Many businesses think they have to boost their sales to make more money.
But simply, that’s not often achievable in the short term with limited funds.
Take, for example, the prospective client who called out for us a few months ago. She kept talking about boosting sales by meeting with new customers. But soon worked out that the average sale per customer and prospect conversion rate were so low that she would have needed 3,750 meetings with prospective customers in the next year just to get back to breaking even 😐
Luckily for her, and all of us, there’s another way to make more money, and that is simply increase your profit margins. Same customers, same level of physical sales, same systems, same effort, no more staff or extra overhead costs, existing premises and capacity…Well what are you waiting for?
Here’s 10 questions you should ask to help achieve increased profit margins in your individual business:
1. What’s my current gross profit margin?
Make sure you know your up-to-date, overall gross profit margin. It’s no good using estimated inventory figures or working from the figure in your last Annual Financials. Get some bench-marking figures from your accountant and compare yours to the industry average.
2. What are the gross profit margins on each of my services?
Your overall gross profit margin could be deceiving. Find out the gross profit margin on each of your products and services, and analyse your gross margins over different business divisions, product categories, suppliers or customer categories according to your business. This way you can identify both low margin or loss-making items and profitable activities or products. Then you can stop selling low margin lines and focus on the ones that work.
3. Can I increase my prices?
Yes, sometimes it sounds harder than it is. As business owners we are often more worried than our customers are about price, and realistically our overheads are going up all the time. Yes you might lose the odd customer, but if your margin is 50 percent, a 10 percent increase in prices means you can lose 17 percent of your customers yet be no worse off!
4. Do you charge all customers the same price? If so, why?
You’ll invariably find that some are less price sensitive than others, especially if they’re not paying for the bills themselves, e.g. government or larger organisations. Have you increased your prices to match supplier price rises and kept up with the competition?
5. Do I give discounts?
Discounting can be the death of many businesses that don’t realise how badly this destroys their profit margins. Using the same example as above, at the same margin of 50 percent, if you discount your prices by 10 percent, you need a 25 percent increase in sales just to stand still. Say goodbye to your day off!
6. Do I tend to compete on price?
Differentiate yourself in other ways, whether by giving superior value, being more involved or reducing all the other (non-monetary) costs of working with you – both time, and stress.
7. Do I get cash discounts from suppliers?
Suppliers will heavily discount product that’s paid upfront. It’s often a good idea to even borrow money at say 8% interest, and get yourself a 30% discount on products you can push fast.
8. What physical security measures do I have in place?
Whether stolen by staff or customers, losing cash is costly. Do you have anti-shoplifting or theft prevention systems in place, even for staff? Do you balance your tills? Who does your banking?
9. Do I check my supplier bills?
Check all supplier bills personally. After a while you’ll get a feel for things which aren’t right. Don’t be surprised to find that you’ve been overcharged for goods or services you haven’t received or been billed at the wrong prices.
10. What systems do I use for my inventory?
You’ll often find that by using inventory systems you are able to have less working capital tied in inventory, suffer less theft and stock obsolescence, know when you’re running out of products that are selling well, and know exactly how much each of your products cost you without wading through old purchase invoices.