How to Increase Your Small Business Profit Margin (20 Easy Strategies)
Increasing business profit margin is the priority of every entrepreneur. Luckily, achieving this is not complicated when you know the right strategies.
In this article, we’ll list 20 techniques that you can use to increase your business profit. But first, we need to review exactly what the profit or profit margin of a company is and why learning to calculate it will help you better plan for your business’s future.
What is the Profit Margin of a Business?
The profit or profit margin of a business is the percentage of revenue that results after deducting costs such as interest, taxes, dividends, and general and operating expenses.
A high percentage indicates that the company generates many profits for every dollar that enters the business. If this indicator is low, the news is not good. This means that high operating costs reduce your earnings for every dollar of your income.
You can use this indicator to assess your business’s financial health and thus take steps to increase your profits. The profit margin is also used to compare a company’s performance against its competitors and estimate its growth potential.
Don’t confuse a company’s profit with its income and cash flow. How are these three concepts different?
Profit. It’s the financial earning received when a company’s income exceeds the expenses and costs necessary to keep it running.
Income. It’s the money generated by a business for the sale of goods or services before deducting any expenses.
Cash Flow. It’s the money that moves in and out of a business.
What is the Profit Margin Formula?
The formula for calculating the profit margin is very simple. You just have to subtract the total sales expenses and divide the result by the same total sales. The result of this operation is the profit margin:
Profit Margin =(Net Income / Revenue) x 100
20 Easy Strategies to Increase your Profit Margin
Knowing your business’s profit margin will allow you to identify opportunities to improve your profitability because you will be aware of how you are investing your company’s income and where you need to make adjustments.
These 20 strategies focus on different areas of any business, are easy to implement, and help you spend less and earn more money.
1. Cut unnecessary expenses
When it comes to increasing your profits, every penny counts. Identify how you invest the money and eliminate any unjustified expenses that don’t add value to your company or help it grow.
Start by reducing overhead costs: unsubscribe to services you barely use or switch to a cheaper plan, save water and energy, and optimize the use of the space or equipment you are renting.
2. Increase prices
If there is enough demand, you can increase the price of your products or services. Although it can be a difficult decision, especially for small businesses, it is sometimes necessary to ensure your company’s long-term survival.
3. Create your own business website
Make sure your potential customers find your business on the Internet: create a website.
A basic site that you can easily make yourself will contain your company’s name, location, and contact information. A website will allow people to interact with you and know what you have to offer them.
4. Start selling online
In addition to promoting your products and services, your site can become an online store. Some platforms allow you to add this feature to your website.
By selling your products online, you’ll be able to reach a wider audience and improve your sales (and your profits, of course!).
5. Take advantage of the email
With an email marketing campaign, you can show your products or offer seasonal promotions.
Create a customer database with your clients’ email addresses and send them a weekly or bi-monthly newsletter. Ask your customers for consent before sending them messages, and offer them the option to unsubscribe from the newsletter.
6. Create a blog
A business blog can position you as an opinion leader. It is also an excellent marketing tool to connect with your customers, bring them useful information, and solve their problems.
When they read your blog, they’ll realize you’re an expert in your industry and they’ll want to make business with you!
7. Make the most of social media
With billions of users, platforms such as Facebook or Instagram have become the most effective communication channel with consumers.
You can communicate in social media the spirit of your brand, interact with your customers regularly, and answer their questions.
8. Create a content marketing strategy
In addition to a blog, you can create content through videos, podcasts, images, infographics, and e-books. Offer customers relevant content: record a video and teach them how to prepare a recipe, use Pinterest to show them your new products, or tell them about a current topic in a podcast.
9. Optimize your website
Use SEO tactics to make your website be among the top sites for search engines. SEO strategies (Search Engine Optimization) include, among others, the use of keywords that users enter to search you on the Internet, the improvement of the download speed of your website, and the optimization of your website to be seen from mobile devices.
10. Ask your customers for positive reviews
Whenever you interact with your followers on social media, ask them to leave their comments, suggestions, and positive reviews about your business.
This strategy is an excellent way to increase sales, as people trust these reviews as much as personal recommendations. If your customers are satisfied with your business, they will be pleased to write a review.
11. Offer gift cards
This payment method can be purchased directly at your establishment or in your virtual store. They are one of the most popular forms of payment, mainly on special dates. They are safe, easy to use, and can generate income for your business in low seasons.
12. Offer student discounts
This sector of the population has great purchasing power, and if you offer student discounts, they will come to you. Students have the potential to become long-term clients, and you can easily attract them to your business using social media.
13. Apply for financing
If you want to expand your business, a small business loan can give you access to the resources you need. If you invest the funds properly, you could get a high return on investment.
Camino Financial offers financial solutions with minimum requirements that adapt to the specific needs of each business owner. You can access a loan in just 2-10 days, and to apply, you only need to generate annual sales of $30,000 and have been active and registered for at least 9 months.
14. Turn your employees into sellers
Each of your employees can become an ambassador of your business and convey your company’s message. Encourage your employees to talk directly with customers and tell them about your offers or use their personal social media to promote your services.
15. Hire independent employees
Contractors are very useful for performing specific tasks, and in many cases, it’s a better and cheaper option than hiring full-time employees.
Independent professionals such as marketing specialists, lawyers, or accountants can do specific jobs, and you don’t have to pay them for social security or additional benefits.
16. Improve your relationships with suppliers
Negotiate better agreements with your suppliers to reduce costs. Ask for discounts, free shipping, or some free products. If you usually buy in large quantities, they may agree to give you better deals.
17. Reduce costs in the distribution chain
Sometimes, transporting supplies and products from the factory to your business is more expensive than it should. Loading the truck completely and reducing the number of deliveries per week can be used to reduce costs.
18. Expand your business to other markets
If your local market is saturated and offers no more options to grow, consider expanding to a location with less competition.
Research what markets might have a demand for your products or services. The cost of moving to new areas can be offset by an increase in sales.
19. Perform an internal audit
An accountant or consulting firm can carry out a detailed review of your business’s expenses and income. Thus, they can point out specific high costs that could be reduced or give reasons that explain the decrease in your income.
20. Eliminate products that leave no profits
Products or services with higher profit margins are the most important for your business. You must concentrate all your efforts on them. Others, on the contrary, can be a burden to your finances.
Identify the products or services that don’t contribute to your business, study whether it is feasible to improve them or if simply removing them is a better choice. If you have a restaurant, you can do a menu audit.
It’s time to improve your profit margin!
Knowing your business profit margin will let you know where your company’s income goes exactly and what expenses are taking away profitability.
This indicator will also help you make the necessary adjustments to change your business’s direction and make it more productive.
Luckily, there are many strategies you can use to increase your income. Try those that best suit your business and combine them: that’s the most effective way to make them work.
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