bullheaded entrepreneurs are not that easy to break.
We share that determination to succeed in helping grow small businesses. So, here’s what we did:
We searched Google’s intelligent database to find proven strategies for improving profitability that thought leaders have generously shared. This article will save you the research time.
Scroll down. Take a slice of wisdom from thought leaders and test the strategies that have worked for them to improve their revenue performance. It could work for your small business too.
We started looking into the interview of 30 small business experts conducted by Direct Capital. What you can learn from them is that you can explore and exploit different profit generating methods because there is really no single one best strategy to increase profit margin of your small business and hope it will sustain for long term to keep your business alive. What you can do is to study and list the things they did to increase their business profitability and combine multiple methods to create your customized approach that works best for your business.
There was one question that produced 30 different profit-generating strategies and these are all yours to experiment.
What’s the single best way for small business owners to increase their profit margins?
Let’s break down the answers from the experts and explore how they can help you improve profitability for your small business.
It’s true, increasing prices is a can of worms. But we agree that it’s the simplest way you can increase your profit. For a simple strategy, Hawes explains there are a number of roadblocks you will encounter.
But this is an important advice from Hawes to remember: The limiting factor to the price point for any products or services from a small business is almost always in the mind of the business owner.
If you are thinking that consumers shop on price, think again. That’s not what the statistics report suggests because 80% of consumers shop on value. So, this is something you might want to explore a little bit further on — think about your value propositions that consumers will bite to buy from you.
Modern times call for modern ways to strategically manage your business and in a tech savvy society, it’s hard to compete without IT support.
If you are running a business without IT, there is reasonable doubt that you can compete in a fast-paced market today. But you can bring down your costs on your IT operations. Glenn Cipolla proved that leveraging the cloud using SaaS and IaaS service providers resulted in an equal processing power as with a company that maintains a costly IT operations in-house.
They have successfully reduced their IT expenses by approximately 80% and increased their profit margins significantly that their competitors simply cannot keep up.
While short-term approaches like cutting down expenses can be favorable to keep your cash flow moving and your business operations running, it’s a smart move to dig deeper into long term approaches for sustainability.
Ryan Hulland says, “it’s sound advice” to trim your unnecessary expenses. But you have a more important question to answer: “Which expenses should be cut?”
Hulland puts emphasis on nurturing your workforce and under no circumstances should you cut back on that if your idea of success is to lead in the market fast and strong. On that note, if you are aiming to be an average company, you cannot dream of sustainability in today’s economy.
Your workforce will drive your profit margin for long term success but you should recognize that quick fixes are exactly that: quick. And it quickly un-fixes your profit problem. So, the next time you think about cutting expenses, think about whether that fix can impact your long-term goals.
For most small business owners, customer targeting is not a popular strategy. Most of the time, the approach is to hit anyone that bites into the bait and that sales means revenue.
Not for Michael Bremmer. Not everyone can bring profit to your business. Some “horrid” customers as Michael described them can even cost you. He only focuses on the top 50 that makes up the 74 percent net profit of his business and it has been two good consecutive growth years at its peak.
Maybe, it’s time for an assessment of your customer base and start eliminating those that don’t bring any revenue and those that don’t bring much.
At some point, you have to realize that “margins are fluid.” While most small business owners are focused on increasing sales, ignoring your expenses can impact your profit margins negatively.
So, here’s what Diana Santaguida suggests: “try to find one change each month that can save your organization money.” It may not be an easy job for you as you begin to expand and grow but at some point, you will need to learn how to manage and control your finances and maximize your money’s potential for higher profit.
Harry Keller explains that small businesses are so diverse. It is in its diversity that you cannot have a single best way to improve profitability. Reducing inventory may be the best strategy for one business model but you cannot apply this to a business that doesn’t keep an inventory.
For business owners, it’s important to know your business — that means, to really know every curve of your operations. Only you can do that. Then, you can make adjustments, apply refinements that will increase your product or service value. While you do that, it remains important to control your finances and as Harry would put it: “never stop looking at your expense reports and seeking ways to reduce those numbers without harming your business.”
The bottom line to what Amad Ebrahimi points out is to “get more from what you already have”.
