Increasing sales might make more profit for your business but consider increasing profit margins, especially if there is limited opportunity to increase sales. Growing your business can be achieved by building profit rather than sales.

Focus on larger margins

Concentrate on the products or services you sell that have the biggest margins. By selling more of these, your business will gain more profit. Train your employees to be aware of which items have the best margin and are therefore best to sell.

Begin to phase out goods that have low margins. If you’re selling plenty of them but not making much profit, it might be best to use that space or time for something more profitable.

Other options for focusing on larger margins include:

• Changing your product or service mix and give customers more choice to buy high margin items, and less choice on low margins.
• Promoting items with the highest margins above those that have low margins.

Remember the 80/20 rule outlines that 80% of your profits comes from 20% of your goods or services. Make sure they are the high margin products.

Increase price

Often increases in prices by a very small percentage (even 1- 5%) on regular occasions is easier to implement, than hitting your customers with a larger price increase once a year.

If you do sell items where are customers are more price conscious, keep your major products or services at competitive prices. Instead, think about increasing margins on supplementary products or services where customers are either not so familiar with the price, or don’t compare you with the competition.

Lower the cost of supply

The other main way you can improve your margins is by lowering the cost of supply, finding ways to pay less for any of the costs associated with bringing your products or services to consumers.

To achieve lower costs, consider:

• Sourcing raw materials from a less expensive supplier, if they offer the same quality. It’s easy to fall into a routine and always order from the same supplier. Consider every year (or two) to re-tender or seek new quotes from suppliers.
• Purchasing in bulk if discounts are available, you have the storage space, and you don’t stock perishables.
• If your business can get similar raw materials or products from overseas at less cost, it’s worth looking into.
• Ensuring you take advantage of any early payment or cash payment discounts.
• Taking steps to reduce theft and wastage – make sure your inventory system is efficient and links through to sales and there is less room for fraud.

Target better clients

Change the customers you are targeting to ones who will spend more money, or who are less price resistant. They may be quite happy to pay a higher price for what you offer.

Attract new clients

You could open new locations or target new regions where customers are willing to pay a higher price. If you focus on local consumers who are price sensitive, can you find commercial or government customers who may be prepared to pay more for what you do?

Encourage customers to buy more frequently

If your loyal customers increase the amount they spend at your business and the frequency of their visits, your profits will increase accordingly.

Review how you work

Assess if any staff can work from home, possibly lowering any lease costs as you’d need less room to operate. It could be possible to sub-contract any non-essential manufacturing to other businesses, to save you holding fixed costs or raw materials.

Make processes more efficient

Look at all your business’s processes and brainstorm ways of making them more efficient to save money. You could, for example, cut your raw material costs by reducing wastage, introduce lean manufacturing techniques and just-in-time ordering.

Get in the regular habit of reviewing your margins to make sure they haven’t changed due to creeping input costs or sales discounts.