5 Strategies for Increasing Your Profit Margins

Mar 17 - by Darren

1. Increase Your Prices:

When is the last time you raised your prices?

More business owners have a problem with a price increase than their customers do.  This is the fastest, best and most inexpensive way to jump your profitability.  As a general rule: 95% of your customers will not even notice a price rise up to 15% and the 5% that do notice/complain are the 5% that already complain.  Remember if you are still fearful to raise your prices across the board, just increase the prices on the 80% of your product or services that are slow sellers and leave the 20% of your fastest sellers til last. Or if you’re an Accountant for example and your really really worried that raising your prices will upset existing clients causing them to leave you, you could simply raise your prices for ‘new clients’ coming on board.  Would all of your clients get really, really upset and leave you if your prices increased slightly?

2. Stop Discounting:

If you constantly discount, why have a regular retail price?  Discounting not only costs you money, but it can also give the impression that your normal prices are a rip off!  Customers may also hold off buying an item that’s $100.00 today because it may only be $80.00 tommorow.  It’s better not to discount and simply offer more add on value that does not cost you a lot.  Remember when you discount, you have to increase your sales volume to get the same amount of profit.

3. Sell More Higher Margin Goods/Services

Quite often a lower priced item will offer a greater margin.  You should analyse how much each item makes you and then continue to stock only those that

1. Move quickly, and

2. Make you the most money.

If you work in the Business to Business services industry you should consider which services offer the most money for the least amount of effort, this will give you much better return on your time invested and much more effective ‘time utilisation’.

4. Lower Cash $$$ that are tied up in Inventory:

You should never have too much stock.  This has an adverse effect on cash flow and you also run the risk of being stuck with the stock if trends change.  Always keep your stock levels as lean as possible and ensure this ‘lean level’ will not impact sales adversely.  Order stock when you need it and if possible get it on consignment.  Implement a simple system that alerts you when stock levels are low.

5. Improve Your Cash Flow Cycle:

By changing your accounts from 30 days to 7 day terms.  This allows you to earn extra interest on the money or purchase more high moving stock or invest in more advertising.  Changing your terms will dramatically improve your cash flow cycle.  Having the money in your account is much better for you and your business.  Do not let customers stretch you out, lift the phone and chase your money – did you really go into business to give your customers ‘interest free loans’?