One of the most misunderstood concepts many new business owners don’t really understand is the importance of profit margins. Yes, profit is profit, but wouldn’t it be better to work smarter, rather than harder to make the same amount of money? When you focus in on that margin between your cost to produce and sell your products, and what you realize from the sale, you will see that if it costs more to produce and market a product, you will need to produce more to make the same amount of money. In other words, you want to spend less to earn more. Here are three key ways to quickly increase your profit margin.
1. Reduce Waste :
When seeking to increase your company’s profit margin, waste is a huge factor. The amount of waste has a direct impact on your profit margin because that waste is tallied on the ‘production cost’ side of the balance sheet. Take a look at all those pallets in your stockroom, for example. Are you continually ordering new pallets because the products you stock are too heavy for the pallets that you use? What of those pallets that get damaged during shipping? Instead of setting them aside, why not sell some of them back to Gruber Pallets when ordering new pallets to take their place? You may even want to spend more initially to get better quality pallets that will last longer, serve you better, and reduce waste in the process.
2. Turnaround Is of the Essence :
Another key factor in increasing your profit margin is the turnaround. Look at how long it takes from order to shipping. You have heard it said that time is money, and in this case, truer words were never spoken. The quicker you can get products out the door, the quicker you can begin producing the next customer’s order. In speeding up the process, you are in effect cutting production costs as well. Whether it takes automation or improvements in key processes, the turnaround is a key factor in profit margins.
3. Customer Retention :
You may be wondering how customer retention factors into a profit margin. The best way to look at this is in terms of how much is it costing you to acquire each new customer? Are you paying a marketing company or an in-house sales team? If so, each customer retained means that new customers grow your business instead of simply staying in stasis. When you continually need to replace customers that you’ve lost to maintain a steady workflow in production, you are spending more to produce the same amount of product. Instead of spending marketing money to produce the same amount of product, why not spend marketing money to grow your customer base? That makes much more sense.
In the end, it’s all about spending less to make more. If it costs you $50 to make a product you sell for $100, why not spend $30 or $25 to make the same product of the same quality. By reducing waste, increasing turnaround, and retaining your customers, that’s exactly what you can expect.
Want to grow your business? Increase your profit margin and you’ll have resources you need to grow.
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