How You Can Improve Profit Margins: 8 Top Tactics

How You Can Improve Profit Margins: 8 Top Tactics

Your sales are like an iceberg. The most visible part is floating above the water; that’s your sales revenue. Most companies become extremely focused on the sales they're making and revenue being written.

But even more important is the larger part of the iceberg that’s resting silently underwater. Your profit margins.

Profit margins keep your business above water. You can throw all your energy behind sales, but if you’re not making the right amount of profit to sustain all of your business operations, including your sales efforts, you can end up reaching for the life raft as your profit slowly melts away.

When you have your profit margins in order, you can get back to focusing on sales, expanding into new markets or territories, and continuing to grow your company.

Discover 5 smart ways to make more profit, minimise costs, and get back to growing your sales and your business:

1. Break it down: analyse your profit margins for each product

20180907-Increase-Your-Profit-Margin-Analyse-Profit-MarginsIf you’re dealing with physical inventory, you’ll want to identify your profit for each product and line item. Why? Because some items are simply less profitable than others. If you have a lot of low-profit items being stocked in your warehouse, they’re taking up valuable space that could be filled with high-profit items instead.

Arm yourself with the right business tools to help monitor and manage item profit. Set up business reporting that shows not just your item sales, but the actual profit. Real-time reporting can give you an advantage, as it will provide up-to-the-minute information. Get your reports running on a schedule and make it a habit to review your profit reports regularly to keep on top of any changes.

2. Review your pricing methodology

To figure out the right profit margin for your products or services, you need to first understand everything that goes into your costs. Sure, you can try to set pricing based on the market but will you be making the margin needed to do profitable business?

If you don’t have a clear view of all the costs involved to calculate your COGS (Cost of Goods Sold), it may be time to look into business management software that can bring together your business data and put the information you need at your fingertips.

If you know your COGS, you’ll have a good understanding of how profitably your business is operating. Start reviewing your profitability on a more granular level to see which products are helping your profit and which may be hindering it.

3. Uncover the opportunities

20180907-Increase-Your-Profit-Margin-Uncover-OpportunitiesAre you setting your all your prices by industry standard, by what your competitors are charging or based on what customers will be willing to pay for your products or services?

Ask yourself some important questions about what you sell. Do you have products or services that other competitors don’t? Are you offering additional value-adds that other competitors aren’t? Do you have a stronger reputation for quality or service that keeps repeat customers coming back to you? Does your company have a USP (Unique Selling Proposition) that makes customers want to buy from you instead of your competitors? These are just some of the factors that can influence your buyers’ decisions. It’s not always about the lowest price.

Think strategically through some of these factors and you’ll start to uncover opportunities to further maximise your profit margin.

4. Consider standard price increases

A lot of businesses are hesitant to increase pricing due to competition in the marketplace. But the reality is that prices increase over time with almost anything that’s bought or sold.

The truth is, people expect prices to rise over time. If you’re providing an excellent customer experience and service that keeps them coming back, standard price increases shouldn’t be out of the question as a way to keep your profit margins healthy.

5. Discount without freezing

20180907-Increase-Your-Profit-Margin-DiscountingYou might think that discounting will be the quickest way to reduce your profit margin – but not if you do it right.

Providing a loyalty discount, for example, can be an effective tactic to keep your valued customers returning. Bulk-buy discounts can also encourage your customers to increase their transaction size. What’s important is knowing when you can move on pricing and which items you can move on.

Are you using business management software that shows you the gross profit for each item? It’s a critical piece of information you need to know when considering whether or not to give discounts to your customers, and it’s information you’ll want the moment you need it.

With the right cloud ERP solution, you can also set up bulk-buy and quantity break discount levels in advance. These can be strategically applied to the items you’ve identified as having a healthy profit margin.

6. Negotiate with suppliers

It’s time to put yourself in your customers’ shoes. When was the last time a customer asked you for better pricing if they purchased more from you? Why should they be the only ones taking advantage of this tactic?

If you’ve identified your most profitable items already, think about buying them in larger quantities. Build a rapport with your supplier contacts. Get to know them. Then ask them for quantity discounts that will help widen your profit margin.

7. Be diligent with item receipting

20180907-Increase-Your-Profit-Margin-Item-ReceiptingOne of the costs which can be hidden from many businesses is the cost of incorrect or incomplete order received from suppliers.

Are your warehouse staff consistently checking what’s been received against its relative purchase order? If the wrong item is receipted and put away, it ends up becoming a much larger issue when that item is sold to your customer. It can affect the customer experience and cause a lot of back-tracking to figure out where the issue happened. You’ll also be covering the cost of replacing the product for your customer.

Keeping a robust receipting process in place may be a little extra work now, but it can make sure that issues with orders received are identified straight away and don’t end up eating into profits.

8. Employ automation to further reduce your costs

Having the right automation in place can be like having your own, personal army of workers running things behind the scenes – without the added hiring costs.

Some of the time-saving and cost-saving initiatives to think about with automation include:

  • Scheduling regular reporting – set and forget, having reports arrive in your inbox at set intervals. This also helps keep you in the habit of reviewing important business data and measurements.
  • Minimum and maximum stock level management – to ensure you don’t end up with too much of that low-profit stock.
  • Personalised order dispatch notifications – give customers an even better experience and reduce calls coming into your customer service team.

Cutting down your team’s repetitive, manual tasks can free up significant time. It’s one more way to reduce your operating costs and empower your team to focus on more profitable activities.


These 8 top tactics are just the tip of the iceberg. Having the right tools in place to help you better understand, monitor, and manage your profit can be a crucial lifeline for any business.

If you don’t have the right technology to help you, it may be time to learn more about a cloud-based ERP system that provides real-time reporting with powerful dashboards and KPIs of your profit and other critical business information.

Cloud ERP systems bring together all your core business functions including stock and inventory, purchasing, sales and marketing, CRM, eCommerce and more.

Start with your free demo, based on your specific business needs, and get on the road to improving your financial performance and maximising profitability now.

 

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