Conducting regular reviews of your profit margins should be a crucial part of your business plan, yet some owners don’t do so often enough.
As part of your annual budgeting and planning process, you should review your current and historical profit margins to determine whether they are increasing or decreasing. Analyze the profitability of each of your offerings and assess their contribution to your overall profitability.
Actionable Ways to Increase Margins
Increase Prices
Some business owners are afraid to raise prices, assuming their customers will find a new, cheaper competitor to replace them. While this may happen with a few customers, your most loyal customers will stay with you regardless of price increases, driven by factors such as inflation, demand for your product/service, and brand loyalty.
You can create brand loyalty as a barrier to entry for competitors and keep your customers committed to your brand for the long haul. Read more about building barriers to entry, like brand loyalty, here.
Reduce Business Expenses
If you have recently raised your prices, another way to increase margins is to reduce costs. However, reducing operational costs will only work if your sales remain the same or experience an uptick. Simple ways to reduce business expenses typically include cutting back on certain office supplies or renegotiating maintenance and other service contracts.
Since the COVID-19 pandemic, many businesses discovered they could be just as productive or more productive than in the office. Business owners could also save money telecommuting by forgoing office supply orders, heating and air conditioning bills, employees’ parking, and more. If managed correctly, remote work can reduce overhead costs and increase productivity by allowing more time to work and less time commuting. Kate Lister, president of Global Workplace Analytics, said her company conducted a study on teleworking. According to a Forbes article, her research estimates that “a typical employer can save about $11,000 per year for every person who works remotely half of the time.”
Of course, these strategies may not be for every organization. If you would like to learn more about a specific plan to increase your business’s profit margins, contact us today. ACT Capital Advisors has been working with companies across various industries since 1986, developing strategic plans before they go to market to ensure they achieve the best possible value.
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