Profit margins are critical to your business viability. You can have a fast-growing business, but all your growth efforts will be for nothing without acceptable profit margins. It is critically important that you know not only your overall margins but also know them by product or service type.
Why is this so important? Because you want to be sure you are promoting and selling your highest margin products and services whenever you can. These products and services are the game-changers for you. They provide the resources both to cover your costs and to invest in your business.
There are two primary ways to improve the profit margins in your business–reduce your expenses or raise your prices. Most cringe at the thought of raising prices, especially in today’s fragile market. However, if you have done the hard work of creating a unique selling proposition and have truly differentiated yourself from your competition, then raising your prices might be an option. Fear of the unknown mainly keeps business owners from taking the bold step to increase their margins through a price increase. But studies have shown that your loyal customers are not doing business with you because of price alone. If you treat them like they are special and find ways to deliver more than they expect of you, most people understand and appreciate your pricing rationale and remain strong, loyal customers.
Cutting costs is often easier but not necessarily the right move to make when trying to grow your company. Eliminating waste is always good, but often expense cutting comes in the form of eliminating services, reducing staff, and degrading your ability to deliver on your promise. Be careful not to impact your operational efficiency and speed of delivery when reducing your expenses. The last thing you want to do is become a me, too business simply because of your efforts to cut costs.
Now, with that caution in mind, you can always find ways to gain efficiency and reduce the effective cost of your system. Toyota and other large manufacturing companies, particularly those based in Japan, are recognized masters at eliminating costs through waste reduction, efficiency gains, reduced work in process inventories, and unnecessary movement of people and supplies. If they can do it, so can you. When was the last time you critically evaluated your business operations, focusing on gaining efficiencies and reducing unnecessary steps in your process? This is a powerful way to reduce your costs while improving your productivity and customer satisfaction at the same time. If you are not familiar with the tools and techniques for doing this, drop me a note, and I can direct you to them.
The challenge is first to know your margins and then be purposeful about improving them regularly and steadily. The trend for your margins should always be favorable. Work hard on this last segment of the Business Chassis and position yourself for phenomenal growth and incredible profits. Not a bad outcome for the effort involved!
"Only Action gets you closer to your dreams - do something today that your future self will thank you for."