In our previous blog we talked about how to drill down and measure your margins. Once you have measured them correctly it’s time to identify ways to improve your margins. With improved margins you don’t have to generate as many sales to get the profit figure you want your business to deliver to you. Better still, if you lift your margins and achieve higher sales, you’ll get even more than you planned on your bottom line!
Here are 10 ideas to ensure you are improving your profit margins:
1. Set targets and budgets for team members and jobs and share these with your team. Have weekly 10 minute stand up meetings to celebrate achievement and share ideas to improve results.
2. Identify which products or services you sell that give you the highest margin – share these with the team and make sure they know how to sell them
3. Eliminate products or services that give you a poor return – either adjust the price or don’t offer them for sale. The only exception here is ‘loss leaders’ which are products or services which bring customers in the door. Examples of these are milk and bread in a grocery store (note how these are always in the back of the store so you are tempted to buy other items as well) or petrol at a service station (they make all their money from the food you buy).
4. Put your slowest moving stock items on sale and set maximum stock levels so that when they sell you don’t over order more. Slow moving stock or materials are tying up your cash.
5. Make sure in your pricing that you are including the cost of consumables, administration time or software charges you are incurring in making those sales. Adding a simply admin or consumables charge of, say $10 to every invoice will make a big difference over a year.
6. Back cost individual jobs or projects and compare the actual results to the quote you provided or the margin you expect from your price list.
7. Keep your price lists up to date and increase them at least annually. If you’re using a pricing tool for quoting make sure the costs are up to date with what you are being charged by your suppliers.
8. Up-sell and offer options to your customers – then they have a ‘choice of yeses’ and you have the opportunity to increase your average transaction value; often more return for the same amount of effort.
9. Keep in regular contact with your customers so they buy from you more often. Make sure you are networking with them and creating opportunities for you to contact them or for them to come and see you. It is 6 times cheaper to sell to an existing customer than a new one.
10. Use a system or checklist to ensure that everyone in sales is aware of your product range, the most profitable items and when to offer them. For example, when a team member goes out to scope a job, are there add-on offers they are aware of listed on a checklist so they don’t get forgotten?
Of course there will be many other specific things you can do in your business. Come and talk to us about how we can put together your profit improvement plan.