Using referral marketing as a way to increase profit is an attractive strategy to explore for small businesses focused on selling products. But if you are a service-centered small business, don’t miss the guiding principle that you can still maximize your resources.
Quality control. Take this seriously.
For product-centered small businesses, manufacturing partners are an important ingredient in your business operations. In the meantime, for service-centered small businesses, your manpower are your direct partners into delivering your customer’s orders.
No matter what your industry, get a reliable partner and focus on quality. It’s worth your time to go through a selection process to find an efficient partner. What Katie Everds suggests is to go out and get as many quotes from vendors as possible to give you options and calculate for the average pricing.
If you don’t have a strong sales pipeline, your profit will remain marginal. Jonathan Kendall stresses this in one word: Sales!
Of course, it’s important you have sales; otherwise, you have a big problem and you will be out of business soon. Understand your market and train a strong sales team who can reach out to leads and convert them into paying customers.
Yes, waste is draining your profit but you can take that back when you become more cost conscious. Identify your expenses and determine whether it is necessary.
Julien Bouyssou suggests that you simplify your processes and create standards. Keeping your processes less complicated helps eliminate waste. Standard business processes help your employees follow operational guidelines that takes away much wasted time that costs you money and that is something you can cut out.
Prepare for a unique value proposition.
Once you do, you have two options to increase your business profitability according to Brian Carter. What Brian prefers is to reduce the cost on customer acquisition. The other option is to increase your price.
Whatever you do, keep in mind to deliver quality performance that your customers will run after you and you can reduce your spending to chase them.
Assuming you already have customers, are you getting the most out of them? If not, here’s what John Rampton suggests for you.
There’s a catch: You have to first develop a product your customers will love.
If customers love your product, says John, you can explore ways to maximize your business transaction such as asking them to refer their friends. Referral program is a proven strategy that can potentially explode your profit margin.
The internet is an open marketplace that redefined the way we do business. It has removed borders and allowed businesses to thrive worldwide. The challenge for entrepreneurs is to reach out to your global market.
It only makes sense that you adopt automation into your business process. For Dave Barnes, it’s AdWords you need to invest in that will make your online marketing efforts a breeze. You simply have to set up a simple process of selecting your keywords and setting your budget. The rest is all on AdWords to bring you customers through the giant search engine and that spells good profit for your business for little investment.
Are you filing your taxes by yourself? Think again.
You could be overpaying according to IRS and the estimate for overpaid taxes amounts to $945,000,000. The major culprit behind this excess tax payment has been identified as caused by errors and lack of money-saving tax strategies, explains Snowe Saxman.
The common mistake among small business owners is that they try to do everything without external help under the impression that it saves money. The reality is far from saving money when you try to do things you know nothing about. You become susceptible to making mistakes and mistakes when preparing your business tax can cost you major financial losses. Do it right and you can potentially add that unnecessary cost to your profit.
Another important factor that Snowe points out is to hire the qualified professional for the job. You hire a financial controller to help you with financial management; and you hire a tax strategic planner to take care of your tax.
Own an e-commerce? Get ready to upsell.
It’s one of the proven best strategies that increases small business revenue. And it’s on the top suggestions from Daniel Brady, who owns an e-commerce business, the Heavenly Hammocks Australia.
Daniel says over 50 percent of their online customers purchase additional accessories jolting their profit margin by 10 percent.
When you decide to enter into a business venture, prepare for lots of math.
But with automation systems readily available for small business owners with online operation or even for those running a business in a brick-and-mortar shop, you can easily adjust your automated marketing systems to make it work for you on auto-pilot that runs all day and all night to acquire new customers for you.
So, where does your math knowledge comes in handy? To adjust your risks from the backend of your system and increase your opportunity to gain profit with every new generated lead that converts into paying customers.
Analytics have become the ultimate source of knowledge for lead conversion and calculated profits and many small business owners have embraced this modern way to count their revenue.
But it all comes down to how much you paid and how much you earned from lead acquisition. If you paid more than you earned, you are on the losing end. So, it makes sense that if you are investing on strategic methods to acquire leads, you better build a strong foundation of knowledge on counting which leads earns you more profit.
