Managing Profit Margin

Whenever you find yourself on the side of the majority, it is time to pause and reflect.” -Mark Twain, Author


When you asked a business owner how their business is doing you will often get a comment back about their volume of sales. While revenue obviously is important, the true key measure of business health is profitability.  The old joke about poor profitability not being a problem because it can be made up with more volume is funny as it runs counter to common sense.  The one best measure of business success is the money you put in your pocket or reinvest in the business.

Here are a few of the best methodologies to drive stronger profits in the business:

1)  Push price increases and refrain from discounting. Take on a more profit favorable mix of business (sell more high margin product or sell to a more profitable market segment).

One of the best ways to ensure that business growth drives profit growth is to focus sales and marketing efforts on the most profitable products offered.  Upselling prospects to more premium priced product, selling high margin maintenance services in conjunction with equipment sales and selling high margin consumables (like razor blades) can significantly boost profits.

2)  Improve labor productivity

In order to maintain competitiveness in a dynamic market environment, it is necessary to continually improve. Quality is delivered through managed business systems. Indeed, systems run a business and people run the systems. Tapping into the collective creativity of your team with continuous improvement methods can create breakthroughs in efficiency & profitability.

3)  Reduce material costs

Measuring and tracking your material costs over time gives you insight into how your profit levels vary, how well you execute new programs, design your product / service portfolio, manage your supply base, and leverage scale.

4)   Find the profitable mix of standard and custom product in your business. Weigh the pros and cons of custom versus standard product.

The Case for Custom

Premium priced custom products/services can add more profit to the bottom line.

Custom products/ services differentiate you.

Offering a custom construction dramatically narrows the pool of competition.

Custom allows you to differentiate on price, performance, speed, service.

The Case for Standard

Standard product can be produced at lower cost.

Standard product businesses are easier to scale.

Standard products lessen need for highly skilled workforce.

Standard products are easier to inventory, manage and service.

 

Growing profits is challenging… it is more than raising prices and cutting costs!

Patrick Leask
813-675-7722
Tampa, FL
PatrickLeask@actioncoach.com
https://patrickleask.actioncoach.com
Award Winning Business Strategist and Coach.
Helping Professional Service & Project Based Businesses Accelerate Growth.
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