‘It doesn’t matter how much you make. It matters how much you keep.’

High profit margins are important in any business, for covering fixed costs and earning a net profit. When margin is below industry average, or on the decline, companies resort to –

Cost Cutting

Minimizing direct costs by negotiating lower prices with suppliers, reviewing processes and systems to minimise wastage, reducing marketing costs and implementing additional security to reduce the chance of theft are the few common ways of increasing profit margin.

Attracting new clients

Changing the promotional message to sell higher margin items is a good way of increasing profit margins by hiring staff with a different set of skills, or opening new locations or targeting new regions that have customers willing to buy higher margin products or services.

Raising prices

Increasing prices helps in growing profit margins even if revenue remains constant and conveys the message that the offerings are of higher quality or greater value than one’s competitors.

Controlling stocks

Negotiating better prices or discounts for everything that is bought, finding a new supplier that gives the best prices provided the quality is comparable and eliminating unnecessary purchases are some simpler techniques of controlling stocks.

Increasing profitability is always a result of doing many small things as mentioned above, rather than making one big change and all businesses exist to make profits and improve their gross profit margin.

Leave a Reply

Your email address will not be published. Required fields are marked *