Five best ways to maximize your profit margins

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.