You have been
asking yourself why your business seems not to make enough profits. You are not
alone. Many businesses are also struggling to make profits because no business
is immune to competition. If you are to improve your profit margins, there are
five key steps you need to take:
1) Focus on what the
customer needs, not what you think the customer wants
Many businesses fail
to get past the introduction phase because they do not address any gap. Do not
just go into business for the sake of it; do it to meet a specific unmet need
of the customer. Perhaps you want to sell onions; don’t you think several
people are also into that business? To overcome competition, try to understand
the market. You cannot just make profits by doing ordinary things in ordinary
ways. Try to identify what onion customers need; free delivery, effective
customer service, large quantities, cheap prices, or online presence. To understand
your customers’ needs, conduct a small survey. You can also use secondary
resources such as market reports to understand your market. From this small
research, you will understand what the customer needs, but has not yet been
fully met. This way, you will surely win customers’ loyalty, increase your
sales, and your profit margins will start upping.
2) Manage Your Expenses
You may overcome unnecessary
losses by managing your expenses effectively. Try to find out the costs you
have incurred without generating positive outcomes for your business. Close down
all non-performing businesses, and focus on business areas that have potential
of generating good profit margins. You may also reduce your expenses by avoiding
unnessary expenditure and bargaining for the least prices from your supplier. You
may also reduce your expenses by buying materials in large scale to enjoy discounts
and economies of scale, hence lowering production costs. Low production costs
will improve your profit margins by either lowering prices, hence increasing
customers and sales, or reducing expenses over revenue.
3) Manage your stock
effectively
One of the reasons for
low profit margins or losses is slow movement in stock. Sometimes you may waste
your stock or leave them on the shelves until they lose value. Let them give
you the profit margins you desire by purchasing the right amounts for your
business and disposing them as quickly as possible. You may use the just-in-time
approach whereby you only buy stock when there is ready demand, rather than
buying a lot of it and keep it without any immediate customer in mind.
4) Offer Reliable Service
and Product Quality
To improve your profit
margins, always try to satisfy your customers to make them come back again and
again, or even refer your business to friends. Word of mouth usually travels
fast, and if you offer exemplary service and product quality, you will always
retain your customers and attract new ones without much advertising efforts. Of
course, the more your customers, the higher the profit margins. Existing
customers may also be willing to pay higher prices for good quality, leading to
higher profit margins for the same amount of sales.
5) Keep Records
Do not give room for
any leakages in your finances. If you are serious with your business, ensure
that you keep records of purchases, sales, debtors, cash, expenses, and creditors
in their respective books. This way, you will know when you are headed to losses
and when you are headed to profits, and plan effectively to achieve your profit
margins. You may learn more about bookkeeping to ensure that you keep records
appropriately.
