Owning and running a business is hard. Making enough money to keep your business and yourself afloat is even harder. Here are some tips to increase your profit margin and make your business more profitable.
You put in the long hours and pour all your energy into your business, but barely make enough money to cover your expenses – the juice just isn’t worth the squeeze… This is something many entrepreneurs battle with, particularly during the early stages of their start-up, and why many give up and return to formal employment.
But you can turn things around – and one of the ways to do that is to increase your profit margin!
What is the difference between revenue and profit?
First things first – you need to differentiate your profit from the revenue your business is generating. Both refer to money your business earns, but there is a big difference between them:
- Revenue (also known as turnover or income): The money you receive for selling your products or services.
- Gross profit: The difference between the selling price of your products and what it costs you to make or buy these products.
- Net profit: What’s left over after you’ve calculated all your sales and deducted the cost of making or buying the products as well as all your taxes and business expenses.
FYI, it is possible for your business to bring in revenue, but still operate at a loss, meaning you are not making any profit.
What is profit margin?
Profit margin refers to how much of each sale you make is profit. It is usually expressed as a percentage and gives you a good idea of how your business is performing – the bigger the percentage, the more profit you make, the stronger your business, the more money you get to take home.
To work out the profit margin divide your gross profit by your total revenue, and to make it a percentage, multiply the result by 100. E.g. R150 (profit) ÷ R500 (revenue) = 0.3 x 100 = 30% (gross profit margin)
How do you increase profit margin?
1. Simplify your business
Eliminate products or services that customers just aren’t buying and focus on the most popular ones that are bringing in the most money. The less popular products or services could be eating into your profits; if that’s the case they need to go. If you find yourself with loads of dead stock (i.e. products your customers aren’t buying), find out from your supplier if you can return it. If not, try to create some interest in the products by running exciting promotions, clearance sales or add them to value bundles.
2. Work faster
The quicker you finish a job, get a product to market, etc. the more you can achieve in a year. If possible, find ways to turn things around and get them to your customers quicker – it also means you will be paid sooner, bringing much-needed cash into your business. But that doesn’t mean you should cut corners! Always make sure you follow the correct procedure so that the quality of the product or service remains top notch.
3. Increase your price
Be careful if you are doing this – you shouldn’t just raise your prices because you feel like it. You need to make sure your customers are loyal and will accept the increase because they feel they are receiving value for their money. Perhaps think about how to improve the perception of your brand and the value you offer to customers so that they don’t feel like they’re being ripped off and look elsewhere.
4. Cut costs
Take a close look at your operations and try to identify where things could be done simpler, cheaper or with fewer staff, but without affecting the quality of the product or service you are providing. Start by comparing prices or renegotiating contracts with suppliers. For example, call around to different insurance companies to see whether you can secure a more competitive premium. You could do the same for delivery services, office supplies and security. You might want to review your employees’ responsibilities and performance too. Staff costs are usually the highest, so having the wrong people in the wrong jobs is a no-no. But be careful of letting go of too many employees as it could leave you with too few hands to get the work done.
5. Ask for discounts
Speak to your suppliers about buying in bulk or paying upfront to secure a better price. There might also be loyalty programmes in place that you can sign up for to enjoy discounts – it’s always worth asking!
6. Tap into seasonal trends
‘Tis the season not only to be jolly, but also for carefree spending. Consumers often have some extra cash around this time of year and they’re more willing to spend it! It’s a good time to run special offers or seasonal promotions to increase your sales and raise awareness of your product or service. You should also consider giving your customers gift ideas based on your offering, creating gift bundles or letting them buy gift cards for their loved ones.
7. Bank smartly
Using your TymeBank EveryDay Business account benefits will help you reduce costs and let your money grow.
When you open a TymeBank EveryDay Business account online you won’t pay a monthly fee just to have an account with us, you only pay for what you use. You also aren’t charged for EFTs, debit orders, debit card and online purchases, and your first till point deposit for the month.
Sounds too good to be true? Well have a look at our EveryDay Business account fees and charges and see for yourself.
You can also leave your money in our GoalSave savings tool to earn interest that goes towards boosting your business in future. The longer you leave your money, the more interest you earn!