Running a successful business is a balancing act that can grind to a halt if your spending exceeds your income. More sales and customers are always good things for a business. In addition to boosting profits, you must understand the profit margin formula – the difference between your revenue (the amount of money your company brings in) and your costs – and take control of it to succeed. Here are 5 techniques to increase your profit margin:
1. Change Operating Procedures
You need to generate more profit while reducing expenses. To increase your sales, try cross-selling—offering new services or goods that complement your current offerings. For example, a chiropractor might also sell vitamins. Another operational change that can increase profits is incentivizing new customers to try your product with specials deals, discounts, or short-term giveaways.
2. Stay Visible and Connected
Accreditations, licenses, and certifications for your business or individual employees can set you apart from your competition. Take your reputation online, eventually using social media, your website, and a blog to connect with clients and make strategic alliances.
Use advertisement sharing with complementary businesses and find ways to leverage referral selling,. And take advantage of affiliate marketing tools to drive new customers to your site. Eventually eliminate stale, ineffective alliances that may be dragging you down.
3. Maximize Your Cash Flow
One of the best ways to achieve a stable cash flow is to offer pre-paid retainers or ongoing payment plans for your clients. For example, instead of a one-off consulting contract at $125 per hour for a full day, tweak your offering and give them a discounted 20-hour retainer plan at $100 per hour. While your hourly rate would be less in this case, you’ll be billing for a greater total dollar amount, and locking your client into a longer-term arrangement.
At first, this may not seem as lucrative, but it establishes a relationship and keeps the door open for additional work. Maintenance contracts for service-based businesses are another way to create a new revenue stream.
4. Streamline Management Costs
How efficient are your employees? How many customer leads do you get? Do you owe in accounts receivable? Questions like these need to be answered immediately, and to do so, you need to automate your business.
Create a system for employees to access and add data, keep all information updated and synchronized. And be sure to build in back-office administrative time into your project fees, hourly rates, or ongoing charges. Consequently automation allows your business to run smoothly and will help a scaled-down workforce accomplish more back-office work.
5. Raise the Marketing Bar
Networking used to mean cocktails and handshakes. But now, it is all about immediacy. Give your business an instant presence through online networks including Facebook, Twitter, YouTube, Instagram, and LinkedIn.
Set up group meetings, sales presentations, and special promotions using webinars. Offer tutorials, demos, or new certification sessions as webcasts or podcasts for immediate download. Measure all of your marketing efforts to see which ones are cost-effective. You can do this with a Customer Relationship Management (CRM) software solution linked to your accounts receivable system.