Manage your money and get the most out of it. The idea is to be on top of your financial management and control your expenses.
That’s because when you have control over your expenses and successfully reduce your operating costs, it can actually impact your profit according to the calculated forecast reported by Gartner Group where a five percent cost reduction is equivalent to a 30 percent sales increase. And that’s how you can efficiently increase your revenues, says Aman Mann.
From a CFO point of view, your best bet to increase profit margin is to boost your revenue. But how do you do that?
Marc Scheipe explains the importance of cost structures and understanding the “drivers of incremental (profitable) revenue.”
Determine what makes your company unique. Then, pitch it hard to your employees. Sean Mallon strongly believes in the power of inspired staff members.
The result you can expect from that is highly motivated employees bringing your business happy customers and that catapults an excellent service analyze taking your reputation up the pedestal to shine and reach more customers. And more customers mean hefty profits for business.
So that brings to suggest that investing in people who help you with your business is the best way you can generate valuable revenue.
Technology is a gift, and especially for service businesses.
The best way to maximize your profit potential is automation, says Jennifer Goldman, who is a certified financial planner. If you can eliminate recurring administrative work such as scheduling, you could reduce a significant amount of expenses and headache.
A tool that helps you automatically schedule appointments as soon as a client books through the application, helps relieve you of costs on admin personnel and your time to manage staff plus there are other costs including lights, desk, computer and others.
Here’s a clever way to increase your profit — apply the strategic 30-20 rate increase.
First, run an analysis of your revenue stream. Proceed to identify which of your active campaigns or service offer you can increase by 20 percent. Then, select customers that generates 30 percent of your total revenue.
When you have all these data ready, start shooting emails to your clients offering a service that you have raised by 20 percent. When you offer your existing clients a service that will reduce their cost for a similar service, you can be certain you can’t lose a customer while you improve your business profitability.
This strategy has worked effectively for Jasmeet Sawhney. It’s time you give this method a test drive in your own business.
Outsourcing is becoming more and more popular among small businesses. Maybe, because outsourcing holds the promise of improved business performance.
Dedicate your time to more important tasks that make more money.
Time you waste is time you don’t generate profit. And most time that go to waste are dedicated to tedious, repetitive tasks that you can delegate to outsourced staff. Some of these tasks are data entry, preparing invoice, and other small administrative workload.
Yes, the power of cloud is real. And it is inexpensive that can make your life in business ridiculously easy and profitable.
Cloud-based tools that help you manage your operations, generate leads, book your sales, and do many other things that you cannot otherwise complete in good record time is all possible. Many SaaS technology are changing the way you manage your small business to keep up with the economic demands. And with high proven efficiency, don’t ignore the opportunity to improve your business performance leading to increased revenue.
Here is another vote for cloud-based automation that allows you to stay atop your finances to maximize your profit margins from Kurt Kunselman.
What better way to keep up with your financial operations than to have a reliable and agile business bookkeeping solution. It should be able to support your profit-driven objectives to grow your business. But with too many tools for your options, it is sometimes hard and confusing to pick the one solution that best supports your business operations.
FAS financial advisors highly recommend QuickBooks for your business and should you need help with QBO training, there is always someone you can trust to help you... from FAS.
In case you want to explore other options, we have prepared a list of useful financial tools for growing business that you can quickly download for free.
Your business is unique, every business is. Kurt says, “there’s no single solution that will fit all.” His suggestion is that after you have made your decision on what bookkeeping solution to use, get some professional bookkeeping help.
There are two important things you need to do to stay on top of your finances and increase your profit margin regardless of your industry, according to Kurt:
Got a website? Good.
Your next step is to get found through search engines by your target market. Jason Parks says, organic Google ranking will get you that coveted profit margin at a drastic rate.
Your goal is: “to achieve solid search engine ranking positions within your industry.” If you can do this, there is a high chance for you to generate new leads and convert them to paying customers, making your new client acquisition costing at a high time low to almost no cost.
Have you thought about what could be your biggest expense?
Vito Pagano says, it could be your credit card transaction fees. And if you can control this, it’s the best you way you can increase profit margins.
