Top Tips to better small business profit margins
Businesses exist to make money – regardless of an owner or manager’s motivation for setting up on their own - if a firm does not generate sufficient revenue it will fail. With a third of all new businesses failing within the first three years of trading and business bankruptcies up 7.2 per cent on last year, the importance of managing profit margin levels has never been more important.
The price businesses charge for their products or services can have a huge impact on the success or failure of an enterprise. Charge too much and a business may lose customers, charge too little and profits will be too low for survival. In order to help business owners and managers strike the right balance, find the optimum price and maximise profit margins, leading business finance firm Bibby Financial Services has developed the following top tips:
(1) Reduce operating costs – Look at where your business spends its money in producing its product or service. Are there any areas that can be cut back without having a negative effect on profits?
(2) Review your supplier base – Is the business paying for external suppliers to provide a service that could be carried out more cost effectively internally?
(3) Examine expenditure – Carry out an internal audit of your costs encompassing everything from staffing to stationery orders.
(4) Learn to negotiate – Talk to your key suppliers and ask about early settlement discounts or loyalty bonuses, you don’t get if you don’t ask!
(5) Shop around – Research your supplier’s competitors and find out what prices they charge and what discounts they are prepared to offer.
(6) Buy in bulk – Consider buying raw materials and supplies in bulk at a cheaper price per unit.
(7) Diversify your product range – Try to sell new lines to existing customers as well as attracting new ones by adding to your product range.
(8) Know your worth – Are you charging enough for your products or services? Review your pricing to ensure that you are keeping up with inflation and the broader market.
(9) Work smarter – Investigate whether marketing or promotional funds can go further. Are there complementary firms or organisations that you could pool marketing spend or resources with?
(10) Consider incentives – Look at ways to incentivise staff or customers who exceed sales targets or introduce new customers.
David Robertson, Chief Executive of Bibby Financial Services says, “Running your own business is one of the most exciting, challenging and rewarding things that you can ever do and requires motivation, entrepreneurial flair and creativity. Regardless of why you decided to set up on your own in the first place – be it to seek better job satisfaction or to be your own boss – at the end of the day, if the business does not make any money it will collapse like a deck of cards.
“In order to be successful it is vital that you know how much your product or service is worth and manage the fine balancing act between charging your customers the right prices and making enough profits to meet your revenue targets.”
Posted September 6, 2005
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