Anyone who runs a business knows that things succeed or fail based on profits. The entire point of business is to make a profit, and if you are not making a profit, then your business might be in serious trouble.
A lot of business owners focus entirely on growth as their primary source of profit. However, truly savvy business owners know that they can also increase profits through their margins. So today, former Columbus mayor and commercial real estate investor Micahel Eisenga is here to explain valuable ways to improve your profit margins.
Streamline operating expenses
Profit is what is left over after expenses have been deducted from revenue. Thus, one way to improve profit margins is by streamlining and reducing operating and overhead expenses. For example, automation is becoming a popular way to reduce operating expenses. Businesses can save money by automating aspects of administration. Cutting operating expenses means that more of that money goes into profits.
Another obvious solution is to increase prices. Unfortunately, there is no universal guidance on how to introduce price raises. Many people fear doing so as they think they will lose customers. Some industries might have a greater price sensitivity, where other industries might have more flexibility. Surprisingly, many consumers would be willing to pay more in exchange for a better customer service experience, so that is one way you can offset potential customer losses from raising prices.
Upselling increases average unit sale
Upselling is the practice of persuading customers to buy something else after they have already bought something. Some studies indicate that upselling can increase your revenue by nearly 30%! Offering upgrade packages or products commonly purchased in tandem are all efficient methods of upselling products or services.
Focus on customer retention
It costs significantly more to acquire a new customer than to retain an existing customer. That is why businesses need to put more focus on CRM strategies. Studies indicate that improving customer retention by just 5% can increase profits by nearly a quarter. Furthermore, loyal customers are better for brand reputation and interaction. Return customers are much more likely to refer others, forgive ordering/customer service problems, and try new products.
Fix supplier/vendor relationships
This one is somewhat similar to what we discussed before regarding streamlining operation costs. Improving vendor and supplier relationships are other ways to maximize your profit margins. Building a stronger working relationship through things like Joint Business Planning and investigating alternative supply chain opportunities are all ways that you can optimize business relationships to increase your profits.
Increase sale velocity
In general, you should try to minimize turnaround times for sales. The faster you move from order to delivery, the less the cost per unit is. That extra money goes directly into your profit margins. Take a look at your sales process and see if it can be streamlined by eliminating steps or automating steps.
A business is all about making profits. With these tips, you can increase your profit margins and build a sustainable future for your finances.
About Michael Eisenga
Michael Eisenga is a commercial real estate investor, entrepreneur, and proud father of three boys. His wide range of skills includes commercial real estate investing, property management, assisting living facility operation, leadership, strategic planning, public policy, and community outreach. Mr. Eisenga is most passionate about finding and improving profitable investments. Lately, he has been focusing on fueling development in smaller communities through assisting living facilities.