Five Strategies to Improve Your Profit Margin

Dollar signs growthProfit is the driving force of business and how to improve profits has been a popular topic of discussion. But to keep a finger on the pulse of your business it’s important to monitor other elements, including profit margin. Don’t overlook strategies that can improve this important indicator of the health of your business and therefore, your profits.

What is profit margin? Simply put, it’s the difference between sales revenue and business expenses. A high profit margin can help accelerate growth and expansion; a low one can put the brakes on growth. The key is to maintain forward momentum. The following five strategies can help achieve and maintain the profit margin you need to stay on track to fulfill your mission and attain your growth objectives.

Prioritize customer experience

Statistics show that 52 percent of consumers have switched providers because of poor customer service. Without customers there are no profits. A great customer experience can build loyalty and increase customer retention. A loyal customer base enhances brand recognition and increases profitability, including the savings associated with the lower costs of retaining customers versus acquiring new ones. Customer opinions and resulting actions have the potential to impact your profit margin as much or more than your business model.

Know thyself AND thy value

What makes your business unique? How is your product better? How does your approach to service yield more beneficial results? What specific problem is resolved because your business exists? It’s critical to understand clearly—and be able to articulate to both your staff and your customers—how your company is set apart from others and what value there is in that uniqueness. That you are distinctive is leverage that can justify charging more than competitors, even those that may be much larger companies. When customers are willing to pay more because the perceived value of your product or service is high, profits can rise without sacrificing sales or growth. If you’re looking to increase your value to customers, experiment with innovative business models, alternative concepts and digital tools that will set your company apart. If your company is small you likely have the agility to implement, without substantial disruption, new ideas to differentiate yourself and get the attention of both existing and potential customers.

Regularly scrutinize expenses

Many risks associated with business are not within your control. But expenditures can be with a realistic budget, careful monitoring, and making smart spending decisions when needed. Not only should you know how every dollar is spent but you should know precisely what value you receive in return. Is the expenditure contributing to growth? Is it improving your product, your service, or your customer’s experience? If not, perhaps it’s a cost you can eliminate. Take a close look at recurring expenditures. Sometimes these regularly-paid expenses tend to become entrenched elements of your budget when they may actually be obsolete or non-essential drains on cash flow that can be eliminated. Also look at rates you are paying for supplies, services or credit and explore renegotiating those rates. Can alternative activities accomplish what you need but save money? Can you save on travel expenses by using “Go to Meeting” instead? Can you save energy by rearranging the office to make use of natural light and turn off interior lights for at least part of the day? Look for ways to make fixed costs more variable.

Boost your buying power

Becoming cost-efficient can be challenging without buying power. This can be an issue especially with small companies and start-ups. The ability to buy more at once, and therefore receive greater savings, can help spur growth. To help increase buying power, research options for consolidating your purchases so that they come from fewer suppliers. Negotiate rates and terms with your vendors. Look into whether there are shopping co-ops that may serve your needs and save money. Even consider purchase partners—buying with other small businesses that may use the same suppliers can lower costs and boost your buying power.

Defer to data

Your business systems likely provide you with more data, even on a daily basis, than you care to think about. You probably have statistics regarding customers, sales, website traffic, marketing campaign results, financial data and more. Within this data is solid business and financial intelligence you can use to increase profits and improve your profit margin. Specifically it provides a history of your company’s investment and return which can provide insight for more results-oriented decision making. Experts suggest that not only decision makers, but all levels of management have access to this data for more timely and efficient review and interpretation of the data, communication about it, and implementation of changes it may dictate.

Written by

Rick Arthur is a CFO whose expertise is built on Financial Intelligence and 35 years in senior financial roles. Coupled with a CEO’s perspective and the experience of building his own $20 million company, he brings a unique depth of insight into business from the top down. Wired to get to know people, Rick works hand-in-hand with business owners of intentional, growth-oriented companies, solidifying relationships as a trusted advisor and confidant to his clients. He leverages his experience to help business owners gain traction and stay laser-focused on the company’s vision, cash flow, and profitability – all while creating big picture solutions for strategic planning, growth and sustainable success.