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Advisor Cambridge

Profit Margins

Margins are critical to your profitability. You can have a fast growing business but without acceptable profit margins all of your efforts will be for nothing. It is important that you not only know your overall margins, but you must also know them for each product or service type. Why? Because you want to concentrate on selling your highest margin products and services whenever you can as these are the game-changers for you. These products and services are the ones that provide the resources to cover your costs and provide you with resources to invest in your business.

There are two primary ways you can improve the Profit Margins – reduce your expenses or raise your prices. Most owners have palpitations at the thought of raising prices, especially in today’s competitive market, but if you have done the hard work of creating a Unique Selling Point and have truly differentiated yourself from your competition, then raising your prices may be an option. It is mainly fear of the unknown that keeps business owners from taking the bold step to increase their margins through a price increase but remember, your loyal customers are not doing business with you because of price alone.

Cutting costs is often easier, but not necessarily the right move to make when you are trying to grow your company. Eliminating waste is always good, but often expense cutting comes in the form of eliminating services, reducing staff and degrading your ability to deliver on your promise. Be careful not to impact your operational efficiency and speed of delivery when reducing your expenses.

Now, with that caution in mind, there are always ways to gain efficiency and reduce the effective cost of your system. Large manufacturing companies are masters at eliminating costs through waste reduction, efficiency gains, reduced work in process inventories and unnecessary movement of people and supplies. When was the last time you critically evaluated your business operations with an eye towards gaining efficiencies and reducing unnecessary steps on your process? This is a powerful way to reduce your costs while at the same time improving your productivity and customer satisfaction.

The challenge is to first know your margins, then take action to improve them on a regular basis. Work hard on this area and you will position yourself for phenomenal growth. Not a bad outcome for the effort involved!