Talking Cents

Ways to increase profit margins for small business in Sydney

How to increase profit? The “classic” answer is to increase sales but it’s very challenging to do it in a short-term. However, by increasing your profit margins you can make more money with the same amount of customers, physical sales using the same systems, staff and no additional cost is required.

1. What is your gross profit margin?

Know your up to date gross margin and refrain from using estimated inventory figures or historic data. Make use of an inventory system to keep track of your stock, so that you don’t have to do a stock-take all the time. Set a benchmark figure too, what is your figure compare to the industry average?

2. Understand your profit margin.

Having an overall gross profit margin is good. But it would be better if you can find out and analyse the gross profit margin over different product categories, suppliers and customers, etc. That helps you to understand what products or services are loss-making items and have low margins. After you get hold of that information, stop selling them and concentrate on the ones that will earn you more money.

3. Review your prices

Do you have different prices for customers, especially the less price sensitive ones? They might be people who are not paying the bill themselves; instead it could be the government or larger organizations who are paying. Have you increased your prices since your suppliers increased theirs?

4. No price war.

Don’t play the price war with your competitors. Differentiate yourself from them by providing extra value to your customers. Go for the extra mile, you will get the extra “mile” back.

5. Discount?

Maybe no. You need to know how deadly discounts can be. At the margin of 50%, if you discount 10% off your price, you will need a 25% increase in sales to make it up to the same profit level. 6. Suppliers Take advantage of cash discounts given by your suppliers, it is way more better to delaying the payment. Other than that, make use you monitor your suppliers bill too, just in case if they overcharge you for something with wrong prices or something you’ve not receive.