When running a small business, it’s tempting to focus almost exclusively on volume when thinking about how best to grow your company. After all, if you can sell more widgets, you can probably generate more revenue and profit. But while keeping production costs low and selling as much as possible is a great way to keep expenses under control, it’s not the only way to increase your profits.
Increasing the profitability of your business by implementing one or more of these tips could positively impact cash flow and enable you to reinvest in growing your business in other ways.
Develop a Consistent Brand Strategy
Making more money in business means either pinching pennies or making cuts. But there are other ways to make your business more profitable. But, before you do anything else, take the time to define your brand clearly. And develop a strategy for how you will communicate your brand to your customers through your marketing efforts, product design, and overall customer experience.
And while you’re at it, make sure your product is the right one for your customers. Too often, entrepreneurs get so caught up in what they want to sell that they forget to ask themselves if anyone wants to buy it.
Know Your Margins Before You Set A Price
Before setting your price, take the time to sit down and do a quick calculation to ensure that you’re pricing your product based on its manufacturing cost and your desired profit margin. This is particularly important if you’re selling products that are made in-house or if you’re using a third-party manufacturer.
You might be able to negotiate better prices from your suppliers if you’re working with them on a larger scale, and you may even find other suppliers who can produce the same product for less.
Don’t Be Afraid To Raise Prices
If you’ve been selling products or services at the same price for some time, don’t be afraid to look at your costs and determine if you can raise the price. Of course, setting prices is always a delicate balancing act. But you’ll want to do everything you can to keep your pricing consistent so it doesn’t negatively impact your brand equity. To do this, try to tie your price increases to things like inflation and other changes in the marketplace that your customers will likely understand.
Identify Which Activities Are Contributing To Profit
One way to increase your profit margin is to figure out which activities contribute to your profit and which are simply eating into your margins. This is particularly important if you’re running a service-based business, but it’s a good idea for all types of companies regardless. To do this, create a profitability matrix that breaks down your activities into rows and columns. One column should be for activities that bring in revenue, another for activities that contribute to profit, and a third for activities that eat into your profit.
Diversify Your Customer Base
If you’re relying exclusively on one or two customers for the bulk of your business, it’s time to diversify. It could mean you need to find ways to increase the amount of business you’re getting from each of your existing customers.
But, if you’re getting most of your business from one or two customers, your business is at their mercy. If something goes wrong on their end and they aren’t able to pay you, it could put you out of business. Diversifying means finding new ways to connect with your customers. This could be as simple as overhauling your social media output. Or as innovative as bringing loop.tv into your store to keep customers entertained and browsing longer.
Use Technology To Streamline Your Business
If you’re not already doing this, start looking at technology solutions that will help you streamline your business. You can start with something as simple as using software to manage your scheduling or make a bigger investment in systems that will help you automate various aspects of your business.
Depending on the type of business you’re running, all sorts of technology solutions could help you reduce the manual labour required to keep things running smoothly. This could include anything from inventory management solutions to software that allows you to accept payments online.
Go Beyond Continuous Improvement
Now that you’ve implemented all the ways to increase your profit margins listed above, it’s time to look for ways to reinvest in your business. This could mean investing in new equipment that will allow you to produce your products more efficiently, hiring additional employees to lighten the load on your existing crew, or investing in marketing initiatives to help you reach more customers.
One thing is certain, whether you’re running a large business or a small company. You must keep a close eye on your profit margin. Fortunately, there are plenty of ways to implement profit margin strategies to help your business thrive and prosper, so your customers will keep coming back for more.