Ways to Improve Your Business’s Profit Margin

5 Proven Strategies to Improve Your Business’s Profit Margins


Every business owner has basically the same goal: to maximize profits. Making a profit is generally considered the ultimate aim of any company, whether it’s a startup or a multinational. When you can balance your income and expenditures and make increased profit margins fundamental to your business’s growth, you are running a successful business. And when you have the necessary funds, you can face most challenges that come your way.

Moreover, your company’s profit margin needs to be analyzed and calculated depending on your business model and industry. Many businesses focus on innovative techniques that boost their sales and increase their revenue.

But simply increasing sales and income might not result in a higher profit margin. Even after the gross profit is calculated, there are many expenses that can be deducted, leaving the owner with a minimal amount in hand.

From introducing discounts to investing in the best debit card machines for business, here are some tips to help you improve your profit margins.

How to Increase Your Business’s Profit Margins

Let’s take a look at some strategies for retailers to help you scale your business and improve your profit margins.

1. Reduce the Direct Costs of Goods

When looking to increase your company’s gross margins, consider increasing your prices and try to reduce how much you are currently paying for the goods you sell. This may make it necessary to negotiate with your suppliers to get better deals. Hence, you should ask your distributors to lower the prices. For instance, can you buy more items in bulk? This is one way to lower your business expenses and is more likely if you have proven yourself a trustworthy customer.

Ultimately, you may have to spend some time doing research and look for alternative suppliers if your existing ones aren’t accommodating. By finding ways to reduce how much you are paying for raw materials and goods, you will be able to increase your profit margin.

2. Rethink Your Payment Processing

Many business owners don’t think it’s worth investing in the best credit card and debit card machines for their business, fearing high processing fees. However, this isn’t a realistic attitude in the modern business world.

Payment processing services are necessary for businesses of all sizes as they can help substantially increase profit margins. This is because most customers carry either a credit or debit card more than cash, especially in the wake of the pandemic.

Many individuals don’t even bother getting cheques for their checking accounts. Since using debit and credit cards is much more convenient, safer, and faster, they are the preferred way for most of us to make payments. Indeed, many people prefer buying products and services from businesses that accept cards. Therefore, businesses should consider investing in electronic payment processing devices such as credit card and debit card machines. These allow you to take orders over the phone and online and come in handy to increase your profit margin in today’s fast-paced and tech-savvy world.

Plus, credit card processing fees aren’t as high as they used to be, so have become an affordable option. While a small fee may be charged, it won’t be much compared to the amount of money you will make in the long run.

3. Avoid Discounts and Markdowns

If you own a retail business, it’s best to avoid offering discounts and marking down prices as this may result in your profits dropping. A good way to avoid markdowns is to have a good handle on your inventory. You should always be aware of your current stock and have a good idea about what is selling and what isn’t. This will help you remain on top of your game sales-wise and avoid having to mark down prices to get rid of a product.

4. Boost Staff Productivity

According to a Harvard Business Review article, most companies tend to lose more than 20% of their staff’s productive capacity to what is often referred to as ‘organizational drag’. This happens when a company’s processes and structures tend to consume valuable time and prevent employees from getting important things done.

This is why businesses should evaluate their structure and processes, as doing so can boost staff productivity. Over the long run, it will also ensure that your employees aren’t slowed down. But companies must design procedures that can be easily implemented by the staff, even when you are not around. Over time, when they are productive, you will see a positive change in business operations. This will go a long way towards maximizing your profits as important tasks will be handled.

5. Recognize and Avoid Waste

Businesses must recognize areas where more raw materials might be available than are needed and eliminate processes that take too much time. By looking for specific areas that result in wastage and eliminating them, you save money, which will add to your bottom line.

Indeed, there are practices to watch out for that are probably costing you money. While the concepts mentioned below might primarily apply to manufacturers, retail business owners can also apply them in their operations. Some of the most common types of waste those businesses deal with are:

  • Defective products that were the result of poor handling or quality control;
  • Over-production as a result of making or ordering more merchandise than is necessary;
  • Deadstock or surplus items that are just sitting in the backroom;
  • Unnecessarily moving products, such as inefficiently moving them from one store to another, or shipping items unnecessarily;
  • Waiting as a result of absences, unplanned downtime, and imbalanced workloads among staff;
  • Having to repair, return, or process items that aren’t up to standard;
  • Companies not utilizing the full extent of their staff’s skills and the potential of the team as a whole. Also, when employees are made to spend time on the wrong tasks.

By going through these components, you will be able to find which ones are applicable to your business. Try to reduce and eliminate these to see a positive change in your profit margins.

It isn’t necessary to make drastic changes for you to improve your company’s bottom line. Hopefully, this post has helped you identify areas that need to be worked on within your business to get good results. When handled in a planned manner, your business will see better profit margins in no time. But it does require you to invest it in areas where it is required.