How to improve your profit margin


It is said that there is nothing new under the sun … and this is also true for business. The reality is that most of us need to be reminded about the options available to us, which may well improve the bottom line of our business.

Have you considered applying any one or more of the following to improve your profit margin?

1. Is overtime really needed?

If overtime is continuously needed in a business it poses the question of whether you are (a) under staffed, or (b) inefficient. One way to find out is to ban ALL overtime and then actively monitor the output of your staff. Overtime can become a ‘habit’ where inefficiency is tolerated. We are living in difficult economic times where it might be to the financial benefit of staff to prolong delivery on their outputs. Have you made sure that your business processes are optimal and also that you know what the reasonable output/delivery capability of each staff member should be? Well-documented and efficient business processes and output monitoring measurements will be a good gauge for determining the necessity of overtime, or whether staff expansion might be a more cost-effective solution for meeting output requirements.

2. Costing – the baseline of business overheads

Do you know the actual cost of each stock item/service offer, or are you working with ballpark figures? On the whole you might be making a profit, but you might be under-pricing your stock or service offer, because you have not run the numbers. Put in the effort to calculate the real cost of each stock item/service offer and benchmark your pricing strategy in the market. You don`t need to be the cheapest product/service provider in the market. This might enable you to increase your prices with the stroke of a pen and still remain competitive.

3. Reduce costs

Put in a concerted effort to reduce cost by a fixed percentage (e.g. 10%) on all cost items in your business. This will force your team to be more diligent in how they spend their budgets. 

4. Consignment stock

Why do you want to outright purchase stock for your business to sell? Rather rent out retail space on your shelves and fill it with consignment stock. This will have a positive effect on your cash flow and bottom line. 

5. Do you need to do everything yourself?

Are there any non-core activities in your business? Think of human resources, information technology services, cleaning and maintenance of premises. When making this decision it is of paramount importance to keep control of activities that improve customer value and drive profits – this is strategic to the business. ‘Non-core’ activities are generally defined as day-to-day routine tasks that add little value and are not adding to the bottom line. 

There is an old adage which states: “Turnover is vanity, profit is sanity and cash is reality.”