Some go into business because they want to make the world a better place, others want to create a new, innovative product that will change the way the world functions, some want to provide superior service, while others simply want to make some money. Irrespective of why your business exists, your business needs to have a solid bottom line and bring in profits regularly at the end of the day.
If there aren’t any profits, no business owner can make the world a better place or improve their products or services. The more profits your business generates, the more improvements it can make in the future, as profitable businesses lead to growth and success.
So, if you’re determined to succeed personally and want your business to thrive and develop further, it’s always important to keep a few points on top of your mind. This concise article will showcase the top four strategies to increase your business’s profit margins and grow further.
Buy More Effectively
One of the top ways to increase your business’s profit margins and overall profitability is to source your products more effectively. Regularly review your supplier base and see if you can purchase the same products you sell more cheaply or efficiently. Keep in mind that you need to maintain the same quality of products so that you won’t lose any customers from the sudden supplier change.
Review the number of suppliers you use because buying from too many can be incredibly inefficient since it takes up more time and may dilute your buying power. Online wholesale suppliers may be the perfect solution to this problem. These sophisticated companies offer wholesale prices with volume discounts, and low minimum order quantities like no other suppliers do. If you happen to be in the business of refurbished electronics, make sure to check out GoWholesale, as they provide all kinds of electronics from all brands and categories under much better conditions than regular suppliers.
Remove All Unprofitable Products And Services
You already know the products or services with the highest gross profit margin are the ones that are most valuable to your business. For that reason, calculate the gross profit margin on each product and service you carry and analyze your margins over various business groups, product categories, suppliers, or customer segments within your business.
This strategy will allow you to precisely pinpoint low-margin items and profit-making products and services you offer. Once you figure out what your most profitable products or services are, you should entirely focus on them and remove all unprofitable ones.
Review Your Current Pricing Structure
Raising prices may be a challenging task, mainly if you haven’t done so previously. Nevertheless, reviewing your current pricing structure and increasing your selling prices may significantly impact your profit margins. Check your prices regularly and adjust them where appropriate.
So, if you spend $2000 on your week’s stock and sell it for $2400, you’re making a gross profit of $200 and a margin of 20%. If you decide that this is not significant enough and decide to increase your selling prices, you may end up spending $2000 on the same amount of stock, but try to sell it for $3000.
If successful, you’ll end up improving your gross profit margin to 50%, a significant improvement from the previous 20%. Nevertheless, if you end up with fewer people purchasing your goods, and you’re able to sell only half of your entire weeks’ stock, your total revenue will drop down to $1500. This would be a negative gross profit of $500 or a 33% margin loss. Even though this is a simple example, improving your gross profit margin is a case of finding the right balance between stock and price.
Be Smart About Discounting
Even though discounting typically goes against conventional advice on profitability, it could certainly work to your advantage if you do it right. To start off, instead of killing your profits with one-size-fits-all discounts, it would be better to identify how big of a discount each customer needs. Rather, be smart about your discounted offers, go through your customers’ purchase histories, and create a series of email marketing campaigns tailored to each individual with four or five different discount offers. Doing this will help you increase the chances of conversion and maximize your profit margins.
Final Words
All in all, knowing your business’s profit margins will allow you to know where your business’s income goes and what expenses are taking away potential profitability. Fortunately, you can try out our four proven strategies to increase your profit margins to change your company’s direction and make it more productive and profitable.
