Bookkeeping Affairs, LLC

5 Ways to Increase Your Business Profit Margin

Cynthia Franklin   |    October 15, 2021

Profit Margin is the measure of how efficiently your sales produce profit. 

It is calculated as (Sales – Expenses)/Sales. In other words, profit margin is the percentage of your sales that are left over at the end of the day after all expenses have been paid. 

Improving profitability is as simple as increasing sales and decreasing expenses. Easy in theory – but difficult to implement in the day to day activities of your business. 

Anytime you buy something for your business, it comes straight out of your bottom line… UNLESS that expense will generate more sales to cover both the expense AND additional profit. 

Here are 10 ways to improve the profitability of your business without breaking a sweat. 

#1 – Eliminate Unnecessary Software Subscriptions

Log into to your bank or credit card account and scan your statements for recurring subscriptions. Ask yourself these questions:

  • Am I using this app or product regularly? 
  • Is there a cheaper alternative? 
  • Is there another app I already use with overlapping functionality?
  • Does this subscription help my business generate revenue?
  • If not, does it save me a significant amount of time in operating my business?

 

If the app or software does not pass the above test, it may be time to cancel your subscriptions. 

Many banks and credit cards will also send you an alert if your card is being used for a recurring subscription, so you can cancel those free trials ahead of time. 

Sometimes, a quick scan of your statements will reveal subscriptions and purchases that you may not have been aware of! This is a great and simple way to ensure profitability. 

#2 – Increase Your Value Proposition

Many business coaches will advise you to increase prices. However, this is only part of the equation. The price that you can command is dependent on two factors: 

  • The value that you can clearly communicate to your prospects
  • The value that you can deliver
 
By increasing the value that you can both communicate and deliver – you will be able to charge premium prices. The more you can collect per customer – the higher your profit margins will be. This is because it costs money to recruit each customer to your company.
 
Some examples of increasing your value proposition may look like:
  • Increasing the real or perceived quality of your offer 
  • Package your offer with other valuable products or services that your customers need
  • Explain the improved customer experience that you will be able to provide (such as an extended warranty or 1:1 services)
  • Provide free gifts or resources for premium customers 
 
By increasing your value to the customer, your prices can increase – and your profit margins will increase as a result. 

#3 – Encourage Repeat Customers

It costs money to convince prospects to become regular customers, so it makes sense to encourage existing customers to buy again.

How to encourage repeat purchases from existing customers:

  • Package your offer into a monthly recurring subscription
  • Create loyalty programs 
  • Upsell with a separate offer 
  • Prioritize customer service to ensure that customers will return

#4 – Avoid Markdowns

If profit margins are a result of sales minus expenses, it follows that discounting your products or services will lower your profit margins. When possible, avoid discounting your products or services. Improve visibility of your inventory or work with a brand strategist to clearly communicate the value of your offer. 

Many business owners tend to underprice their offers and sell themselves short. Remember, your value is what you are able to communicate and deliver – not necessarily what you would personally pay for those products or services. 

#5 – Work with An Experienced, Professional Bookkeeper

When you hire the right bookkeeper for your business, it will SAVE you money in the long run. 

Many business owners try to DIY their bookkeeping, and end up paying more at tax time to have someone come in and clean it up. Plus, their books are inaccurate throughout the year, which clouds your decision making ability. without real-time data to make decisions, you will be unable to improve or quantify your bottom line. 

By hiring an experienced, professional bookkeeper, you can ensure that you’ll maximize your deductions and improve your bottom line, which will help you grow and scale your business to new heights. 

Book a free discovery call today to learn more.