But we are moving in an economy where transactions are mostly credit-based. But here’s what you can do: monitor your credit card transactions and start becoming cost-conscious with every spending to take time in finding out about transaction fees that will incur with every purchase.
You’re on your way to achieving higher profit margin with reduced credit card transaction fees.
For Ben Strackany, the best way to boost profit by 50 percent and even higher is to cut your cost by 10 percent.
And you can do this, you need to consistently analyze your expenses on a monthly basis. There are few things you can do, too, like start outsourcing. Get your outsourcing bookkeeping guide for small business that will help you get started. Then there are a few other things such as negotiating prices with your vendors and using automation that could potentially reduce your operations cost.
If your small business is keen on traditional advertising to acquire new leads such as print ads and radio ads, you might want to consider switching to digital advertising approach such as geo-targeted mobile advertising.
Bob Bentz explains that there is an untapped mobile market on which 24% of the time, people spend on mobile media. It’s the best time for you to take advantage of grabbing what Bob calls the “real bargain” and discover how that helps your small business blow up profit margins.
Don’t waste opportunities. Every client you get, there is an opportunity to gain greater profit. All you have to do according to J. Michael Cavitt is ask.
Ask your best customers to take action… and ask with clarity.
Sounds simple but there is a three-process action you have to take: thinking, planning and asking. For the last part, you will need the “discipline to ask”.
That’s all 30 valuable advices from small business experts who have had great success in applying the strategies they shared. We have created a slideshow presentation on this interview for you that you can easily download on SlideShare for free.
In the beginning of this article, we asked the question for you: how to increase profit margins?
And we gathered valuable answers from interviewed experts with valuable insights to share from where we all learn a strategy or two.
Before wrapping up this article, it’s time to ask you: what’s the profit-boosting strategy that best fits your business?
If you haven’t figured that out yet, that’s fine.
Here’s what you should keep in mind: there is no secret to making greater profit. It’s a matter of taking time to understand every bend and curve of your operations and finding the appropriate strategies that work best for you and your business. So, whether you are reducing expenses, acquiring new leads, increasing revenue from your top paying customers, negotiating prices, raising your prices, or any other measures and maybe, a combination of those strategies that help you drive better profitability, the bottom line is to tailor your approach to your unique business model.
There are three essential things to start increasing profit margin: time, effort and professional help.
It’s important that you calculate the accurate net profit margin. You should be exhaustively meticulous with every cash outflow and inflow. This is where you need to get help. And not only any other help — you should get qualified professional bookkeeping help from a trusted service provider.
Your trusted financial advisor and bookkeeper will keep your books balanced, clean up your records and if you get the right partner, you can be certain of real profit gain. For your part, go out there and burn your energy on things that you do best. Rather than drown yourself on doing things that you cannot almost perceive.
By this time, you must be asking: what is considered a healthy operating profit margin (or net profit margin)?
For most market analysts, the generally favored operating profit margin should be approximately 25 percent to gain the impression of efficiency and stability. If you can do better than that, it’s even more fantastic. But here’s something for you to reconsider:
Average profit margins vary significantly between industries. ~Investopedia
Your operating margin changes over. That’s something you have to consistently monitor and analyze to keep your operational efficiency at its best. A strategic balance between controlling your costs and increasing your profits can effectively improve your operating margins helping your business grow at good financial health.
Meanwhile, hitting margins lower than 15 percent opens your business to multiple vulnerabilities especially in situations when there is a negative market change. It will come hard for you to keep your operations going as funding can be painfully difficult to find and your business growth can freeze soon leading to closing down your shop.
For small business owners, you will need greater profit margins. Being independent requires you to pay for all your expenses and still make a good profit. Run an operating margin analysis with help from your trusted financial advisor and look at the trend because you need to be increasing year by year.
If you are serious about thriving in any business venture, get serious with providing your customers quality service and products. Your reputation is the most valuable because it is the single most important determining factor of your sales volume and your ability to manipulate your pricing.
Losing credibility could be your most dreaded nightmare. To win in business, there is one key you should never miss and that is “gain customer trust”. Otherwise, what will keep them from coming back?
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