Lifting Profit Margins 101

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It’s a given that, in any organization different levers impact the profit margins. The main ones are as follows:

The Price. The cost at which your products or services are sold.
The Purchasing Stage. The cost at which the products or services you need are bought.
The Retention Stage. The ability to retain your current customers.

Maybe, lately, you’ve been noticing that your company’s profit margins are eroding and you do not really know why that happens. There are many reasons that could have lead to this unfortunate event. Aspects such as theft, rising costs, absenteeism, lower prices, employee turnover, the commoditization of services and products are the main contributors.

This is where the bad news ends because all these aspects are controllable. While most companies try to control these factors all at once, a smart business owner should focus on identifying the biggest erosion factor and acting swiftly and accordingly.

If you want to increase your profit margins and you can’t afford or simply do not want to make a large investment, you’re in the right place. First of all, you need to identify those opportunies and take advantage of them to the fullest. The best example is your everyday car jack, which can lift a two-ton car with little to no effort. One should consider increasing the profit margins in a similar manner. Should you be a more adventurous type of entrepreneur, consider you’re using a hydraulic lift to raise the car.

During the course of the last few years some companies asked for my advice regarding the increase in profit margins. Here are five strategies I use on a regular basis to properly lift those profit margins.

  • First of all, I always try to identify ways on how to leverage the services or products a company is buying to increase value.
  • Secondly, I always do my best to create an emotional connection with customers. This will help you in the long run more than you might think. Don’t believe me? Try it once and let me know how it went.
  • Third of all, I suggest that a reduction of the number of touch points in getting the service or product to the customer is in place.
  • Once that is out of the way, the next logical step for me is to identify new pricing strategies.
  • Last but not least, I always make sure that the success metrics are aimed towards profitability and not just revenue.

You’ll always hear business owners telling you that “We need to increase sales” or “We need to assure more training”. In my opinion, this will not really help your product or service on a long term basis. Instead of doing this, one should take a step back and identify the greatest opportunities for increasing the profit margins.
How do you increase your profit margins? Let us know what are your solutions or ideas below.

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